If Everybody Likes the Idea, It Is Too Late

“Whenever you find yourself on the side of the majority, it is time to pause and reflect.”

Mark Twain

Investing is an art, a science, and perhaps most importantly, a game of anticipation. The allure of “popular” investments is undeniable. They are tried, tested, and often deliver predictable results. But, are they always the best choice for an investor who is looking to maximize returns and impact? Not necessarily.

Let’s start by acknowledging that the investment world is prone to trends. When a particular sector or type of technology is “hot,” there can be a rush of investors looking to get in on the action, leading to inflated valuations and a potential overlook of fundamental flaws. In science-driven investing, staying independent, doing your due diligence, and not getting swayed by the herd is essential.

When everyone is rushing toward a particular field or technology, chances are its peak potential has been recognized, and it may no longer offer the best value or the most significant impact. When I’m thinking about investing in a company, I test its potential. I do this by explaining the investment to my team and to people outside our fund. This helps me see if the investment story holds up and how people react to it.

Here’s my rule: If everyone says it’s a great idea, I don’t invest. It is already too late. This might sound strange, but it works for me. If everybody understands it, it is not really leading edge and I am already too late.

Let’s go a bit deeper. Predicting the past is easy; it’s a mere exercise in pattern recognition. But the future does not necessarily conform to the patterns of the past. You cannot predict the future by merely extrapolating the trends of today. The true opportunity lies in discerning the trends of tomorrow, in seeing what others cannot see, in daring to venture where others fear to tread.

Hence, the path to success in the world of leading-edge investments involves embracing the discomfort of uncertainty, courting controversy, and being willing to stand apart from the crowd. It is about having the courage to bet on the unconventional, the unproven, the unpopular. It’s about being bold enough to embrace the technologies that still don’t work today, but everyone will love tomorrow.

A sense of discomfort also is often an indicator that we are truly on the precipice of change. When evaluating potential investments, if I feel too comfortable, it typically suggests that the idea is not at the leading edge of its respective field. Remember, in the realm of groundbreaking innovation, comfort may suggest familiarity, which often means that the idea has already permeated the industry. In such a case, we might be arriving late to the party, and therefore, the potential for exceptional returns may be diminished.

The essence of leading-edge investment lies in venturing into the unexplored, in embracing the uncertainty of the unknown. Therefore, I use my comfort level as a proxy to gauge the potential of an investment opportunity. If an idea makes me feel uneasy, it’s usually a good sign that we are dealing with something truly transformative.

Understanding Disruption and Its Value

Disruption is the game-changer. It’s the introduction of a new technology, a novel approach, or a revolutionary idea that challenges and changes the status quo. Disruptive innovations have the potential to redefine the boundaries of science, medicine, and technology, leading to advancements that can transform lives and industries. They also hold the potential for substantial returns on investment, especially when recognized and capitalized on early.

The biotech landscape, for example, is dotted with “me-too” ventures — companies that follow in the footsteps of successful businesses, reproducing similar technologies or business models.

While these companies may seem like safe bets, they often lack the disruptive potential that can lead to significant returns, especially if you are investing at an early stage because there are still many years to get to the market. By the time a “me-too” company has made its mark, the truly disruptive opportunities have often moved elsewhere.

Recognizing and investing in disruptive potential early can yield exponential returns. That is what we call “the early bird advantage.” It requires keen insight, foresight, and a willingness to take calculated risks. The ability to anticipate the future trajectory of a novel technology, therapeutic approach, or business model can put you ahead of the investment curve, positioning you to capitalize on opportunities before they become mainstream.

The Power of Contrarian Thinking

On top of all this, in the realm of science-driven companies, contrarian thinking becomes particularly potent. The pace of scientific discovery and technological advancement is breathtaking, and new opportunities are constantly emerging, often in unexpected places. Here, more than anywhere, the ability to see what others don’t and the courage to act on it can lead to remarkable results.

As the landscape of scientific advancement is incredibly diverse and rapidly changing, it is not uncommon for groundbreaking innovations to be initially misunderstood or underestimated. They may defy conventional wisdom or challenge established practices, and thus may not fit neatly into traditional investment frameworks. This is where the contrarian investor thrives.

Consider the rise of biotech, genomics, and personalized medicine. These fields were once on the fringe of the healthcare industry, viewed by many investors as too risky or speculative. Contrarian investors, however, recognized the potential for these disruptive technologies to redefine healthcare and made early investments that have since yielded substantial returns.

But, of course, contrarian thinking is not simply about being different for the sake of being different. It’s about rigorous due diligence, deep understanding of the science, and the ability to foresee its potential applications and implications. It requires, as we saw in the last chapter, a comprehensive assessment of the technology, the market, the regulatory environment, and the team behind the company. When these elements come together, contrarian investments can realize extraordinary value.

All this becomes critical in managing the risks inherent in science-driven investments. With the rapid pace of scientific discovery, today’s cutting-edge technology can become obsolete tomorrow. Contrarian investors, with their focus on overlooked or underestimated opportunities, are often well-positioned to pivot and adapt when the winds of scientific change shift.

Ultimately, the power of contrarian thinking in science-driven companies lies in its ability to uncover hidden gems and seize opportunities before they become mainstream. It’s about having the vision to see the potential in the unconventional and the courage to act on that conviction, even in the face of skepticism and doubt. It’s about the audacity to believe in the power of science to reshape the world.

Timing Is of the Essence

An anecdote from my own experience provides a striking illustration of the importance of timing and understanding the landscape’s evolution in investment. Just last year, our venture capital fund exited three companies. It’s not that these ventures were unsuccessful— in fact, they were industry leaders, leveraging cutting-edge technologies that were ahead of their time. Their contributions were remarkable, their technologies pioneering.

However, if these very same companies were considered for an investment today, they wouldn’t pass even the first meeting. Not because they’ve lost their edge, but because the technological landscape has evolved so swiftly and dramatically that what was once “leading-edge” has now become “routine.” The rapid pace of scientific discovery and technological innovation has made their once-groundbreaking technologies seem almost commonplace now.

This is a testament to the astonishing pace at which innovation propels industries forward. Yesterday’s “revolutionary” becomes today’s “standard,” and today’s “innovative” becomes tomorrow’s “outdated.”

Hence, it’s crucial to understand that an investment opportunity’s attractiveness is transient, heavily influenced by the dynamics of the market and the pace of innovation. It’s not merely about identifying great companies or groundbreaking technologies; it’s also about the “when.”

Leading-Edge Is a Moving Target

Wrapping up, investing in or starting a company is like trying to hit a moving target: You’re not merely assessing the potential of a venture based on its current standing, but on where it will stand in the future — typically between 1 and 5 years from now. You are, in essence, trying to anticipate where the sector will be, not where it currently is.

It’s a delicate balancing act of foresight and intuition, coupled with rigorous analysis. We shoot where the target will be in the future, not where the target is today. Yet, it is this very challenge that makes the endeavor so intriguing, so rewarding. If everyone agrees with your investment idea, if it’s universally lauded as “great,” then you’re likely playing it safe, perhaps too safe.

This doesn’t mean that every “unpopular” or “risky” investment is a guaranteed success. Far from it. It simply means that the biggest rewards often come from taking calculated risks, from daring to venture where others have not. It’s about having the courage to back an unconventional idea, the conviction to stand by it, and the resilience to weather the inevitable storms. As a leading-edge investor, you’re not just investing in companies or technologies; you’re investing in possibilities, in potential.

Excerpted from Fast Forward Thinking: 40 Rules for Entrepreneurs and Investors in Medical, Science, and Biotech by Luis Pareras, MD, PhD.