I read a few good stuff this weekend.
One of the best is this “resignation” letter written by Jerry Neumann, a 25-year venture capital investor.
Jerry wishes to tell us how he got into this space and why he is not doing this anymore.
If you are an investor, you might have a glimpse how unique his mental model about risk and investing, compare to your own mental model. If you are a financial adviser or general personal finance junkie, you will learn about something else.
I will pick out the stuff that I connected with the most.
Knightian Uncertainty – Invest in a Portfolio of Uncertainty.
Jerry has this theory that made him largely successful in getting into companies like Datadog and the Trade Desk.
But only a small handful of investors share this theory.
This was interesting because most of the VCs I talked to didn’t really have an articulable theory of company-picking other than “find good people with good ideas”.
To folks like Jerry and myself, I wonder to be successful in this space, we really have to depend on something so subjective. Jerry wanted a better theory and he found a better one, but an older theory.
My friend Josh Reich and I were sitting in my office talking about startup valuations. He asked me why no one used DCFs, the gold standard valuation technique. I said it was because things were too variable. He countered that that was what the discount rate was for. I thought for a minute and said that things weren’t just risky, you couldn’t even know how risky they were, so you couldn’t rationally pick a discount rate. “Oh,” he said, “Knightian Uncertainty.”
The idea of Knightian Uncertainty, that some things, especially in
