Koalas have one of the smallest brains, in proportion to their weight, among mammals. They are not able to recognize their food, eucalyptus leaves, when they are placed in a bowl or plate. 

They only know how to eat the leaves off branches. If they eat all the leaves on a tree, they won’t go out to find a new tree. Instead, they’ll starve to death. It’s a wonder how these animals have survived for so long! 

They are slow, sleep 20+ hours a day, and appear to lack any ability to fight or run away from predators. Yet, they’ve survived for centuries and are not endangered. 

It’s not because people find them adorable and want to preserve them. They survived by doubling down on their stupidity.

The koala’s diet is 100% eucalyptus leaves, which are poisonous. The koalas evolved to have digestive organs that can neutralize the toxins of such leaves. But it’s a taxing process. 

Also, the leaves are very low in nutritional value. To make up for that, koalas eat a lot of the poisonous leaves, which take far longer for their body to process because….well...it’s poisonous.

However, because koalas eat so many eucalyptus leaves, their entire body is toxic to predators. Predators learned to avoid eating koalas because their meat wasn’t very good for them. 

The koalas don’t get off easy for poisoning their bodies either. Remember how the digestive process takes a long time and costs energy? That’s why koalas need to sleep for 20 hours a day so they can process everything they ate. 

Then, it wakes up and continues to chow down on more of the same poisonous leaves that are so difficult and lacking in nutrition. But that keeps their body poisonous and protects them from predators, by making them undesirable. It creates a confusing cycle of survivability. 

In M&A, this is similar to the “poison pill” strategy when the target company fucks itself to make it undesirable for potential acquirers. But I started wondering if there were companies out there that didn’t realize how toxic they were making their business. Businesses that were able to keep themselves going because of some odd advantage—maybe regulatory or niche industry size—and were able to survive for a long time without competitors coming in. 

This might sound blasphemous, but isn’t that what some venture-backed companies are doing? It sounds awfully familiar to what’s happening in the ride-sharing and food delivery space. Most players in the industry don’t appear to have a clear path to positive free cash flow. Yet, they have a ton of investor cash that gets injected every time—the poisonous, low nutrition eucalyptus leaves.

The cash comes with the requirement for more top-line growth at all costs. So, the companies burn the cash as soon as they can to get whatever growth they can—it’s often low-quality growth. This makes the company an irrational competitor in the industry and makes it poisonous to all other incumbents or new entrants that will need the same stream of cheap money flooding the push for growth. 

It’s one thing to avoid companies that are like koalas. I get that it’ll be hard. They are fluffy, loved by all, do well on the media and have all the visual flash. But they’re also poisonous for everything that wants to eat it too. They’ll make the entire industry suffer as a result. 

For the long-term investor seeking good businesses, just avoiding industries popular with venture capitalists might be the path to salvation. Or rather, it’s a path to avoid munching on poison.