Business Brains

Want to invest early in the next big startup? Ask Michael Moe

Want to invest early in the next big startup? Ask Michael Moe

Posting in Finance | From Issue 18 May 19 & 26, 2014

The founder of GSV Asset Management has been on the cutting edge of investment for more than 20 years.

Many argue we are facing another technology bubble. Michael Moe isn't one of them.

"I remember clearly when the Internet bubble was happening. The math didn't make sense, and yet you were seeing these things go up incredibly," said Moe, the founder and CEO of GSV Asset Management.

To Moe, the question of bubbles -- what Charles Mackay might call "popular delusions" -- is far from theoretical. With GSV Capital, Moe has invested more than $288 million in the latest wave of startup companies like Dropbox, Palantir and Spotify.

To those who don't know the market, Moe's gambit appears a risky one. Yet with more than 20 years of experience studying trends in the economy -- including investing in Starbucks when the idea of expensive coffee was an oxymoron -- Moe is far from untutored. Instead, he's built a career identifying growth companies before the competition.

Stumbling onto Starbucks

Moe wasn't always destined for a career in investing. Born into a family of lawyers, Moe, who played backup quarterback for the University of Minnesota as an undergraduate, was thinking of law school before a friend of the family interceded. "I remember him telling me you could make $60,000 your first year," Moe recalls. "I kind of abandoned my thought of being a lawyer and started making my way into the investment business."

It wasn't long before his big break arrived.

On a Thursday afternoon in 1992, after a long week of meeting with companies, Moe had one appointment left and was considering skipping it to catch an early flight home. The company, after all, seemed a bit far fetched. Who, after all, could convince consumers to pay premium prices for a commodity? The answer, he discovered when he walked into the early offices of Starbucks that afternoon, was Starbucks.

"The minute you walked in, you could just sense there was something special going on there. Everybody was totally just on top of things. It had this incredible energy," Moe said, recalling the meeting he kept.

"They were going to be the leader in [having great people] and have the best, not only product, but customer experience," Moe said. "I met the CEO Howard Schultz and you realize you're in the presence of someone who is very unique, who is incredible, passionate, articulate, strong leader. You saw he had a shot that most people couldn't even imagine," Moe said.

Then, Moe began to do the math. "If they can do that on a national basis they can be three times larger than McDonald's," Moe recalls thinking. (Today, Starbucks doesn't rival McDonald's dominance, but with a market cap of $53.62 billion, it's more than halfway there.)

The standout

Deals like this caught the attention of others. "He was thinking incredibly thematically about emerging trends and themes in the growth economy and what was coming next - looking around the corner to see where great things were happening," said Deborah Quazzo, founder and managing partner of GSV Advisors, of Moe's work at the time.

Quazzo, then the managing director of the Global Growth Group at Merrill Lynch, was so impressed that in 1998 she recruited Moe to join her team.

Three years later, the pair left to co-found ThinkEquity Partners, an investment bank. During his time at ThinkEquity, Moe penned Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow. Called "required reading" by Salesforce.com CEO Mark Benioff and "an important book for both growth investors and entrepreneurs" by Peter Lynch, vice chairman of Fidelity Investments.

As chairman and CEO of ThinkEquity, Moe employed the lessons of Starbucks success philosophy to scale the brokerage into a business with 180 employees and $64.3 million in revenue. In 2007, Moe and Quazzo sold ThinkEquity to Panmure Gordon, a London-based investment bank, for $62.3 million.

Global Silicon Valley

Since then, Moe has been busy building GSV Asset Management. Sorting good investments from the bad isn't easy, particularly in Silicon Valley. "Without a compass, without a systematic framework to look at these companies, often you can get off course," Moe said.

To assuage this issue, Moe and his team employ a methodology that allows them to sift facts about earning from euphoria of press releases. "We effectively create an NFL draft of the companies we think are the best growth companies in the world," Moe said. Next, they figure out how to get involved.

To Moe, the key to sifting gold from garbage is identifying major trends in the economy. One megatrend that Moe is particularly enthusiastic about is the concept of the knowledge economy, an economy based on high-value knowledge workers. "Silicon Valley is probably the most hyper example of that, where the way that these companies compete is pure and simply is if they can attract the smartest talent," he said.

In 2011, GSV Capital, a division of GSV Asset Management, did something new. It debuted GSVC, a closed-end mutual fund that includes investments in venture capital-based startups like Twitter, Coursera and ZocDoc. With GSVC, Moe is packaging private venture capital for the masses by converting it into a publicly traded security, allowing investors to invest in the startups handpicked by Moe and his team.

It remains to be seen whether packaging these often illiquid investments before public offering, as Moe does with GSVC, becomes a sustainable trend. Venture capital investments are known for volatility and are often difficult to value.

Still, Moe knows a thing or two about bucking trends. He's done it plenty of times before.

"I think I'm the most fortunate person in the world to be able to have as my job identifying and investing in the greatest growth businesses in the world and to interact with these entrepreneurs who have these brilliant ideas and have this enormous energy and are ready to bet it all on red to oppose conventional wisdom. I think it's so incredibly exciting and rewarding. I love it. I love it."

Brainwaves

What is the best advice you ever received? You can get everything in life you want if you help others enough to get what they want. (Tweet)

What was your biggest mistake? Selling our business in 2007.

What would you tell your younger self? I'd tell my younger self not to miss the moments because of being too busy or in such a hurry. (Tweet)

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Claire Lambrecht

Contributing Writer

Claire Lambrecht has written for the New York Times, Slate, Salon, The Nation, and CBS MoneyWatch. Previously, she taught English as a Teach for America Corps Member and Fulbright English Teaching Assistant. She holds degrees from Cornell University, the University of Hawaii, and the Arthur M. Carter Journalism Institute at New York University. Follow her on Twitter. Disclosure