Jerry Neumann - The Deployment Age, Power Laws, and Venture Capital - [Invest Like the Best, EP.45]
Invest Like the Best with Patrick O'Shaughnessy
The S Curve Theory
Government regulation led to a predictable and stable market driven by production capitalists. This cycle of innovation, investment, bubble, crash, and regulation has been observed in the last five waves of technological revolutions.
I am drawn to a group of investors that I call practitioner philosophers. These are people who have gotten their hands dirty in their respective fields, but despite being doers, they still often sit back and ponder the big questions in business and life.
My guest this week is one such practitioner philosopher, NYC based venture capitalist Jerry Neumann. I came across Jerry's essays a year ago, and he is on a very short list of writers whose work I read without fail and almost always more than once.
You can think about this conversation on business, investing, and venture capital as a big funnel. We start very broad, discussing where we may be in a large 70-year economic cycle. We then break down the so-called power law which seems to govern venture capital returns and business outcomes. Then we get even more specific, discussing Jerry's process for evaluating early stage companies, and the particulars of what might make a good venture capitalist. I say "might" because as Jerry explains often, nothing is certain, and luck may always play a huge role.
I just loved this conversation. It is the type that without the podcast as an excuse would be a very odd and intense one if I were just meeting someone for the first time. You'll find no small talk or even medium talk here. This is a meaty discussion with one of the smartest and most straightforward people I've come across.
Books Referenced
Thomas Hughes – Networks of Power: Electrification in the Western Society, 1880 – 1930
Frank Knight – Risk, Uncertainty, and Profit
Links Referenced
Howard Mark’s 2x2 matrix of superior investment results
Michael E. Porter - How Competitive Forces Shape Strategy
DJ Teece: Profiting from Technological Innovation
Show Notes
3:27 – (First question) – Start with Jerry’s essay the Deployment Age and a look at what it means for where we sit today (looking forward as investors)?
3:40 - Deployment Age
4:26 - Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages
9:28 – What time in history can you compare our current deployment age to and what does that say about the next 10, 20, and 30 years?
9:40 – Oswald Spangler
11:09 – About Men; Corporate Man
18:06 - Networks of Power: Electrification in the Western Society, 1880 – 1930
20:40 - What lessons should venture capitalists make from these deployment age cycles
25:27 - Risk, Uncertainty, and Profit
26:50 – Howard Mark’s 2x2 matrix of superior investment results
32:56 – Nassim Taleb: Powerlaw
42:31 – Venture Follow-on and the Kelly Criterion (Jerry's Blog)
44:34 - How have you have actually done this, Jerry? What is your process like and your focuses?
54:00 – Are there any circumstances where it is wise for friends and family to make venture investments?
59:20 - What is this idea of who profits from innovations?
56:12 - DJ Teece: Profiting from Technological Innovation
1:02:57 – Understanding complimentary assets
1:05:06 - Porter’s Five Forces
1:09:24 - Are Augmented and Virtual Reality interesting areas for venture capital and why?
1:15:28– What makes a successful venture capitalist? What makes you special?
1:26:03 – Kindest thing anyone has ever done for Jerry
Learn More
For comprehensive show notes on this episode go to http://investorfieldguide.com/jerry
For more episodes go to InvestorFieldGuide.com/podcast.
To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
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