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Capital Allocation

What gets funded — and at what ratio — determines what the business becomes.

The 70/20/10 Frame​

Google's reinvestment structure remains the clearest public model for balancing risk and return across a portfolio of bets.

  • 70% — Core — The proven engine. Fund it to defend and extend. Don't starve the cashflow source.
  • 20% — Adjacent — Bets close to the core. Proven market, stretched capability, or new channel for an existing product.
  • 10% — Experiments — Moonshots. Most fail. The point is optionality, not expected value.

The ratio is not universal — a startup with no core business has nothing to defend. A mature business that only funds core has no new ceiling to grow into. The split scales with the stage.

The discipline: Each bet competes against the others in its tier, not across tiers. Experiments don't cannibalize core investment — they exist in a protected budget. Without that protection, the urgent always kills the important.

Allocation in Practice​

Three questions before capital moves:

  • What is the current return on existing core investment?
  • What adjacent market validates a 20% bet — not just a hypothesis?
  • What experiment, if it worked, would create a new business?

An allocation that cannot answer all three is a budget, not a strategy.

Risk and Reward​

Sizing the bet matters more than picking it. The standard discipline:

  • Quantify the prediction. The CFO converts a thesis into a probability and an expected return — vague conviction is not a position. See prediction probability.
  • Size the bet against the probability. A 10% experiment funded at 50% of capital is not an experiment — it is a redirected core.
  • Delay gratification. Time beats timing. Compounding rewards the patient allocator.
  • Avoid excessive risk. The best way to win is not to lose. Buffett's wealth model is the public reference — Berkshire's discipline is unspectacular and unbroken.

Probabilities are CFO inputs. The CFO holds the gauge that says "this experiment is worth the 10%, that one is not."

Investment Capital​

When reinvestment requires external capital rather than retained earnings, the finance industry is the source. Private equity, growth funds, and strategic investors are the adjacent-and-core capital channel. Venture capital funds experiments at scale.

Context​

  • Treasury — Capital before allocation decisions
  • Critical Path — What must be true for the core to hold
  • Critical Mass — When scale changes the allocation calculus
  • Scoreboard — Where allocation outcomes get measured