David Rosenthal: evaluation

Transcript context

…s of the same coin, that's what Buffett says. The way McDonald talked about it is, isn't growth just a component of value? Of course it is. The higher the growth, the higher the valuation potentially. It's just one of the many elements that we've had to factor in to try to put a proper valuation on the business. That's the way we've been thinking about it for a long time. Of course, for these early-stage venture deals, there are no metrics. It's so early, so I just no longer even think about the venture deals as investments. I think about the venture portfolio as just the world's greatest discovery mechanism. Try to learn about businesses. Try to learn about people. Once in a while, we discover a very interesting opportunity, and then we'll develop that opportunity. It's not about you discovering it, you cut this lightning in a bottle, and now you're rich. No, it doesn't happen that way. You discovered the opportunity, now you got the next 10–20 years to figure out what to do with it. If you don't show up for the next 20 years, you're not going to get paid big. Maybe you'll get lucky and you'll go flip it to somebody because they're going to pay you a big forward valuation. If you're not lucky and somebody's not willing to pay you for all the future cash flows today, you have no choice but to just build it. You got to do it yourself. Do it the old-fashioned way. Do it the hard way. Just build a [...] company instead of trying to flip it to somebody else and get paid for not doing it. Let's just do it. That's what happened with Roblox. I remember when you told me this viewpoint. I'd never thought of things this way before. For me, so many lightbulbs went off and really helped me evolve the way I think about investing over the past year. It's tied to what we were talking about earlier that the out years of compounding are where the huge lion’s share of the value is. If you take the traditional or normal VC approach of, I'm looking for the markups, I'm looking to get paid, I want growth, and I want to offload it—that's a pejorative way of saying it, but that's how a lot of these traditional venture companies go. You're missing out on the potential to go from Roblox going from $2.5 billion to $68 billion. That's 90% of the value. Yeah. In a company like that, again, we're not thinking about what's going to happen to the price in the next one or two years. We're thinking about what we can do with this company in the next 5–10, or 20 years? The best ones will keep going longer. We always like to talk about GEICO. I love the GEICO story because that's a 70-year relationship between an investor and a company. It's like, wow, that would be amazing to have a 70-year relationship. Some of these tech companies might have a shorter life, but you could have a nice 20-year or 30-year run. We hope to have some of those kinds of runs.…

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