I don’t know. Maybe it has been the three funerals in three consecutive weeks which has tipped me into a bout of introspection. Thankfully, the departed souls had wonderfully long lives filled with love, laughs and living but time and the passing of time has definitely been on my mind. It was hardly a surprise then that the three stories which resonated with me most this week were time related. They also involved money, lots of money.
Sequoia may not be a household name but in the world of venture capital(VC) these are the gods of early funding capital. Founded in 1972, Sequoia’s almost 50 year investment history is peppered with winning bets on the likes of Apple, Google, Oracle, YouTube, PayPal and Zoom. The companies which Sequoia backed are now worth over $3 trillion. However, that misrepresents the actual returns to the Californian firm’s venture capital partners and its investors as the traditional VC fund terms forced them to liquidate positions too early.
The VC industry business model up until this week was “beholden to a rigid 10-year fund cycle pioneered in the 1970s” according to Sequoia Partner, Roelof Botha. That meant Sequoia exited investments within 10 years and were unable to compound their returns by re-investing in these great growth companies. As Microsoft, in its fifth decade of existence, reported 22% revenue growth this week it possibly was no accident that Botha characterized the rigid application of 10 year investment time limits as “the business equivalent of floppy disks”. VC fund structures were simply outdated.
The Sequoia solution is to run a permanent fund structure which will allocate capital to a series of sub-funds. The strategy is clear; Sequoia want to be able to “follow” their best bets and re-invest capital in more mature enterprises. The financial message is also clear; more time means more money. And, not just in this world…..
Of course, Facebook and Mark Zuckerberg need a new strategy or the appearance of one given the shocking recent press coverage. The headlines this week have focused on a change of corporate name to “Meta”, a $10 billion investment in the Web3 metaverse and an explicit statement that Facebook is now a metaverse company. We have previously written about the accelerating migration of investment capital from the social media dominated Web 2.0 to a more decentralized Web3. Zuckerberg seems keen to focus on this new world, the metaverse, which can be delivered to users through virtual reality(VR) and augmented reality(AR). However, let’s open our own eyes and not lose sight of the commercial end game here.
Those who saw the ‘Social Dilemma’ documentary on Netflix will know how social media’s algorithms are designed to keep people coming back to the platform. The commercial social media equation is simple – more time, more data, more money. But….the execution of this metaverse strategy will be less simple, and possibly contradictory, as the essence of Web3 is decentralization rather than monopolies. Warren Buffett had a folksy term for monopolistic profits – “widening the moat” – but I wonder what he really thinks of Tesla’s trillion dollar valuation and implied electric car monopoly?
I am still a little staggered that, in a little more than 9 months, Elon Musk’s net worth has grown by more than Warren Buffett’s life-time wealth built over 91 years. The Tesla founder is now the world’s richest man with a fortune rocketing towards $300 billion and yet there’s a part of me thinking we might need another 90 years to find out whether Tesla did actually build that ‘moat’ from its current 2% share of the world’s auto market. I suspect it won’t but, for now, it seems investors and markets are willing to imagine new worlds and new products in super-quick time. In this instance, shrinking investor time horizons are generating huge inflows of funds and wealth for founders who tell great stories. That’s the reality of financial markets today – time is money. As for the future? I don’t know.