
The Impact of the Technology Cycle on Venture Funding
The technology cycle refers to technology creation, adoption, maturity, and replacement. The technology cycle, also known as the innovation cycle, refers to the phases a new technology goes through, from inception to widespread adoption and eventual obsolescence. It typically comprises stages such as innovation, syndication, diffusion, and substitution or decline.
- Innovation. This is when a new technology is developed. During this stage, it’s used mainly by innovators or early adopters excited about the potential of new technology. High costs and high risks characterize this stage, but also high potential rewards.
- Syndication. In this stage, the technology becomes more standardized and begins to be used by the early majority of users. The technology is more widely available, but there’s still room for significant growth.
- Diffusion. The technology is now used by the late majority. It’s widely accepted and used, and there are fewer growth opportunities.
- Substitution or Decline. The technology begins to be replaced by newer technologies. It’s used only by laggards, and there are limited growth opportunities.
Savvy VCs think of the combined impact of the technology cycle and disruption in the market that technology is catalyzing
High-Tech Startups can be pushed won the value chain and become the living dead very quickly.
Impact of Technology Cycles on Venture Funds
Now, for venture capitalists, the technology cycle can also impact their ability to raise and invest funds. As much as VCs feel the hype and FOMO investing in startups, LPs feel the same. They don’t want to miss investing in hot technology, as well as they don’t want to appear as the dump investors who are investing in a losing section. Therefore, you need to be aware that the technology cycle can affect your fund cycle in these ways.
As much as VCs feel the hype and FOMO investing in startups, LPs feel the same.
Timing Great Investments with Technology Cycle
Investments in emerging technologies can offer high returns if the technology becomes mainstream, but they also carry significant risks if the technology fails to gain widespread acceptance. As such, VCs need to ask the right questions when considering investments in different stages of the technology cycle:
Closing Remarks
To navigate the technology cycle, stay informed about technological trends and assess where a technology is in its cycle today and where it’s likely to be. Adept at risk management, balancing the high-reward opportunities in the early stages of the cycle with the lower-risk ones in the later stages.
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