“The opposite of a profound truth may well be another profound truth.”
Niels Bohr
“You don’t want to make money by screwing your investors,” Charlie Munger said. That, he said, is what a lot of venture capitalists do.
Two podcast hosts had him in front of a microphone and asked whether venture capital does its job in society. He said no. The people doing the work inside those businesses often “hate the venture capitalists.”
His complaint was about how the money gets made.
He and Buffett made their money by buying businesses whose customers would want the same thing in 20 years. Buffett wrote the rule down in 2007. Their criterion of “enduring” ruled out companies “in industries prone to rapid and continuous change,” because “a moat that must be continuously rebuilt will eventually be no moat at all.”
Berkshire could buy once and hold for decades.
Betting on what’s changing pays too. Venture investors fund young companies built around a market or a technology that’s moving right now. Nobody can tell which one takes the market.
Paul Graham ran Y Combinator. He put the math in writing: “for each big winner we could pick a thousand companies that returned nothing and still end up 10x ahead.” So they fund many and let the winner show itself.
By the time he wrote that, Dropbox and Airbnb carried about three quarters of everything Y Combinator funded.
In the same interview, Munger said venture capital is “a very legitimate business if you do it right.”
What if you want to do both?
Amazon used the changing market to pick its moment and the unchanging wants to pick where the money went. Amazon’s 1997 shareholder letter described a “window of opportunity” in online commerce and called the moment “Day 1 for the Internet.”
In October 2007 an interviewer asked Bezos how Amazon sets its strategy. People ask him constantly what will change in the next ten years. Nobody asks him what will stay the same.
That second question set where the money went:
- lower prices
- broader selection
- faster delivery
“All the energy you invest in them today will still be paying you dividends ten years from now.”
The open question is which one suits you. The same strategy that wins for someone else can lose for you.
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Which approach feels right for you?
