I’m often asked what I look for in a company when considering investing. There are a variety of factors that I consider, some of which I’ve written about in other blog posts, many of which other smart people have described eloquently. One important factor that doesn’t get as much attention is what I call the unfair advantage.
As children, most of us are taught that we should expect and honor fairness. Everyone has access to the same materials for a test and is given the same time to complete it. Parents strive to treat their children fairly. Sports, even (and especially, perhaps) for adults, are designed to ensure that all players compete on a “level playing field.”
This concept of fairness is also important in business. Certainly, the consistent application of the rule of law and unwritten rules of ethical conduct are crucial elements of thriving capitalist markets. And as an investor, founder integrity is a critical – even paramount – consideration in any investment decision. At the same time, business is different from sport or school in that the participants – founders – come onto the playing field with different resources at their disposal. I am interested in backing those entrepreneurs who bring unusual or unique, valuable resources with them.
This unfair advantage can take a number of forms. It can be particularly rich experience in the relevant market. It might be a relationship with a crucial partner or first customer. It could be a uniquely talented technology lead, a truly novel insight (though this is rare), a patent, a contract, or any number of other sources of value. What is important is that the advantage is difficult if not impossible to duplicate, valuable and unquestionably at the disposal of the founding team.
From the perspective of other market participants, this type of advantage may appear unfairly beneficial. As an investor, that’s exactly what I’m looking for.
