Tag Archives: Private information

Private information

I spend a lot of time consuming and processing information to inform my thinking. This thinking is what eventually informs my investment decisions. I believe that success in VC is determined at least as much by the quality of your investment decisions as by how much value you add to the business post-investment. So the time I spend consuming and processing information is very important.

There are two types of information that one can access. These are public and private information.

Public information, by definition, is information that everyone has. And since everyone has access to this information, it’s difficult to gain a competitive edge when investing based on public information.

A great example of public information is news articles. By the time something is covered by the media, the action has already taken place. As a result, any returns to be gained based on acting on the information in the article have already been taken by others.

The fact that public companies need to make most of their information public is why it’s much more challenging to generate outsized returns in public markets than in private markets. In the public markets, you’re making investment decisions based on information which is accessible to everyone willing to put in the time to research, read, and understand it. Trading based on insider (in other words private) information is illegal. To produce a return, you need to have an insight that others who have access to the same public information don’t have. That’s challenging and rare.

In private markets, however, having an insight that others who have access to the same information don’t have is just one way to make money. And it’s the difficult way to do it. The second and relatively easier way is to have access to information that others don’t have.

This private information comes largely from personal connections. Whether it’s an entrepreneur you’ve backed who shares the new business idea that their friend is working on, another investor who tells you about a company that they’ve decided to invest in for which they can’t fill the entire round, or another opportunity that you discover because of your local network in a particular geography, it’s these personal connections that give you an edge when investing in private markets.

This is also why being able to make follow-on investments in your winners is so important. As an existing investor in a company, you have private information about what’s going well at the company and what isn’t which others don’t have, and you’re able to use that private information to inform your investment decision.

You want to act on opportunities before they hit the news. You want to be front-running and helping create the news. And having a unique insight is just one way to do that. Having access to private information is the second and easier way.

The value of private and public information and insights

I try my best to share as much as I can, as openly as I can, on this blog. And, relative to most publicly available content, I think I do a pretty good job.

However, there are many times when a company or individual’s privacy prevents me from sharing information or a valuable insight. When I can, I conceal the specific identity of the company or individual and relay the information or insight in a more generic manner. However, this isn’t always possible.

In fact, the more I write, the more I realize that there’s a direct correlation between the value of the information or insight and the need to respect the privacy of the company or individual that is responsible for it. In other words, I’m unable to share many of the most valuable pieces of information and insights that I come across as they require privacy.

This doesn’t mean that it isn’t worth writing. There are other benefits to writing, and I also find value in the information and insights that I am able to publicly share.

However, some of the most valuable pieces of information and insights in our world are buried deep within people and organizations. They’re not in the public domain.

As such, accessing them requires more than reading what’s publicly written. It requires cultivating, maintaining, and accessing networks of people that hold these pieces of private information and insights.

Startup information

People often ask me for information about our startups. Investors, competitors, entrepreneurs, potential employees, my friends and family, and others all want to know how a particular startup is doing.

In these cases, I pay attention to only share that information which the startup has already shared in a public setting. If the startup hasn’t shared the information, I don’t either. My memory is fallible so I’m sure there have been a few times when I shared a piece of information thinking that the startup had already shared it publicly when they actually hadn’t. However, I think I do a pretty good job of sticking to this principle in general.

If I’m asked to share information that I know isn’t public, I respond by stating that I’d need to ask the company’s founder for permission before doing so. Most of the time the inquirer understands that this is likely private information and therefore takes back their request. However, sometimes they still ask for the information. In these cases I check with the founder before getting back to them. I know that sometimes this frustrates the inquirer.

If it were up to me, I would share that information which is the output of strategic decisions taken by the company, but not information which can be used as an input to strategic decisions.

For example, I would share a website’s overall visitor count because this is the output result of many factors like the size of the market, the quality of the product, search engine optimization, and marketing. Knowing how many visitors a website has gets the recipient of this piece of information no closer to replicating the website’s performance.

However, I wouldn’t share how the company’s marketing budget is evolving as this may contain valuable strategic information about which channels work to drive traffic in that specific market. This information could then be used as an input in the design of a competitor’s marketing strategy.

Ultimately, however, it’s up to our founders to decide which information they want to share and which they don’t. And it’s our responsibility as investors to respect this.