Epistula #14: The Hubris of Timing — Deciens Capital
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Epistula #14: The Hubris of Timing
May 13
Written By Daniel Kimerling — Founder & Managing Partner
Why being right about the future isn't enough to capitalize on it.<br>Timing is one of the most critical aspects in investing. Any investment, and any portfolio, can be made — or broken — by great or terrible timing. Even seemingly mundane things largely outside of an investor’s control, like when they graduate, when they start investing, or when they retire, can have a massive impact on their lifetime returns.<br>But in reading about our industry, I’ve noticed that timing is one of the least-discussed topics. This feels like a miss.<br>I want to share two thoughts about timing in investment management. The obvious caveat is that this focuses heavily on the kind of investing Deciens does: very early-stage companies, usually with a tech or tech-adjacent bent.
Thought 1: Cash burn is an implicit bet on the timeline of technology adoption.<br>In the 1990s, we had pen computing — signified by Palm, Apple’s Newton, and General Magic — and networked computers at scale (i.e., the internet). The inevitability of these concepts was clear. But it was unclear when these ideas would come into their own. When would technological infrastructure, price, content, distribution, and other factors align to enable widespread adoption?<br>For the internet, it really took until the mid-aughts for that to happen, requiring a giant capital bubble and its subsequent implosion. For mobile computing, it took yet another decade for iOS and Android to become the dominant platforms. And it required technological shifts like multi-touch user interfaces and the widespread rollout of 3G cellular networks.
“Being too far ahead of your time is indistinguishable from being wrong.”
— Howard Marks
The Perils of Being "Right but Early"<br>When people invest in these speculative ideas and encourage companies to operate at significant deficits, they are implicitly investing in two distinct things. First, they are investing in the prospect that the speculative idea will prove to be correct (however defined). Second, they are investing in the timeline for when those ideas will prove correct — the timeline defined by the company’s runway and its ability to extend it. Being right on the trend and being wrong on the timing — with a company that is not self-sufficient — is tantamount to being wrong. As Howard Marks famously noted, “Being too far ahead of your time is indistinguishable from being wrong.”<br>Just look at General Magic and the litany of internet companies that were “right,” early, cash consumptive, and worthless.<br>Conversely, investing in self-sufficient companies affords tremendous flexibility, adaptability, and, by extension, an appropriate degree of intellectual humility regarding timing the maturation and adoption of any given technology. In our portfolio, we consistently preach the virtues of eliminating existential funding risk. That, of course, protects our equity investment. But it also hedges against the risk of being wrong about the exact timing of adopting any particular technology. Given that I was born without the gift of prophecy, making such errors seems inevitable and something our investment process can and should account for.<br>Modern Case Studies: VR, AV, and AI<br>Virtual Reality: Since the term “virtual reality” was coined in the 1980s, its history has been littered with companies, large and small, betting on when VR would mature and when consumers would adopt it. Meta spent over $100B building an entire ecosystem that has found marginal adoption at best. They are now retrenching on that mistimed bet, firing the 20% of the company associated with it, and likely regretting renaming their entire corporation after it. The technology and value proposition are still not there — and, in my opinion, may never be.
Autonomous Vehicles: Another idea decades in the making, self-driving cars may finally be taking hold, with Waymo, Zoox, Tesla, and others deploying large-scale fleets in cities across the US and beginning to expand internationally. But Zoox is an instructive example. The company made a massive bet on how quickly it could develop and commercialize an autonomous driving system. When that timeline didn’t come to fruition (and these things always seem to take longer and cost more than people think), they had to find a buyer to be their white knight. In this case, it was Amazon. Zoox was right about autonomous vehicles. It simply ran out of time to be right on its own terms. If they had built their AV program on top of a business that was free-cash-flow generative, like Tesla or Waymo within Google, they could have afforded themselves the years and capital they likely needed to reach the promised land (of autonomy).
Artificial Intelligence: It's very clear that AI portends one of the biggest shifts in technology...