It seems like VC money encourages founders to start companies based on themes, like AI, rather than on something that iterates on existing technology or what the founder is actually interested in building. How seriously should I take this? Should I start an AI company if that’s where the investment money is going?

I once was in a board meeting discussing our plans for future product development. An operator-turned-investor asked how many of the feature requests came from customers, how many from field, and how many from us. The overlap of the first two was nearly perfect, which was awesome: we were building exactly what would both close and retain business. We had nothing coming from our own brains, however. The company was lacking a vision for the next five years beyond the business we were already in.

Venture capital’s problem is often the complete inverse. It loves the next big thing because the next big thing is what’s going to give it the outsized return, not to mention the accolades that come with being a “visionary” for so clearly seeing the future. (Cue vomit.)

That being said, the next big thing sometimes really is the next big thing. There are breakout AI companies in the midst of the four dozen LLM-powered copilot startups. For every hundred crypto carcasses, there is a Coinbase. The money is being invested for good reasons, even if the ones VCs pick aren’t necessarily the winners.

A few years ago, I had the privilege of sitting in a fund review meeting with one of my investors. They went through each fund, dissecting portco (portfolio company) performance, how much capital was left to deploy, follow-on capital available, et cetera. The team arrived at the latest fund, of which more than 50 percent had been deployed into crypto/web3 companies. One partner expressed concern for this strategy: they were ignoring their bread-and-butter industries—hardware and enterprise B2B SaaS (business-to-business software as a service)—in favor of the latest whimsy. The conversation devolved into an argument between the more seasoned partners and the newer one who was responsible for the crypto focus. The team agreed that they’d commit the rest of the fund investments to what had traditionally paid the bills. I don’t know what that latest fund’s performance is today, but it can’t have been as good as others in which investments based on the current fad were well-balanced with what normally would deliver returns.

All of this is to say: 

First, take venture capital only if it aligns with what you absolutely, positively want your company to do and be, which should be to move as quickly as possible to win a market. Never, ever, ever take this type of capital because it seems like it’s the only way to fund the business. It’s a path there’s no turning back from.

Second, if you’re not able to raise money, odds are it has nothing to do with the latest fad. Instead, it’s likely that your story isn’t hitting, that the vision is off, that the investors don’t believe in you. That something has to do with you, not whatever fancy pants excuse they’re providing. Ask every question of yourself first before pivoting to the craze. 

Third, ensure that whatever you’re doing either has a proven, durable moat—like a new type of data storage compression 0—or a path to one. That’s the only way to win, even if you’re in the middle of the craze.

Finally, do what you love. It’s a tired trope, but a true one. If you love the current trend, fantastic! So long as you do your best to make it into something that actually makes money—because, eventually, every company has to make money. And if you don’t love it, remember that fads get real old real fast… Crimping irons, anyone?