Wayne Gretzky has a famous quote, which goes something like this: “Most hockey players skate to where the puck is.  Great hockey players skate to where the puck is going to be.”  This saying also holds true for investors and entrepreneurs in the start-up business.

Most companies out there are “skating to where the puck is”, or worse, “skating to where the puck was“.  In non-hockey terms, these companies are going into existing markets, with known competitors and known business models.  It is relatively easy for me to size and bucket these companies based on the feature set.  On the other hand, only a few companies are really “skating to where the puck is going to be”.  Companies that do this – like Twitter and Klout – are much harder to value, and they are often overlooked at an early stage.

I spend a lot of time in the first bucket, trying to find good companies in known markets.  Most of our investments in these markets take advantage of recent technology shifts, such as new database technology, increased bandwidth, or new mobile devices, to differentiate their service from prior vendors.  We have been very successful with that theme over time, particularly with repeat entrepreneurs.

On the other hand, I spend very little time with companies that are “skating to where the puck was” (aka the “fast-follower” approach).  There are a lot of VCs that invest with this theme, believing that you can make money in a market even after a leader has been established.  The equivalent of this would be funding a social media marketing company today or investing in yet another group buying company.  I find these markets to be too hard to win, even with great teams.  Once you get inside you realize you are in a knife fight in a phone booth.

There is also a segment of VCs, most of which are in San Francisco, that copy US businesses abroad.  I personally dislike this practice too, but it is one of the “fast follower” areas that makes money for investors.

Lastly, I love investing in new markets, but, not surprisingly, these are hard to find.  Many new markets are discovered by accident (see also Groupon) so you need some luck as an early stage investor.  And even when you do meet these companies their value proposition is not always evident.  Joe Fernandez from Klout spent 9 months raising his first round, with countless investors turning him down, only to reach a nine-figure valuation two years later when the market for Klout became more obvious.

So, kudos to the entrepreneurs who are skating to where the puck will be.  It is not an easy path, and over time you will probably have to fight off copycats both here and abroad, but if you succeed you should be greatly rewarded for your work.  Afterall, you will have invented an industry, not just a business.