Mark Suster on the Snapchat IPO:
My job as a VC isn’t to beat myself up or any other partner up for the one deal we didn’t do. My job is simply to make sure we’re getting into a few industry defining investments per fund and to make sure we capture enough successes. If you swing at every pitch you’ll end up with a lot more losers.
I think every sentence in this paragraph is a strike to put it in a parlance that will soon bore you like a Saturday spent with the Adhesive Postage Stamp. Let's go over them one by one: "My job as a VC isn't... "
- If investing is your craft missed opportunities can be just as bad as investments that completely brick. Buffett repeatedly communicated how the investments he missed are his worst mistakes. This is how ruthless Buffett can be when analyzing past misses:
About the time of the See’s purchase, Tom Murphy, then running Capital Cities Broadcasting,called and offered me the Dallas-Fort Worth NBC station for $35 million. The station came with the Fort Worth paper that Capital Cities was buying, and under the “cross-ownership” rules Murph had to divest it.
I knew that TV stations were See’s-like businesses that required virtually no capital investment and had excellent prospects for growth. They were simple to run and showered cash on their owners. Moreover, Murph, then as now, was a close friend, a man I admired as an extraordinary manager and outstanding human being. He knew the television business forward and backward and would not have called me unless he felt a purchase was certain to work. In effect Murph whispered “buy” into my ear. But I didn’t listen.
In 2006, the station earned $73 million pre-tax, bringing its total earnings since I turned down the deal to at least $1 billion – almost all available to its owner for other purposes. Moreover, the property now has a capital value of about $800 million. Why did I say “no”? The only explanation is that my brain had gone on vacation and forgot to notify me. (My behavior resembled that of a politician Molly Ivins once described: “If his I.Q. was any lower, you would have to water him twice a day.”)
Maybe only someone with the statute of the Oracle can afford such self-depreciation although it is a theme even throughout the early partnership letters where Buffett routinely serves himself a royal plate of crow.
Not that there isn't any blame to go around necessarily. I don't have the information to make that call. It wouldn't surprise me one bit if not investing is Snapchat at the time Suster could have, was actually the right call.
2. Ok then; "My job is simply"....
This is where I knew I had to type up a blog.
( Simply Sure ) + ( Industry Defining Investments / Fund ) = Does Not Compute.
Unless you are running an Impact fund I'd say investments are made to generate returns on capital as opposed to hitting industry defining winners. The latter isn't even hard if that's your only job which his next sentence implies it isn't or he would swing at every pitch. I had to start typing because this sentence screams peak VC. The idea that one's job is to simply ensure to get into a few / industry defining investments / per fund is just outrageous.
There are 35 investments per fund and a few of these should be the next Amazon, Facebook, Coca-Cola, Walmart, McDonalds, FanDuel or PayPal? Somehow he makes it sound like a humble goal.
That's what screams peak VC at me. Does he really think this is realistic?
3. The third is a Buffett maxim "If you swing at every pitch"
I think this is actually the right disposition for a professional investor.
Ironically, it's also the opposite of what Buffett recommends retail investors do. If you swing at every pitch in the stock market you end up with an index fund which is something he recommends. This whole index trend reminds me of another Buffett quote (apologies for all the Buffett quotes, I need to start reading more widely):
as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press
But that's just an aside.
If you want to hit multiple industry defining investments per fund I think you'll have to swing at more pitches or you're going to run as dry as the Atacama desert at some point.
Although this is the right disposition to have it doesn't mean you don't have to be critical of swings you didn't take. I'll change it up with an original quote:
I don't really watch video, but I see the replay; like when I do strike out, and I'm walking back to the dugout, I look up and see if they do show the replay of me swinging and missing.
Its perfectly fine with me not to swing at every pitch. But both Buffett and Freeman study their strikeouts and it's good practice. My guess is that, as a baseline, successful VC exits involve loads and loads of luck and ones that end in zero's involve some bad luck. That means if you forego one and it's a huge IPO, it's almost certainly loads of bad luck.
It's up to those who made the calls to review them carefully irrespective of result and irrespective of connecting or striking out. After that, they can shrug their shoulders and get back to swinging or eat crow like Buffett.