Strategy & Portfolio
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Quick Answer
An investment style that prioritizes investing in companies showing strong recent growth, regardless of valuation — the opposite of value investing.
Momentum investing in the VC context describes the practice of investing in companies based primarily on recent growth velocity, often accepting high valuations justified by the momentum itself. Tiger Global became famous for momentum-style VC investing — moving fast, doing minimal diligence, and betting that the growth trajectory would justify the price. In public markets, momentum investing means buying stocks that have recently outperformed. The 2021 bubble featured heavy momentum investing — high valuations were justified by 3-6 months of strong growth, often without deeper analysis of unit economics or competitive moats. Momentum investing can generate strong early returns but is vulnerable to sharp corrections when growth decelerates.
In Practice
Velocity Ventures practices momentum investing by focusing on startups showing accelerating growth metrics rather than traditional valuation multiples. They invested $5M in FitnessTech at a 25x revenue multiple simply because monthly recurring revenue was growing 20% month-over-month for six consecutive months, while passing on ProfitCorp trading at 3x revenue but with flat 5% quarterly growth. When FitnessTech's growth rate dropped to 8% monthly after a product launch stumbled, Velocity chose not to participate in the follow-on round, even though the company remained fundamentally sound with strong unit economics.
Why It Matters
Momentum investing matters because it recognizes that in venture capital, growth trajectory often matters more than current fundamentals or traditional valuations. For founders, understanding momentum investing helps explain why some investors pay seemingly high prices for rapidly growing companies while passing on profitable but slower-growth opportunities. However, momentum investing can create boom-bust cycles where companies receive abundant funding during high-growth periods but struggle to raise follow-on capital when growth inevitably moderates. Founders should recognize when they're benefiting from momentum and use those periods to build sustainable competitive advantages.
VC Beast Take
Momentum investing has dominated the last decade of venture capital, but it's created a generation of investors who mistake growth for quality. The dirty secret is that momentum investors often can't tell the difference between sustainable competitive advantages and temporary growth spurts fueled by low interest rates and abundant capital. When momentum breaks, these investors disappear faster than fair-weather friends. Smart founders take momentum money when it's available but build businesses that can survive when the momentum crowd moves on to the next shiny object. The best companies combine initial momentum with enduring fundamentals.
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Momentum investing in the VC context describes the practice of investing in companies based primarily on recent growth velocity, often accepting high valuations justified by the momentum itself.
Understanding Momentum Investing is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Momentum Investing falls under the strategy category in venture capital. This area covers concepts related to the strategic approaches to portfolio construction and management.
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