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September 26, 2012

I’m always amazed at how much short term decisions are driven by lagging indicators.

For instance, when Yammer was acquired by Microsoft, the tech market saw this as a major validation of “enterprise 2.0″. In the months leading up to the acquisition (and the months prior) I’ve seen a surge in companies and fundings in and around that theme.

But the acquisition of Yammer is such a lagging indicator, especially for those in the game of funding and starting early stage companies.  Yammer’s march to a successful exit was in relative terms, extremely fast.  Yet, it took 4 years. Most companies take much much longer.  Do we have any idea what things will look like in 4 years?  Why is the sale of Yammer an indicator of anything?

Likewise, I’ve seen a pullback from social services and media-based models in light of Facebook’s disappointing performance post IPO.  Same goes with gaming due to Zynga’s weak run. But again, both examples are major lagging indicators.

I saw an article the other day that talked about how Zillow and Trulia’s strong public market performance is ushering a wave of new real-estate startups. Huh?

I do think that public market performance and acquisitions are validators.  But they come too late to draw conclusions about what sectors are or are not attractive.  Similarly, companies that struggle in the public markets are an indicator of things that we all should have known, but have conveniently forgotten in a period of irrational exuberance.

As I’ve written before, there are no shortcuts, it’s all hard work.  But there are always opportunities in both hot and cold areas, regardless of what the lagging indicators say.

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David Biesel




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