“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
-Warren Buffett
That is one of the most important and about investing principles I have come across throughout they years. It is one of the principles that Buffett and other prominent investors have lived and profited by for decades. But in the context of the venture capital world it doesn't quite work like that, here's why...
One of the defining characteristics of technology is that it is often times a winner-take-all game. As a result it becomes very difficult to be "scared when others are greedy" because you risk letting on of your portfolio companies lose ground to their competitor because they are willing to continually up their burn rate. That slow erosion of market share is difficult to regain in a rapidly evolving market, and you are left at a permanent disadvantage. You competition might gain new advantages from true economies of scale, network effects, public perception, easier access to capital, and a myriad of other conveniences.
I suppose the questions VC's must then ask themselves is how many of their portfolio companies are they willing to take those risks for? How many of their investments are they willing to sink millions of dollars into knowing that while burn rates and valuations are sky high their companies have not yet created sustainable business models?