#investing

I think the multiples of technology stocks should be quite a bit lower than the multiples of stocks like Coke and Gillette, because we are subject to complete changes in the rules. I know very well that in the next ten years, if Microsoft is still a leader, we will have had to weather at least three crises.

Bill Gates, in a joint-interview with Warren Buffett, in the summer of 1998 — before the Bubble burst, of course.

The whole interview is pure gold.

[via @ElliotTurn]

Nest CEO Tony Fadell on the news that Google has entered an agreement to acquire his startup:

When Matt and I started Nest in 2010, we were determined to change our homes and the world around us. Starting a business focused on the lowly thermostat seemed like a crazy idea at the time, but it made all the sense in the world to us. That little device that went unnoticed and unchanged year after year on the walls of our homes was a lost opportunity to save energy and money. We knew we could do better.

Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone. We’ve had great momentum, but this is a rocket ship.

As I previously mentioned, I’m incredibly biased here.1 But that doesn’t change the fact that Nest is a remarkable company that was able to take some Apple DNA and translate it into a startup. One working on both hardware and software, no less. It should be surprising to no one that Google saw massive value and opportunity here.

Huge congrats to team Nest as well as my colleagues at Google Ventures.


  1. Though, to be fair, I was a huge fan before I was conflicted. 

Derek Thompson talks to Harvard Business School professor Anita Elberse about her new book, Blockbusters:

Thompson: Would I be oversimplifying your thesis if I said: “In movies, music, TV, and books, people have learned that $1 spent on a blockbuster is better than $1 spent on a not-blockbuster”?

Elberse: I think that’s a good way to summarize the book. Another way is to say that, although there is no way to play it safe in the entertainment industry, a blockbuster strategy is the safest way to play. In investing, we intuitively think we should make a number of small bets. A blockbuster strategy is the opposite. It means making fewer huge investments. But it turns out to be safer.

I don’t actually agree with that generalization. Often in (company) investing, bigger bets are also “safer” because the companies that are able to command larger investment dollars are much further along in their business life cycles. Hence, discussions like this one this past week.

Also problematic:

Thompson: I think my friends are most familiar with the blockbuster formula playing out in movies, and my sense is that they hate it. They see big loud sequels and adaptations taking over and they want to know who to blame. So who’s to blame?

Elberse: There are a number of people who are negative about blockbusters, and that surprises me. Put yourself in the mind of an executive. They know everybody pays the same amount for a movie, whether the studio invested $10 million or $300 million. To complain about studios overspending is odd, because the price of the ticket doesn’t change. In what other industry do we complain about companies increasing their spending when they don’t raise prices? In video games, it’s the opposite. People are thrilled when companies spend more on the next [Grand Theft Auto].

Except that they do raise prices — they just raise them across the board for big movies and small movies alike. It’s why the reporting of box office numbers is so fucked up. Yes, movies are making more money, but they’re often not actually selling more tickets. The tickets just cost far more than they should at the normal rate of inflation. 

Scott Woolley chose an awful title, but makes an interesting point about the government’s 2009 loan to Tesla:

Personal loans made in 2008 by Elon Musk, Tesla’s co-founder and CEO, provide a telling contrast. Musk received a much higher interest rate (10 percent) from Tesla and, more importantly, the option to convert his $38 million of debt into shares of Tesla stock. That’s exactly what he ended up doing, and the resulting shares are now worth a whopping $1.4 billion—a 3,500 percent return on his investment. By contrast, the Department of Energy earned only $12 million in interest on its $465 million loan—a 2.6 percent return.

The government had huge leeway to demand similar terms as part of its loan, given the yawning gap between its interest rate and the cost of Tesla’s next-best source of capital. The government was ponying up more capital than all of Tesla’s previous investors combined. At a bare minimum, the Department of Energy could have demanded a share of the company equal to the 11 percent Musk received for his $38 million loan the year before. Such an 11 percent share would be worth $1.4 billion to taxpayers today.

Of coures, the government is not an investment firm — BUT they did take large ownership stakes in some of the banks during the bailouts.

Also, the government had the option on up to 3 million Tesla shares as a part of the loan — BUT those options evaporated when Tesla paid back the loan early (which was part of the incentive to do so).

Fred Wilson:

So what did I learn from this lesson? First, trust your gut. I was using Feedburner and knew it was a very useful service. I felt that others would see that too. They did, but it took some time. Second, I learned that a service can get traction with the little guys and in time, the big guys will come along. I have seen that happen quite a bit since then. And finally, I learned that you can do too much due diligence. It’s important to talk to the market and hear what it is saying. But you have to balance that with other things; the quality of the team, the product, the user experience, etc. You cannot rely alone on due diligence, particularly early on in the development of a company and a market.

Yep.