Venture Investing Magic Formula - how to selecte the best companies to invest in

Our goal is to find an outstanding business at a sensible price,
not a mediocre business at a bargain price.

The Magic Investment Formula

The magic venture investing formula is simple: invest in young, good, innovative, and growing companies while they are cheap.

But what is "good", and what is "cheap"?

Joel Greenblatt, who has been incredibly successful running a hedge fund in part according to this Buffett-like approach, defines good and cheap companies as follows.

Good companies → earn high returns on their investments.

Cheap companies sport share prices that are low (based on past earnings).

His proxies for these criteria are return on capital (operating profit as a percentage of net working capital and net fixed assets) and earnings yield (pretax operating earnings compared with enterprise value, which is the market value plus the net debt). >>>

Buffett's 5 Tips for Individual Investors ▪ Warren Buffett's 7 Contrarian Principles

VC Investment Criteria

People / → management that can → get the job done

A brilliant idea or technology that can be → commercialized >>>

A well-prepared and focused → business plan that provides clear direction >>>

Effective → Business Model

A strategy that has a strong → sustainable competitive advantage

A reasonable price per share >>>

6 VC Investor Questions ▪ How To Get Better Investees ▪ Stronger Business Design

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