Envy, Venture Capital, and the Blackstone IPO


Some pundits have said that the Blackstone IPO is evidence that private equity is peaking. When I read this interview with Charlie Munger and his comments on venture capitalists, I began to wonder if private equity is the venture capital of this decade.

"Harvard and Yale are concentrated with venture capitalists that got the best calls and brainpower. Very few firms made most of the money, and they made it in just a few periods. Everyone else returned between mediocre and lousy. When returns happened, envy rippled through institutional money management. The amount invested in venture capital went up 10 times post-1999. That later money was lost very quickly. It will happen again. I don't know anyone who successfully resists this stuff. It becomes a new orthodoxy."

Munger and Buffett often say that envy is the worst of the seven deadly sins because it is the only one that isn't fun to commit. When a group of people make money, others are compelled by an irresistible force to get a piece of the action, even though prices have risen so far above fair value as to guarantee disappointing returns and there are much better alternatives available. I am completely puzzled by this behavior, but I am also glad it exists.

Envy is a powerful force in business. To watch someone else be successful while you work hard on something else – it tempts you to change, to stray from your plan, and to do what they are doing. We are social beings, and want to be accepted, but sometimes the key to success is to not care what others think.