Jeffrey Bussgang

Can VCs be value investors?

October 6, 2010: 10:49 AM ET

Venture capitalists must be good stock pickers and builders of young companies. They don't operate with a margin of safety, but they can learn from the principals of value investing.

By Jeffrey Bussgang, contributor

Warren Buffett cites Security Analysis 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. More

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