Would a 30 Year Old Warren Buffett be Studying Silicon Valley Tech Companies?

Kevin Martelli, who is part of the MicroCapClub community, has given me permission to republish a memo he wrote 18 months ago which I thought to be very thought provoking and applicable to microcap investing. Enjoy.

The following pages are a collection of interesting facts and considerations on various topics related to entrepreneurship, start-ups and innovation. I have tried to summarize this in 20 pages after reading a significant amount of material on these fascinating subjects. There are probably no original thoughts in this memo, nevertheless some of the considerations provided may sound a bit provocative, but this was done to stimulate the reader’s thinking about these interesting topics (and to keep the memo short).

Overall I think studying how great entrepreneurs operate and how top venture capitalists select their investments is useful to become a better investor also in mature businesses (after all every mature business has once been a start-up and many of its traits and characteristics were set at the beginning).

Finally according to Ray Kurzweil’s Law of Accelerating Returns of human history, the amount of technological changes that occurred between 1750 and 2015, will probably take place in the next 20 years or so (since progress occurs at an ever faster rate in more advanced societies)1. This implies that technological innovation will become increasingly important for investors, regardless of their investment approach.

Key questions I have been trying to address:

1. Why, from an investment and business perspective, is it important to understand (i) what is happening in Silicon Valley today and (ii) which are the main drivers that over the last 50 years have led to Silicon Valley’s unquestionable dominance (vs. other parts of the world) in generating new tech businesses and innovations?
2. What are the key traits and characteristics of great entrepreneurs over the last couple centuries?
3. How do top venture capitalists select the start-ups to bet on?
4. Would Warren Buffett be studying Silicon Valley “tech companies”, if he was 30 years old today?
5. With specific reference to tech-related innovations and the start-up world discussed in this memo, which are the important questions that an investor should be asking himself/herself today?

Selected books that have inspired the considerations contained in the following pages:  

1. Zero to One: Notes on Start-ups, or How to Build the Future by Peter Thiel and Blake Masters
2. The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz
3. The Innovators: How a Group of Investors, Hackers, Geniuses, and Geeks Created the Digital Revolution by Walter Isaacson
4. Technology Revolutions and Financial Capital by Carlota Perez
5. Venture Capitalists at Work: How VSs Identify and Build Billion-Dollar Successes by Tarang Shah and Shital Shah
6. The Change Masters: From Carnegie to Gates, How the Great Entrepreneurs Transformed Ideas into Industries by Maury Klein
7. The Myth of the Robber Barons by Burton W. Folson
8. Start-Up: What We May Still Learn From Silicon Valley by Herve Lebret
9. Red Wired: China’s Internet Revolution by Sherman So, J. Christopher Westland
10. America’s Most Successful Start-Ups by Oliver Samwer (Rocket Internet Founder) and Max Finger
11. The Innovator’s Dillemma by Clayton Christensen
12. In the Plex – How Google Thinks, Works, and Shapes our Lives by Steven Levy
13. Steve Jobs by Walter Isaacson
14. Outliers by Malcolm Gladwell
15. Antifragility by Nassim Taleb

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