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:: Tunnel
Pocket Strategy ::
Though widely
abused, strategy is one of the more important things in life. It is not necessarily something one has to think about or declare. A strategy is a pattern of behavior, and if you
look, it shows.
Venture Capital
Funds all have strategies they composed and posted on their web-sites, but those are usually neither inspiring nor important. What is important is how they behave, and I have
recently came to understand some of the strategies they follow.
The "Tunnel Pocket
Strategy" is the second we review here on the List. Listen up.
This is simple. Under
this strategy the fund does not care what is it that the company is doing, at what stage is it and what holdings one has in it. The fund will invest in any company it will think
has a chance to increase its valuation in the near future.
Ah. But there is a
catch here. And a reason why in certain places, that is mainly inside my head, this strategy is also called the "Tunnel Pocket Strategy". Here in the Wadi funds that follow this
strategy usually have common characteristics that make this strategy the best for them - the funds, or companies controlling the funds are publicly traded on the Tel-Aviv Stock
Exchange. If this is the case, the funds have no reason to care what is it that the company is doing, at what stage it is and what holdings one has in it. As long as it can get
additional funding at a higher valuation, it will contribute to the value of the publicly traded
company.
The name is derived
from this situation. Money gets in at the "Private Pocket" and can be easily pulled out at the "Public Pocket". It is in fact a "Tunnel
Pocket".
This strategy is
extremely efficient, as long as money is flowing freely between both ends. If at any given time, the "Public Pocket" is unable to pick the value inserted in the "Private Pocket",
that is, if the companies one invests in don't get additional funding at a higher valuation, money gets stuck in the middle. And if a lot of money is stuck there, it can get
heavy. And this can make one balls hurt. And this is dangerous.
So here is another
reason why it is called Venture Capital.
I assume.
Wadi Writer #1
(Gray)
WadiList@mail.com
Links:
Tasting Strategy - Wadi List #0051
http://www.oocities.org/wadilist/0051.htm
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