You Can’t Win if You Don’t Play

Being at the right place at the right time and having the means and opportunity to join into something big requires a lot of luck first and foremost.

Silicon Valley, the Epicenter of Internet Technology

Silicon Valley, the Epicenter of Internet Technology

The world is full of expressions to describe success as a combination of being both lucky and good. Being at the right place at the right time and having the means and opportunity to join into something big requires a lot of luck first and foremost. California’s Silicon Valley, with towns, cities and neighborhoods like Mountain View, Sunnyvale, Menlo Park and Cupertino, was the absolute place to be if you were looking at a chance to become an Internet Mogol. While reading an article in the New Yorker I noted that Jeff Bezos was one of the early investors in Google. Definitely a case of all the criteria for success being pinpointed.

Jeff Bezos, founder of Amazon.com in 1994 and #33 on last year’s Forbes 400 with a net worth of over $8.7 billion was one of Google’s early investors. Even though he was originally from Texas, studied in Florida and New York, he crossed to the westcoast to start Amazon in Seattle. His choice was based on Microsoft’s homebase. In 1998, when Larry Page’s and Sergey Brin’s Google offices were a Menlo Park, California garage – Bezos invested $250,000 of personal funds into the fledgling search engine.

Six years later when Google went public in 2004, that $250,000 investment translated into 3.3 million shares of Google stock. At Google’s IPO of $85 per share, that represented a $280 million stock share position! Not too shabby even if it took almost 6 years.

While Bezos does not disclose how many of those shares he still holds, at the current price of Google stock that represents an investment position worth over $1.5 billion. Why did Bezos invest in Google? His words are prophetic especially knowing how much of a micro manager he is, “…There was no business plan…They had a vision. It was a customer-focused point of view.” And more tellingly he adds, “I just fell in love with Larry and Sergey.”

In addition to being a good tale to which the normal reaction is to just say “wow,”¬†¬† Jeff Bezos’ Google investment offers a number of important lessons for aspiring, private company investors. Bezos was attracted to Page and Brin as people, as technologists, as leaders. And obviously their customer-centric focus really tracked the way that Bezos looks at the world and is embodied in the Amazon customer service experience. So while a business opportunity in its abstract is great, evaluating the people pioneering a business is FAR MORE RELEVANT:

1.¬†¬† He Thought Long Term and probably expected nothing. Even though Google has been the fastest rocket ship growth company in the history of the world, it was still SIX YEARS from Bezo’s investment in the company to liquidity. Private equity overnight successes simply do not exist.

2.   He Got In Early, lucky man who trusted his instincts. Sure, it would have been great to get into Google at its IPO price of $85/share, especially as the shares are up over 535% since then. But Bezos got in, after adjusting for stock splits, at EIGHT CENTS PER SHARE! Talk about leverage. That translates into an 112,000 percent increase from investment to IPO, and then if he held onto the shares to another 535% on top of that.

3.¬†¬† He Invested in People whose idea was solid and lend his expertise to build on. At the time of Bezo’s investment, there were a large number of very well-funded and far more successful search engines already on the market. Remember this was 1998 not 1994. Yahoo. Alta Vista. Lycos. Excite. Looksmart. Webcrawler. Infoseek. Inktomi and GoTo to name just a few. AOL, MSN and even Ask Jeeves were pioneering on the search concept.

4.¬† He Took a Shot when others sat back. For every Jeff Bezos who invested in Google, there are dozens of investors that were presented with the opportunity and did not. This of course does not always mean that the probability of any early stage private company investor having a Google-like success in their portfolio is anything but very low, but it does mean that it is far greater than the ZERO percent likelihood of success of those who did not invest. As they say, you can’t win if you don’t play.

5.    He Got Lucky that in spite of the ensuing dot.com bust these guys were the real thing. As hard as it is for many to accept, luck is a key, and sometimes the key, variable in successful investing.

Today there are a good number of localized search engines leading the way to a more accessible locally profitable internet presence. It is pretty agreed that on the micro and local/regional level, search will expand more rapidly than nationl or global. As opposed to fighting or getting philosophical re this reality, a far better question for today’s investors to ask is “How can I improve my likelihood of getting lucky?”

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