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Google Ventures Wisely Takes Moneyball Approach to Startup Investing

|Includes: Alphabet Inc. (GOOG)

A story that has gotten a fair bit of airplay on the leading technology blogs is that of Google Ventures using a "moneyball" approach to its process. For those unfamiliar, "Moneyball" is a term associated with the approach to selecting baseball players used by Billy Beane, General Manager of the Oakland Athletics (a professional baseball team in the United States). The term refers to making investment decisions in players based on a deep analysis of the player's performance, and combining this with analyses of other players on teams to create a model for a team's performance. Google is perhaps the most information rich company on the planet, in the sense that not only does it have access to enormous data, but it also has the competence in querying this data as needed.

How I think this is worth considering for Google shareholders:

1. Strategically, I think Google is in a great position to disrupt the banking industry (as I have noted in my previous coverage of Google on SeekingAlpha), and I believe innovating on the financial trajectory is one of the areas where the firm can be most disruptive. I believe the virtual currency is the key milestone that really unlocks the new monetary infrastructure, the one that will emerge as nation-state currencies continue on the path towards hyperinflation -- though an entire infrastructure for economic transactions will be needed, as so helping to build the financial markets of tomorrow is essential as well. I believe a new world of financial exchanges, driven by big data, "moneyball"-type approaches, as well as claiming a digital realm and a private corporation as its jurisdiction, is coming, and that Google Ventures' decision to utilize the big data approach signals another step along the way.  

2. More immediately, this could represent the means by which Google escapes trap of Bubble 2.0 -- if it can find the cheap enough startups to invest in as alternative to the ones that have been priced out by the Bubble. Moreover, I think Google has made a number of acquisitions that will prove to be overpriced; if Google Ventures can be used to help Google Inc. become a more efficient acquirer, it could yield greater earnings with a corresponding effect on share price. This does assume that Google Ventures and Google Inc. will develop a deeper relationship, which may sacrifice long-term opportunities. 

Ultimately, though I think a simple summary of this situation for shareholders is that Google's best opportunities lie in disrupting the energy and banking industries; the extent to which the big data approach being used by Google Ventures helps Google profit from building the financial markets of tomorrow is the extent to which this story constitutes a massive opportunity in real growth (beyond inflation). 


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.