How VCs can distinguish the difference between opportunity and hype | TechCrunch Disrupt 2024

Consumer vs. Non-Consumer Hype

• The concept of hype is universal and can be seen in various fields, including entertainment, sports, and tech, with individuals often falling for it at some point in their lives (12s).
• Examples of falling for hype include buying into the Beanie Baby craze, purchasing products advertised on Instagram, and owning light-up shoes that ultimately fell apart (28s).
• Having experienced hype firsthand can provide valuable insight, especially for those working in consumer investing, as it allows them to recognize patterns and make more informed decisions (1m29s).
• Working in consumer investing involves being aware of trends and hype, but also focusing on unhyped categories, such as consumer products that address everyday problems (1m45s).
• Founders of consumer startups can benefit from understanding the difference between hype and genuine interest in their products, and navigating this distinction is crucial for success (1m49s).
• A company's marketing strategy can either focus on the practical benefits of a product or emphasize its potential to make a positive impact on the environment, as seen in the case of Mill, a product that reduces food waste (2m9s).
• When marketing a product, it's essential to start by addressing the consumer's problem and then highlighting the broader benefits, such as reducing waste and helping the environment (2m36s).
• Social media can play a significant role in building a community around a product and creating advocacy, as people are more likely to trust recommendations from others than from the company itself (3m29s).
• Building a community and encouraging user-generated content can be more effective than paid advertising, especially for a startup with a large social media following, such as Mill's 880,000 Instagram followers (3m23s).
• Hype can be defined as a phenomenon where people become excessively enthusiastic about a particular product, trend, or idea, often driven by social media and the desire to be part of a larger movement (4m0s).
• Media headlines, new technologies, and social media create hype for consumer products, with examples including the Timothy Shalam Lake contest and advertisements for Great Jones products (4m18s).
• On the non-consumer side, hype is driven by the possibility of what could be, such as AI and self-driving cars, with people getting excited about potential future developments and pricing everything to perfection (4m48s).

The Hype Around AI

• The excitement around new technologies can lead to questions about whether they need to exist, such as the possibility of fully autonomous vehicles (5m30s).
• AI has been in tech for a long time but has become more accessible and exciting with the development of general AI and consumer-facing applications like ChatGPT (5m57s).
• The hype around AI is driven by people's ability to touch and experience it, leading to a sense of excitement and possibility, with many believing that all the possibilities of AI will happen right now (6m16s).
• However, industry experts see AI as a progression, with many leaps still to be made, and recognize that while there have been many efficiencies gained from the internet and other technologies, there is still much room for improvement (6m30s).
• The excitement around AI is also driven by the potential for increased efficiency and productivity, with people looking for ways to make their day-to-day tasks easier and more efficient (7m3s).
• The current technological advancements are seen as the next revolution, following the Industrial Revolution and the Internet Revolution, with the potential to make people much more efficient (7m12s).
• Fear is also a part of hype, as seen in the cases of crypto and AI, where the excitement and fear surrounding these technologies can be overhyped (7m21s).
• Anti-hype can build hype, especially when a consumer product uses AI without a clear user-centered design, leading to a lack of user adoption and eventual fizzling out (7m40s).
• The anti-hype can also come from people being skeptical of a product's usefulness in their daily lives, or when too many people invest in a hyped technology, leading to a backlash (8m20s).

Navigating Hype in Investments

• Some investors have a "techno-optimism" approach, believing that investing in companies will eventually lead to solutions for major problems like homelessness and climate change, but this approach has its limitations (10m16s).
• Venture capital can still play a role in solving long-term problems, such as fusion and incremental innovations, but it requires a different approach and type of investor (10m32s).
• AI is not a silver bullet for solving climate change, and instead, hundreds of companies focused on hardware and decarbonizing the economy are needed to make a significant impact (9m38s).
• Founders can find opportunities in working on specific, unloved problems, and owning a unique solution, rather than being one of many trying to raise capital for the same problem (9m56s).
• The use of AI in consumer products should be justified, and investors should be cautious of companies that attach AI to their product without a clear reason or understanding of what they're building (8m59s).
• A balance is needed between companies aiming for significant innovations, like SpaceX, and those making incremental advancements, like Salesforce. (10m46s)
• Hype is not inherently negative for companies, but relying on it for survival indicates a lack of substantial progress or innovation. Companies should leverage hype to maximize valuation and attention but not depend on it entirely. (10m59s)

Leveraging Hype Strategically

• Natalie, who transitioned from journalism to investing, highlights the importance of companies earning their hype. As a journalist, a company must be newsworthy and deserving of attention, while as an investor, the focus is on how companies utilize their hype to grow and retain customers. (11m43s)
• Hype should be used strategically as a tool through media, funding, or social media. Founders need to have a comprehensive plan to capitalize on hype moments, such as ensuring their website and communication channels are ready to engage and retain customers. (12m58s)
• An example from the fintech sector illustrates how companies can use hype related to trends like faster payments or crypto features to engage interested audiences. However, relying solely on hype is risky and can lead to challenges if the company lacks a solid foundation. (13m38s)
• Building a business that relies on hype cycles to succeed is not a winning strategy, as it's unpredictable and can lead to being on the negative side of the hype (14m18s).
• To succeed, businesses need to compound and focus on the main goals, but can still leverage hype to get attention, such as using social media platforms like TikTok and Forbes articles (14m34s).
• A previous company, Thing Testing, built a TikTok account with 75k followers and analyzed viral videos to understand what resonated with their audience and how to reverse-engineer the hype (14m49s).
• The company found that people on social media can tell if something is inauthentic, but sometimes things go viral and people just love them, and it's an interesting science to figure out what makes people tick on platforms like TikTok (15m40s).
• One of the most viral videos was a burrito holder, which showed that novelty and interesting form factors can capture attention and generate hype or brand awareness (16m3s).
• The key takeaway is to focus on solving a problem and not talking about the hype, as consumers want to know what problem is being solved and how it can be solved for them (17m0s).
• Creating hype can be more powerful than being swayed by external hype, and it's essential to wield hype efficiently to build momentum for a business (17m27s).
• Releasing data and publishing results can create hype, as seen in the case of Mill, where municipalities got excited about the company's data on changes in behavior (18m6s).
• Partnering with cities to put Mills in households at no additional cost is an example of creating momentum and hype through strategic partnerships (18m30s).
• The most strategic hype for a business is customer love, where customers tell others about the product and bring them in, creating organic growth opportunities (18m50s).
• Focusing on creating hype within a specific community, such as the running community, can be powerful for brands like Bandit Running (19m6s).
• Sustainable hype is essential, and it needs to come from the customer base, rather than just media hype (19m24s).
• Certain consumer brands get hype because of how they show up in people's lives, such as Graza olive oil or Bagu, which become part of their daily experience (19m44s).
• People will love and continue to buy from a brand if they love the product experience and feel affiliated with it (20m19s).
• Providing a thoughtful experience is key to creating hype that is dependent on the product itself, rather than external factors (20m36s).
• The best companies compound, and hype should be seen as a long-term strategy, rather than a short-term blip (20m50s).
• Companies should leverage hype but focus on creating a compounding effect by identifying inflection points and ensuring consistent product engagement to avoid being short-lived. (21m11s)

Identifying Mission-Driven Founders

• When evaluating founders for investment, it is important to look for those who are mission-driven, have a clear North Star, and possess a unique insight that could significantly change the world if correct. (21m51s)
• Mission-driven founders should be obsessed with solving a problem and have a long-term vision, focusing on a 20-year horizon rather than being swayed by current trends or economic conditions. (22m37s)
• Founders should not be deterred by external factors like a challenging VC environment or high inflation, as they are building for the long term. (22m51s)
• It is crucial to distinguish between storytelling and genuine passion for a problem, as many have become adept storytellers. Founders should demonstrate a deep understanding and obsession with their unique insight. (23m13s)
• Historical examples, such as Google, illustrate the importance of having a unique insight that differentiates a company from others, even in a crowded market, by focusing on what truly matters to users. (23m47s)
• The best investors think about a company's mission and want to be with them for decades, rather than just being a flash in the pan and moving on to the next thing (24m34s).
• As a founder, it's crucial to work on a problem that matters and is economically exciting, as it attracts the best talent and allows for large-scale thinking (24m50s).
• Working on hard problems that have a planetary benefit can be a major draw for top engineers and talent (25m17s).
• When evaluating a pitch, it's essential to look beyond the hype and focus on the actual problem being solved, rather than just the technology being used (25m22s).
• AI is a tool, not the primary focus, and founders should lead with the problem they're trying to solve, rather than just highlighting their use of AI (26m6s).
• Not leading with AI and instead focusing on the actual problem and how AI is being used to solve it can be a sign of a more exciting and sustainable solution (26m31s).

Hyped vs. Underhyped Areas

• Within the AI hype cycle, we're currently in a phase where there's still excitement, but also some skepticism, and investors are looking for differentiated solutions with unique data sets and customer acquisition strategies (27m9s).
• The metaverse and autonomous vehicles are both considered hyped, but the metaverse might be more hyped currently, while autonomous vehicles have been discussed for over a decade, making them less hyped over time (28m2s).
• Digital health, especially women's digital health, is an area that deserves more hype, particularly around AI applications for consumer health, as there are many pain points that need to be addressed (29m18s).
• Bio is considered underhyped, as the current process of spending $2 billion and 10 years to develop drugs is not efficient and will not scale for the growing population, making it an area with significant economic opportunity (29m50s).
• AI has the potential to make a significant impact in various areas, including tracking breast cancer early, and is an exciting technology with many applications (30m29s).
• Decarbonization, resilience, and climate change are areas that will impact every industry, and there will be significant economic opportunities in the transition to a more sustainable future (30m40s).

Capitalizing on Competitor Hype

• When a competitor is getting a lot of hype, a startup can capitalize on it by using Google AdWords to put their company next to the competitor's when people are searching, and by building a page that shows their product against the competitor's (31m36s).
• The best founders know their competition and use it to make their product better, focusing on building a product that people love, as this is what compounds over time (31m57s).
• A startup can use the hype to their advantage by creating a page that compares their product to the competitor's, and by using paid advertising to lead to organic growth (32m16s).
• Journalists have a duty to cover not just the company getting the hype, but also the competition, and startups can use this to their advantage by proving why their product is as good or better than the competitor's (32m32s).
• If a competitor, such as Google, releases a product that generates a lot of hype, a startup should use the hype to their advantage, but not depend on it, and focus on their overall strategy and long-term success (33m45s).
• A startup should consider fundraising during a time of hype, but only if their overall strategy makes sense, and they can answer questions about how they will compete with the hyped product (34m15s).
• A startup should always start with a clear understanding of why they will be needed, even if the competitor is spending a lot of money on their product, and be able to answer questions about how they will beat the competitor (34m25s).
• Startups can make significant progress quickly, even with limited resources, as a small team of 10 people can achieve a lot by working together and focusing on solving a problem (35m10s).
• It's essential to be in love with the problem being solved, rather than just the solution, and to have a product that can beat existing products without relying solely on raising more money (35m21s).

Sustainable Business Models

• The grocery delivery companies that emerged during the COVID-19 pandemic are an example of how hype can lead to oversaturation, with many companies raising large amounts of money but ultimately failing to sustain themselves (35m34s).
• Having a fundamental business that works is crucial, and relying solely on AI or large amounts of money is not a sustainable competitive edge (36m0s).
• A breakthrough that solves a problem in a new way, without relying on large amounts of money or resources, is more likely to be successful (36m12s).
• The relationship between hype, trust, and fear of missing out is complex, and understanding where a company is in the hype cycle is crucial for success (36m36s).
• The mobile wave that occurred with the emergence of the iPhone is an example of how new technologies can enable new industries and companies, and that it's not always the first companies to market that end up being the biggest winners (36m45s).
• New companies can still emerge and succeed in a space even if it's not in the early stages, as long as they can identify new problems to solve and new edges to gain (37m10s).
• The third inning of a technology wave is often where the most significant opportunities emerge, as the tooling and technologies become more established and it becomes clearer what problems can be solved (37m38s).
• To distinguish between opportunity and hype, it's essential to focus on solving the harder problems that everyone knows exist, rather than just addressing the obvious ones (37m49s).
• When hype bursts, it's crucial for founders to surround themselves with people who are invested in the long-term vision and are not swayed by superficial trends, but rather by the deeper elements of the technology or business thesis (39m6s).
• Founders and investors should prioritize solving significant problems and delivering value to consumers, rather than being driven by hype cycles (39m4s).
• It's better to invest ahead of the curve rather than at the peak, as this allows for a more sustainable approach and avoids the risks associated with hype-driven investments (39m50s).
• Going against the curve can also be beneficial, as it reveals who is truly passionate and committed to the cause, and who is just following the trend (40m0s).
• The key to success lies in obsessing over solving a big problem and being prepared for the long haul, rather than being driven by short-term hype (39m33s).
• Founders and investors should be able to predict the future and look forward to solving problems, rather than changing their focus based on the topic of the day (39m40s).