How strong is your moat?
Hint: it’s not about your patents
I saw a Tweet earlier this week from @bernhardsson about how to estimate the potential for moats in a particular problem. Here’s an excerpt:
“…pick problems that take about 1.5-3 years to solve well. If it takes less, then you have no moat (or people already tried and it was a bad idea). If it takes longer, then you're going to run out of money.”
This is a great heuristic. Of course the alpha in any startup comes from being able to estimate this timeline accurately, which is incredibly hard to do.
Often times hard tech founders will tout patents as a moat. This can be true in certain circumstances, but to be a bit provocative (and quote Elon Musk…), ‘patents are for the weak’ (https://x.com/0xgaut/status/1804858704870732048?s=46&t=dZsJH-Lx-bAqRc0aemHMpg). In reality, great moats are built by exceptionally talented teams consistently and urgently executing ambitious plans over long periods of time.
Hi Mike,
Great read. I agree that it can be a little difficult to gauge how long it will take to truly solve the 'initial' problem, as companies will have to go through many different iterations. I'm curious, from Also Capital's investing pov, how do you assess the moat of a company if a lot of the underlying hard tech issues can take 3+ years to resolve? What other strong attributes of companies do you all look at?