The Shiny Object Syndrome: How VCs Chase Trends Over Innovation
TL;DR
Despite claiming to back bold innovation, most VCs chase trends, not breakthroughs. They follow media hype, invest where peer validation exists, and avoid truly novel tech unless it's already fashionable. This herd mentality sidelines foundational innovations like quantum computing or materials science, favouring yet another AI chatbot or crypto clone. Ironically, the biggest returns often come from backing unfashionable ideas early. Until the VC industry acknowledges its obsession with the shiny and fixes its broken incentives, real innovation will keep losing out to whatever’s trending on Twitter.
The venture capital industry has a dirty secret: for all their talk about backing revolutionary technology and visionary entrepreneurs, many VCs are surprisingly predictable followers of whatever happens to be trending this quarter.
it’s systematic trend-following dressed up as innovation investing.
The Herd Mentality in Action
Walk into any VC pitch meeting today and you’ll probably hear the same buzzwords that dominated last week’s tech headlines. When crypto was hot, suddenly every firm had a “blockchain thesis.” When OpenAI launched ChatGPT, AI startups that had struggled for years found themselves fielding multiple term sheets overnight. When Ozempic grabbed headlines, longevity and biotech firms became the darlings of venture capital Twitter.
Research from Cambridge Associates shows that the most successful vintage years for VC funds often came from investments made during periods when certain sectors were out of favour, not when they were receiving maximum hype and inflated valuations.
This isn’t coincidence, it’s systematic trend-following dressed up as innovation investing.
Consider the data: PitchBook reports that AI funding surged from $36 billion in 2020 to over $200 billion in 2023. Did AI technology suddenly become five times more innovative in three years, or did VCs simply “discover” what had been quietly developing in research labs for decades? The answer reveals an uncomfortable truth about how venture capital really works.
Why VCs Chase Shiny Objects
The incentive structure of venture capital creates natural pressure toward herd behaviour. VCs must raise funds from limited partners (LPs) who expect to see their capital deployed in the “next big thing.” A partner who misses the AI wave looks foolish to LPs, even if they were investing in genuinely novel but less fashionable technologies.
“Nobody gets fired for investing in AI right now. But if you put money into some obscure materials science company and it takes eight years to pay off, your LPs start asking uncomfortable questions.”
This creates a self-reinforcing cycle. Media coverage amplifies certain technologies, making them seem like safer bets. Risk-averse partners gravitate toward areas where they can point to peer validation. Soon, capital floods into whatever sector happens to be generating headlines, regardless of whether the underlying innovation has actually accelerated.
The Innovation Casualties
The most insidious effect of shiny object syndrome isn’t just misallocated capital, it’s the genuinely innovative companies that get overlooked because they’re working on problems that haven’t yet captured Silicon Valley’s collective imagination.
When the innovation economy starts rewarding perfect timing over genuine breakthrough thinking, something fundamental has gone wrong.
Take quantum computing. While VCs were pouring billions into crypto projects in 2021–2022, quantum computing firms struggled to raise follow-on rounds, despite hitting significant technical milestones. The tech was deemed “too early” and “too complex” for the attention economy of venture capital.
the genuinely innovative companies that get overlooked because they’re working on problems that haven’t yet captured Silicon Valley’s collective imagination
Similarly, startups working on unglamorous but critical innovations, better battery chemistry, novel manufacturing processes, improvements to basic infrastructure, or better cybersecurity, were /are competing for scraps, while the hundredth AI-powered customer service chatbot secures a Series A.
The Performance Paradox
Ironically, this trend-chasing behaviour may actually harm returns. Research from Cambridge Associates shows that the most successful vintage years for VC funds often came from investments made during periods when certain sectors were out of favour, not when they were receiving maximum hype and inflated valuations.
The firms that delivered legendary returns, early bets on Google, Amazon, or Tesla, often backed technologies that seemed risky or premature at the time. They weren’t following trends; they were setting them.
The Defence of Necessity
To be fair, VCs operate under legitimate constraints that can make trend-following appear rational. They have limited time to evaluate hundreds of potential investments, making pattern recognition and sector expertise valuable shortcuts. If autonomous vehicles suddenly appear viable due to technical breakthroughs, it makes sense that multiple firms might simultaneously increase activity in that space.
Moreover, some apparent trend-following reflects genuine technological convergence. The AI boom didn’t happen in a vacuum, it’s the result of real advances in computing power, data availability, and algorithmic sophistication that multiple investors recognised at once.
“We’re not chasing shiny objects,” argues Sarah Chen, partner at a prominent early-stage fund. “We’re responding to fundamental shifts in what’s technically feasible. Sometimes those shifts happen to coincide with media attention.”
The Rare Breed of True Innovation Seekers
A small subset of VCs consistently buck this trend-following pattern. Firms like Founders Fund, Breakthrough Energy Ventures, and certain partners at larger firms have built reputations for backing technologies that seem impossibly early or commercially uncertain by conventional standards.
underfunds foundational technologies that may take longer to commercialise but promise more lasting impact
These investors often share certain characteristics: deep technical backgrounds, longer investment horizons, and fund structures that allow them to take bigger, longer-term risks. They’re also more willing to accept lower hit rates in exchange for occasional massive wins that reshape entire sectors.
The Cost of Following Fashion
The venture capital industry’s bias toward the shiny and fashionable comes with real costs. It creates boom-bust cycles that burn capital and talent. It underfunds foundational technologies that may take longer to commercialise but promise more lasting impact. Most damaging of all, it signals to entrepreneurs that innovation is less important than timing your pitch to match the current hype cycle.
As one veteran entrepreneur put it: “I’ve learned to save my best ideas for when they become fashionable, not when they’re actually ready to change the world.”
That might be the most damning indictment of all. When the innovation economy starts rewarding perfect timing over genuine breakthrough thinking, something fundamental has gone wrong.
The question isn’t whether VCs will continue chasing shiny objects, market incentives make that inevitable. The question is whether the industry can acknowledge this bias and create better mechanisms to identify and support transformative technologies that haven’t yet started to glitter.