– Jeff Bussgang is a general partner at Flybridge Capital Partners and an Entrepreneur-in-Residence at Harvard Business School. He is also the author of “Mastering the VC Game”. This article originally appeared here. The views expressed are his own. –
“Security Analysis” is cited by Warren Buffet as one of his top four favorite and most influential books. Written by Columbia University professors Benjamin Graham and David Dodd, it was first published in 1934.
The book is a thick tome that articulates the thesis of value investing – the analytical techniques for valuing securities and seeking to invest in those securities in the context of their underlying value. The latest printing, the sixth edition, contains a foreword from the Oracle of Omaha himself as well as a preface from hedge fund investor Seth Klarman of The Baupost Group, who is regarded by many to be one of the modern masters in the art of value investing.
As a venture capitalist reading the book and trying to absorb its investment lessons, I wondered: can VCs be value investors? After all, the philosophy of value investing, in theory, should cut across all asset classes and managers. The precepts and principals therefore should apply to the venture capital business as well.
Sadly, they don’t.
Klarman writes: “Investing in bargain-priced securities provides a ‘margin of safety’-room for error, imprecision, bad luck, or the vicissitudes of the economy and stock market.”