What is Naval's perspective on the long-term value of "tech startups"?

Okay, let's talk about how Naval Ravikant, that Silicon Valley "thinker," views the long-term value of tech startups. I'll try to use plain language, making it feel like you're chatting with a friend.

The way Naval looks at tech startups is completely different from how we look at a restaurant or a factory, in my view. He sees "magic"—the potential to create tremendous value seemingly out of thin air.

Simply put, he believes the long-term value of a tech startup fundamentally comes from leverage.

You might ask, what is "leverage"?

Hold on, let's imagine a traditional business first. Say, a highly skilled chef runs a top-tier restaurant. How many customers can they serve in a day? 50? 100? Even if they open more locations, they need the same number of chefs, waiters, and space. Their income growth is directly proportional to their costs and labor. That's "no leverage."

Now, let's shift scenes.

Core Idea: Code and Media Are the New Unlimited Leverage

Naval believes the most powerful forms of leverage in our era are Code and Media.

A programmer writes an app, like bookkeeping software.

To serve 10 people, they need this code.
To serve 10 million people, they still just need this code.

See? Once the product is created, the marginal cost to replicate and distribute it to the next user is nearly zero. You don't need to hire an extra programmer for the 10 millionth user. That's leverage! Your initial input (writing the code) is amplified millions of times.

Media is the same. You record one high-quality podcast episode or video; it can be listened to by 100 people or 10 million people, with the same production cost.

Therefore, a tech startup with long-term value in Naval's eyes is fundamentally a "machine that creates value infinitely and scalably." It doesn't make money by "many hands make light work," but by "create once, serve infinitely" to generate wealth.

What Kind of Startup Has Long-Term Value?

Based on this logic, Naval would evaluate a company from these perspectives:

Does it have "Specific Knowledge"?
- What does that mean? This isn't knowledge you can learn from books. It's a unique ability forged through practice, passion, and natural aptitude. For example, a particular team understands how to do efficient marketing automation for small businesses better than anyone else. This specific knowledge is hard to imitate and forms the company's real "moat."
- The plain English here is: Do they possess a "secret sauce" in a particular niche?
Is its product Scalable?
- What does that mean? This goes back to the point above: when the business grows, do the costs grow linearly? Software products are inherently scalable, whereas consulting or outsourcing businesses that sell time are not.
- The plain English here is: Can this business make money passively for you? Can the product serve thousands of users while you're sleeping?
Is it playing the "Infinite Game"?
- What does that mean? Naval emphasizes playing long-term games with long-term people. A company's value needs time to compound. If the founding team just wants to cash out quickly, it's hard for the company to have genuine long-term value. They must be deeply passionate about what they do and committed to solving a long-standing problem.
- The plain English here is: Are these people genuinely building something meaningful, or are they just trying to hype it up, cash out, and leave?

The Investment Perspective: Betting on "Asymmetry"

From an investment perspective, Naval sees investing in startups as an asymmetric bet.

What's "symmetric"? You invest $100. Get lucky, you might make $100. Get unlucky, you lose $100. Wins and losses are roughly equal.
What's "asymmetric"? You invest $100. The worst case is losing that $100 (loss is limited). But if your bet pays off, and this company becomes the next Google or Tencent, your return might be $10,000 or even $100,000 (return is potentially limitless).

That's why venture capitalists are willing to invest in 100 companies. Even if 99 fail, if just one becomes hugely successful, it can cover all the losses and generate massive profits.

They're specifically looking for teams that leverage "code" or "media," possess "specific knowledge," and are committed to the long haul. Such companies have the potential to generate asymmetric returns.

To Summarize

So, when Naval examines a tech startup, he doesn't overly focus on how many employees it has now, how big its office is, or how good the current financials look. He asks more fundamental questions:

Has this company found a solution (leverage) to a valuable problem that can be replicated infinitely at near-zero cost? How high is the knowledge barrier (specific knowledge) behind this solution? Are these founders trustworthy individuals who will build this sustainably for the long term?

If the answers are all "yes," then this company possesses immense long-term value in his eyes, even if it currently looks small or is losing money. Because it's not just a company; it's potentially a "seed" that could change the world and create massive wealth in the future.