If you're anything like me, you pay attention when rich investors show you how they got that way. One I know has 10 criteria for investing. They are:
- Clarity of purpose. Great companies can be summarized in a single sentence.
- Large markets. Buy where there's a billion to be made. At least.
- Rich customers. You don't need me to explain this, right?
- Focus. Simple products with obvious value are easy to sell.
- Pain killers. Great businesses solve a real problem facing consumers.
- Think differently. Inventive firms drive their competition nuts.
- Team DNA. Talent attracts talent, and talent usually produces excellent returns.
- Agility. Being first to new markets matters.
- Frugality. Great managers allocate capital only where they must.
- Inferno. Excellent businesses produce huge returns from even small doses of capital.
Now, if you had to guess who this billionaire is, would you say:
(a) Warren Buffett
(b) Donald Trump
(c) George Soros
(d) Michael Moritz
The answer is "d," Michael Moritz of Sequoia Capital -- perhaps the least well-known of these names. But that doesn't mean he's any less of a financial whiz. Moritz was named by Forbes as a top tech investor, and his net worth is estimated to be some $900 million. At Sequoia, the above list of 10 principles is called the "Elements of Sustainable Companies."
Among the names that Sequoia green-lighted after checking the companies' business plans against that outline: Apple (Nasdaq: AAPL ) , Cypress Semiconductor (NYSE: CY ) , Isilon Systems (Nasdaq: ISLN ) , Mellanox Technologies (Nasdaq: MLNX ) , and Network Appliance (Nasdaq: NTAP ) . Not a bad track record.
The art and science of sustainable investing
These principles are crucial to Sequoia's process because -- unlike some venture capitalists -- Sequoia spends years guiding the early-stage companies it invests in. For example, Sequoia founder Don Valentine was on the board of Cisco Systems, another Sequoia find, from 1987 through 2005. Cisco became a public company in 1990. Look what's happened since.
See what's going on here? By investing in sustainable companies early and then holding for the long haul, Moritz, Valentine, and others at Sequoia have earned billions for themselves and their partners.
Rules breaking, fortunes in the making
Now here's the really good news: You don't have to be a venture investor to earn market-crushing returns from great growth companies for your own portfolio. David Gardner proves it. He invests like a venture capitalist all the time as the leader of our Motley Fool Rule Breakers service.
We've yet to earn billions as Moritz has. But I dare say that we're building an enviable record by finding and recommending burgeoning growth stocks that meet his 10 criteria. You can check out all of our research and recommendations at Rule Breakers with a free 30-day pass.
This article was first published July 6, 2007. It has been updated.
Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this story at the time of publication. The Motley Fool's disclosure policy wonders how much silicon actually resides in Silicon Valley.