One of the things you want to look for as both a founder and as an investor is things that are out of consensus. Something very much opposed to conventional wisdom. And, if you’re going to start a company around that, if you’re going to invest, you better have strong conviction because you’re making a very big bet of time or money or both.
The problem is – what happens when the world changes? Just when you think you have everything figured, everything changes. But what do you do when the world changes? What you see everywhere, I think, is that people just hate changing their minds. They just get locked into a point of view on things. What you really want is to embrace the paradox. Hold strong views lightly.
Another important paradox is fail fast. You want to fail fast. It’s great to fail. You want to discover what’s wrong. You want to fail and do something different. But you also have to be determined, you can’t give up.
Everyone thinks, in investing, you either make a good investment or bad investment. I think the issue, at least in venture capital, is whether you make a good or a great investment. Good is the enemy of great. Good companies or founders tend to never go anywhere.
Every once in a while, we’ll see these companies that just have some extremely strong strengths, some extremely special, wonderful thing going on that, by the way, may have all kinds of problems and issues. But there’s something at the core of what it is that’s really special and magical. And those are the ones that we want.
It would be very easy in a conversation about the weaknesses of something to beat the idea to death. Then you never invest.
We have to try really hard to encourage the strong, non-consensus thinking but we also have the full discussion to make sure that we really stress tested that thinking. The way we do it is, basically, each of our GP’s has the ability to pull the trigger on a deal without a vote or without consensus. What we say is, if the person closest to the deal has a very strong degree of positive commitment and enthusiasm about it, then, we should do that investment, even if everybody else in the room thinks this is the stupidest thing they’ve ever heard of.
I think, where I got a lot of my education from was reading history.
And so I would go back and rather than reading a lot more about the contemporaries, I would go back and read about Edison. I would go back and read about Ford, Rockefeller, JP Morgan. Maybe it’s just me, but I find the period of kind of call it 1870 to 1920 or 1930 really interesting because you have sort of the arrival of many of the technologies that kind of built the world that we live in today.
Opportunities are likely to be in areas that people think are cult and fringe. We call our test on this; what do the nerds do on nights and weekends? That’s where things get really interesting.
This whole kind of theory of value investing that goes back to Ben Graham in the 1920’s/1930’s. On the one hand, there’s no overlap between the worlds because I like to say, basically, anything Warren Buffet is willing to invest in, we run screaming in the other direction and vice versa.
So we’re wired completely opposite in that sense. Basically, he’s betting against change. We’re betting for change. But what both schools have in common is an orientation towards, I would say, original thinking of really being able to view things as they are as opposed to what everybody says about them or the way they’re believed to be.
Value investors are always talking about getting to the core of the truth of what’s actually happening in the business. And then, the other is time horizon. Value investing is the only other place in the market anymore where you can find long term investors.