My guest this week is Jerry Neumann. Jerry is one of the most thoughtful early stage investors that I’ve encountered, and his writings at reactionwheel.net are my favorite on this topic. He applies an incredibly structured way of thinking to a notoriously mysterious investment category. This is our second conversation, in which we cover why investing with one’s gut is a bad idea and why some of the popular edges in startups, like network effects, may be picked over. Please enjoy our conversation.
For more episodes go to InvestorFieldGuide.com/podcast.
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
Show Notes
1:17 - (First Question) – His take on the venture landscape and the type of investments new VC’s are making vs what they should be making
3:44 – Most important implications of excess VC firms
5:32 – Misalignment of incentives in the VC space
8:19 – What he does differently from angel investors or VC’s
10:11 – The notion of risk and the types of risk the people he invests in takes
14:33 – Protections that he thinks about when it comes to the ideas he invests in
19:37 – Is there an area of expertise that provides an edge for startups
20:11 – Network effects are picked over
21:35 – IP protection
23:08 – One of the two most interesting things for VC’s to go after, brands
25:13 – The other most important thing, the value chain
27:42 – A current example of a disruptive value chain
29:14 – Innovation as the source of profit
29:16 – Schumpeter on Strategy
31:50 – Efficiency innovation vs value innovation
31:52 – Energy and Civilization: A History
35:50 – Efficiency investments he’s made
37:13 – Investment in Unsupervised and the machine learning landscape
41:25 – Investment in Sila
43:14 – Investment in Edmit
44:44 – investing on gut
50:32 – Black boxes and their value in investments
53:23 – Metrics about the predictive level of whether people are going to succeed
54:45 – What defines good people worth backing
57:50 – Advice for LP investors in this space and how they should evaluate VC’s in this space
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
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