Facebook, Serenity, Courage, and Wisdom


Over the last two weeks, we have discussed the lessons of liquidity, sector, and outliers to be learned from the extraordinary returns earned by Facebook's early investors.

Now let's turn to the only topic that self-interested and red-blooded investors really care about when it comes to Facebook and its IPO.

Which of course is, how the heck can they get a piece of a company like Facebook before it becomes, well, Facebook?

Well, the painful answer is that for almost everyone - it just isn’t going to happen.

The reasons for this go beyond the obvious one of rarity - Facebook being the biggest business story of the new century, and correspondingly having one of the steepest valuation growth trajectories of all time.

And it goes beyond the fact that like so many of the great investment stories of the past 15 years - PayPal, YouTube, Zynga, LinkedIn, Yelp - Facebook’s early investors primarily came from a very small group of interconnected Silicon Valley investors.

No, the heart of the “find the next Facebook” challenge is that the vast majority of investors are either too poor or - more interestingly - too rich to even consider an investment like Peter Thiel’s $250,000 into Facebook in 2005.

Let's start with being too poor.

Forget about deal access and acumen.

Forget about taking the measure of the entrepreneur and just feeling it in “your bones” that he or she has the right stuff.

Forget all that and just deal with the fact that 99%+ of all investors are just too illiquid to write a $250,000 investment check to a private company.

And for those that do have the means, the vast majority are not okay with the very real likelihood that they might lose every last solitary cent of their very hard - earned (or at least hard inherited) cash.

Now, if it is any consolation, so too are the very rich mostly closed off from early-stage private investing.

This is because most of the “real” investment capital in the world today is in the form of professionally managed funds with sizes greater than $100 million.

So when the managers of these funds look at a company at Facebook’s 2005 stage of development, it is just hard for them to visualize how a 6 or low 7 figure investment could possibly “move the needle” of their overall fund return.

And oh yes, most fund managers – because of their career experiences, education, and mindset – are also so painfully lacking in the imagination, technological sophistication and general “hipness” that when presented with a paradigm-shifting business model like Facebook…

…they just don’t get it.

So if neither the rich nor the poor can do it, and if all of the best deals are snatched up by the Silicon Valley Technocrati anyway, what about the rest of us?

Well, at the start, recognize that, in a capitalistic economy, early -stage private equity investing is both the most exhilarating and the most vexingly challenging of all business undertakings.
It requires a full internalization of the Serenity Prayer:

God, grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference.

Wisdom is needed to know when one is in over their head and that the prudent course is to not invest no matter how tempting.

Serenity is needed once an investment is made, as its destiny rests equally in the hands of the entrepreneur and in those of Fortuna – the Roman goddess of good fortune and luck.

And, of course early-stage private equity investing requires heaping platefuls of courage and guts.

And when stormy weather comes as it always does, courage’s cousin grace is needed.

To remind us that the only ships that never sink are those that never sail.

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