> "Never invest in a business you cannot understand."

Which suggests a #10 on the OP's list: investors don't understand technology very deeply or widely. The last boom was the web, so we have an over-population of investors who understand the web (to the extent that they "grok" any tech at all).

MVP and user traction makes a lot of sense for web startups. Web startups are low-capital, in many cases so low capital that they can be funded by someone working on the side as a Starbucks barista. It's popular because a tiny team or even an individual can often build something minimal, get traction, and then make what amounts to a gigantic ROI. Imagine said Starbucks barista doing a proof-of-concept that gets a million users... the ROI there for the individual is insane (like thousands of percent), and the potential ROI for the investor is quite large as well. Web startups generate a lot of very real rags-to-riches stories.

But this formula simply doesn't translate to anything that is at all capital intensive. Basement hackers are never going to prototype new mass transit solutions, try to mine asteroids, design 3d printers to print human organs, or build a fourth-generation molten salt reactor. Not gonna happen.

I believe your point about Buffett is spot on. He's mentioned 'circle of competence' philosophy a number of times. Although I'm not sure if he meant specific companies, but rather industry trajectories. I also think the post's treatment of Buffer was in poor taste.

Other than that, I was nodding my head all the way through this :).

My initial comment comes across a little too strongly against the article because it singles out one thing I found to be highly misleading. I think, ultimately, SV investors don't encourage much innovation. I wish there was more capital available to fund innovators such as Musk. However, I think the article's usage of hyperloop as an example of important ideas that don't get funding is premature, to say the least. There needs to be a lot more debate about the pros, cons, and legislative ramifications of hyperloop before championing it as something people should invest in.

Those aren't contradictory. If you put the two statements together, the claim is "real investors should understand more industries". You can agree or disagree with that, but it reconciles the two pretty simply.

I get the impression that investment banking culture is biased against that in the sense that it does not hire polymath geek types. It hires suits with finance degrees, or people who have a demonstrated record building businesses. Since we just had a huge web boom, the latter category is going to be stacked full of people who get the web and only the web. Hence we're spacing out our tweets, not commercializing space.

I think the modal background for VC is still someone who came over from an investment bank, and your statement doesn't really characterize their hiring. Investment banks don't hire suits. They hire kids. They hire smart kids from Harvard and Wharton, increasingly those with nerdier backgrounds, but ultimately kids who don't know anything. Then they impart unto these kids their incredible institutional experience with financial analysis. And from there, those kids go forth and become VCs and PE guys and HF guys and CFOs, but they take with them a singular focus on financial analysis.

This is why Wall Street hates Apple and loves GE and relegates VC off to the side. And that's also why hyperloop doesn't get funded. Because the people with billions to throw around, which the VCs don't have, can do the financial math to realize that projects like that aren't going to be sufficiently lucrative to justify the enormous risk.

> I get the impression that investment banking culture is biased against that in the sense that it does not hire polymath geek types.

But they do -- they's called "quants." They aren't as popular as they were 20 years ago, but they're still hired. And they're notoriously incapable of assessing risk versus reward.

http://en.wikipedia.org/wiki/Quantitative_analyst

> It hires suits with finance degrees, or people who have a demonstrated record building businesses.

Only in an ideal world. Not this one.

I think "I care about an industry" versus "I understand an industry because I care about money" is one (of many) things that sets Buffett apart from your average person throwing a couple bucks at a company.

>> "This is in direct opposition to what Buffet has actually said about investing [1]"

I disagree. Buffet probably knows quite a lot about those industries. You don't need to be an expert you just need to spend some time getting to understand them well enough to make a balanced decision.

I never argued that Buffet doesn't understand railroads, furniture companies, etc. My point is that there isn't enough information about hyperloop, yet, to truly understand the risks involved in investing in it.

I thought you were speaking more generally about investing not specifically about Hyperloop. My mistake.

The issue is this: "real investors don’t care what industry they invest in"

That's a drastically bogus statement. First of all, it attempts a rather lame argument from authority ("real investors").

Second, Warren Buffett has, for about five decades, been exceptionally clear about his investing philosophy. He has written magnitudes on it. You can read it in the lines of his annual letters, and watch him explain it on countless CNBC clips. He absolutely cares what industry he invests into. One simple example: he said in the 1990s that he wouldn't invest into Microsoft, despite having become friends with Bill Gates, because he couldn't understand the tech sector well enough to pick winners. He famously stayed away from all tech stocks during the roaring '90s, with the explanation that he didn't understand any of the segments.