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Moats (Part 3 of Sci-Fi Learnings)

Moats (Part 3 of Sci-Fi Learnings)
By Adam Draper • Issue #82 • View online
Moats. Regulatory, Technical, Informational, Distributional

After posting my “Moat” post last week, my friend Vic Singh, GP at Eniac, lover of all things Sci-Fi, and huge Tupac fan, sent me his blog post where he focuses on Compounding Moats of tech startups focused on the stages of Innovation adoption, around distribution, its great.
I don’t disagree with Vic. In fact, if we worked together on our Moat blog posts, we would have the perfect set of compounding Moats ever described on the internet. If I ever get a time-travel device, I’m 100% going back to the moment that Vic pressed enter, and stopping him so that we can collaborate.
In my previous post, I described how getting through regulatory approvals can slow down the competition, and allow you to run faster/farther.
Something that Vic doesn’t cover is a secret.
I would say “Secret” or Informational Moat’s are rare, and awesome. From my perspective, the best informational Moat example is Moneyball. The Oakland A’s used analytics to track players who would “Get runs” not just who were All stars. Using this informational arbitrage, with a much lower budget, they are able to compete against the Yankees, which has a budget nearly 2.5x the size.
The problem with informational Moats is, when the cat is out of the bag, the cat is out of the bag. Once everyone knows the secret, it’s no longer a secret. Every baseball team has an analytics position on their team now. They all have the same list, that shows the under-valued players in the league, which has led to a larger investment across the league into their farm teams.
Now that everyone has moneyball, what does moneyball evolve into?
The A’s are still punching above their weight class… but the Tampa Bay Devil Rays, in the American league, with an annual payroll of $66m, has 96 wins. Where The yankees (although still winning the league) have an annual payroll of $220m, and 103 wins. That means the yankees pay $2.1m per win, and the Devil Rays pay $680k… So there is a new form of moneyball at play… some informational arbitrage that the world doesn’t know about yet, and it’s in the Ray’s analytics department… I’m digressing. I’m talking about moats.
Informational Moats are great, it gives you time. But once the secret is out, the world knows about it, and there’s no more informational arbitrage, however you do have a competitive advantage of experience that allows for you to stay in the lead for some time.
A question I have been thinking about recently is, what is a Moat worth? 3x? Like if two companies with the same idea started towards solving the same problem at the same time, but one of them had the secret to the market, and the other did not, what is that time worth? 18 months? The compounding brand of being the leader?
It’s important to think about what Moat you have as a company.
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Adam Draper

I ponder as a VC.

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