At this point, you may be asking the question, if the principles of successful venture capital investment are so similar to Buffett’s rules, why should one expect the effective VC to be able to go beyond matching Buffett’s performance and to beat his results? The answer is based on the very essence of venture capital investment.
One simple reason the effective VC should be reasonably expected to have a shot at beating Buffett long-term is that venture capital investment is inherently a high-risk/high-reward endeavor. The superior returns possible through venture capital, on average, appropriately offset the inherent risk. . . .
Buffett’s investments in mature industries are tailored to deliver more consistent and predictable returns. He looks to buy consistently strong performers when their stock, or maybe the whole stock market, is temporarily out of favor, and then to hold those investment positions for the long-term, magnifying potential returns as well as their reliability. . . .
That is fundamentally different from venture capital’s focus on startups and early stage businesses, before they reach the public trading markets and whose very reason for being is to capitalize on new technologies and often new markets.
Len Batterson is the co-author of:
Building Wealth through Venture Capital: A Practical Guide for Investors and the Entrepreneurs They Fund