Too Much Money Chasing Too Few Deals?

One often hears that there’s too much VC/PE money chasing too few deals. The people who say this are usually VC/PE investors, particularly those who want to invest in sectors that are “hot”. When a particular sector starts to attract a lot of attention (e.g. cleantech, BPO, etc.), investors tend to try to outbid each other to get deals done.

Entrepreneurs in those sectors also know when too much money is vying for their attention, because investors are literally queuing up to meet them.  However, entrepreneurs in other sectors are often baffled to hear that too much money is chasing too few deals, because their sectors get less attention.

As a result, investors who take a contrarian view can benefit by buying into solid companies at prices that reflect the neglect of investors. This requires a degree of nimbleness, because as soon as a sector is perceived as attractive, it’s time to move on.

What about the investors who only focus on “attractive sectors”?  They can truthfully state that they were not alone, and that the sectors did not live up to their promise.

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