Jerry Neumann - The Deployment Age, Power Laws, and Venture Capital

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_3** (0:59)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
Before we begin, there is something else that I want to bring to your attention. I'm working on a new project, codenamed Frontier, and I'd like you to be involved. The honest truth is that I am not yet sure what Frontier will be, other than a means to connect what has become an insane network of smart, interested and interesting people who can all stand to learn from one another. I aim to bring this universe of learning fiends together and to do so soon. To get involved, you can visit investorfieldguide.com forward slash Frontier, where you'll have the option to sign up for updates and early access or even apply to be part of Building Frontier. Whatever this becomes, it's going to accelerate the rate at which we all discover and apply new ideas in investing and beyond. I can't wait to build it together. Now onto the show.
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.
My guest this week is one such practitioner philosopher, New York City 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 might 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 love 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 Jerry for the first time. You'll find no small talk or even medium talk here. This is a meeting discussion with one of the smartest and most straightforward people I've come across. Let's dive in.
We have a lot to talk about today in the world of venture capital investing and I thought we would start pretty broad, which is with an essay you wrote talking about a theory of another person who I'll let you explain called the Deployment Age. And we'll use this as the jump off point because it's sort of like the big theory of where we are in a very big cycle in terms of financial capital and investing and the economy. So we'll start there. I'll just kind of open it up to you to explain this idea of the Deployment Age and kind of what it means for where we sit today looking forward as investors.

**Jerry Neumann** (3:59)
All right, thanks Patrick. It's an honor to be here. I've listened to your podcast quite a bit and I'm intimidated.
I teach and you find out when you start teaching that if you don't really understand something, you can't explain it to somebody else. So you read a book, you're like, okay, I get it. Yeah, it makes sense. And then you go try to explain to somebody else like, I don't really get this at all. So I went back and I started reading it and I read it and I was skeptical of the theory. And the theory itself is pretty old. Well, it's based on pretty old research. It's based on the Kondratiev waves. The idea that the business cycle has this really long wave that's 60, 70 years, there are smaller waves inside of it, but there's this long wave.