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Reputation outweighs a bad pitch
Everything else a person has can come and go, and reputation is the one that sticks, even after death. A clip from Buffett's deposition for Congress, given as chairman of Salomon Brothers over the firm's conduct in the Treasury issuing market, played at the start of the Berkshire annual meeting every year. In it Buffett draws the line that Salomon could lose money, even a lot of it, and could not lose a shred of reputation.
Trust works the same way. When Jensen Huang pitched Don Valentine of Sequoia, Valentine found it the worst pitch he had ever heard and gave Huang the money anyway, because Huang's reputation had arrived first. Charlie Munger's line fits: trust is one of the greatest economic forces in the world.
Why did Buffett end up running Salomon?
Berkshire had invested 700 million dollars in Salomon preferred stock in 1987. In 1991 the firm admitted that a trader had submitted improper bids in Treasury auctions. Its chief executive resigned, and Buffett, representing the largest shareholder, took over as interim chairman. Salomon settled with regulators in 1992 and paid 290 million dollars.
Why did Sequoia fund Nvidia in 1993?
Huang had worked as an engineer at AMD and then at LSI Logic before founding Nvidia in 1993 with Chris Malachowsky and Curtis Priem. LSI Logic's chief executive, Wilf Corrigan, knew Sequoia's Don Valentine and vouched for Huang, according to accounts of the funding. Sequoia invested in Nvidia's early rounds. Nvidia went public in 1999.
Why is trust an economic force?
Economist Kenneth Arrow wrote in 1972 that virtually every commercial transaction contains an element of trust. He added that much of the economic backwardness in the world can be explained by a lack of mutual confidence. Political scientist Francis Fukuyama argued in his 1995 book Trust that societies with high social trust develop larger, more complex firms.
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