Russell has an excellent post (though I can't accept his notion about ft :-) analyzing the recent rush of investments in mobile gaming companies:

"But why is it that otherwise rational VC's display this tendency to play "follow my leader"? It's actually very simple - it's a natural human behaviour which can best be described as "fear of loosing out".

What happens is that one VC decides to take a punt on an investment, for good, logical reasons, or plain stupid ones - it doesn't really matter. And then other VC's hear about it and assume that the original one MUST know what they're doing. So they MUST follow suit or loose out.

Actually, they have little choice here. If they fail to invest, they have to explain why they lost out on fabulous returns if everything works out. And if the returns don't materialize, they can say that they had the same poor luck as everyone else.

This kind of scenario isn't actually unusual in a wider business context - it's not just restricted to the poor old VC's. An example is the ludicrous price operators paid for 3G licenses in the UK. "