This interview argues we're in a 'Deployment Age' where technology is being widely adopted, similar to the 1950s—big companies dominate and innovation slows. Venture capitalist Jerry Neumann says VC returns follow a 'power law' (a few companies make all the money), so investors should concentrate bets. Key holdings: The Trade Desk (his ad-tech company that IPO'd for a 100x return), Pebble (smartwatch copied by Apple and failed), and WhatsApp (bought for $19 billion, an extreme success).
Jerry Neumann stated on the Invest Like the Best podcast that the global economy is currently in the "Deployment Age" of the 70-year long cycle described by Carlotta Perez. His core argument is that technological innovation has entered the stage of infrastructure proliferation, and the next 10–30 ye
Jerry Neumann is a New York-based angel investor and founder of a programmatic advertising company. The main thesis of this episode: The current economy is in the "Deployment Age" of the 70-year long cycle described by Carlotta Perez, where technological innovation has entered the infrastructure adoption phase, and the next 10-30 years will resemble the electrification era of 1880-1930. Core judgment: Venture capital returns follow a power law distribution, where a small number of companies capture the vast majority of returns, so VCs should concentrate bets rather than diversify.
Jerry Neumann argues that the global economy is currently in the "Deployment Age" of the 70-year long cycle described by Carlotta Perez. This theory is rooted in Kondratiev long-wave theory, but Perez was the first to offer a compelling explanation for why the cycle lasts 70 years rather than 50 or 200.
Historical Context: Each cycle begins when "financial capital" discovers a cluster of interrelated innovations (a "technological system"), triggering a flood of capital and a bubble. After the bubble bursts, "production capital" takes over, ushering in a more stable and predictable deployment age. Neumann uses the railway era as an example: steam engines, metallurgy, standardized parts, limited liability companies, and stock markets—all had to coexist for railways to be built. Following the UK railway bubble of the 1830s-1840s, government regulation tightened, production capital dominated, and innovation shifted from radical to incremental.
Current Analogy: The ICT (Information and Communication Technology) revolution has passed its bubble phase (the 2000 dot-com bubble) and entered the deployment age. Neumann notes that the 1950s were a typical example of the previous deployment age—Eckert Mauchly Computer Company (inventor of ENIAC) could not secure funding and was forced to sell at a low price in 1950; Digital Equipment Corporation founder Ken Olsen traded 70% equity for $70,000 in funding in the 1950s. This contrasts sharply with the 1990s, when Steve Jobs took Apple public and "no one knew what personal computers could do."
Implications and Signals: If Perez's theory holds, the next 10-30 years will resemble the 1950s-1970s—large companies dominate, innovation slows, and risk aversion prevails. Neumann emphasizes that this is not a pessimistic forecast but a structural socio-economic cycle. Verification signals: whether large tech companies (Amazon, Alphabet, Facebook) continue to dominate the market and whether new entrants struggle to displace them.
> Readers should note: As a venture capitalist, Neumann has an incentive to frame the "deployment age" narrative to justify his investment strategy. He himself admits, "I hope Perez is wrong, because I am financial capital."
Jerry Neumann argues that venture capital returns follow a power law distribution, with the core parameter α (alpha) determining the "tail" length of the return distribution. The α for most VC funds is close to 2 (approximately 1.98), which is a critical threshold: when α < 2, the mean of the distribution tends toward infinity.
Mechanism Breakdown: Neumann proposes a simple model—the power law can be generated by the interaction of two exponential distributions: the exponential distribution of exit timing × the exponential distribution of value growth. When empirical parameters from the VC industry are substituted, the resulting α closely matches actual observations. This implies that the return structure of VC is endogenous, not coincidental.
Key Inferences:
Neumann cites Howard Marks' 2×2 matrix: Exceptional investing requires being both "right" and "non-consensus"—which essentially means embracing uncertainty.
Jerry Neumann proposes that evaluating early-stage companies requires focusing on two dimensions: the replicability of innovation (easy/hard to replicate) and complementary assets (generic/non-generic complementary assets). This framework originates from DJ Teece's 30-year-old paper, "Profiting from Technological Innovation."
Four-Quadrant Analysis:
| Complementary Asset Type | Innovation Easy to Replicate | Innovation Hard to Replicate |
|---|---|---|
| Generic Complementary Assets | Value captured by upstream/downstream | Ideal Position |
| Non-Generic Complementary Assets | Complementary asset owner profits | Mutual bargaining |
Typical Cases:
Neumann's Personal Strategy: He tends to invest in companies with "innovation hard to replicate + reliance on generic complementary assets," as this represents the most sustainable value creation model. However, he also acknowledges that for investors, exit timing is more important than long-term sustainability—Tumblr's acquisition by Yahoo for $1 billion was a successful investment for USV, but not necessarily for Yahoo.
Jerry Neumann argues that virtual reality (VR) offers limited opportunities for startups, while augmented reality (AR) may be more promising.
VR Analysis: Drawing an analogy from the history of radio and television—hardware must become standardized and affordable for widespread adoption, leaving hardware manufacturers with thin margins; content is dominated by large media companies (such as Disney) because they have the resources and willingness to invest. Startups in the VR content space struggle to compete with Disney.
AR Analysis: AR use cases are highly fragmented—factory maintenance, surgical assistance, data visualization, and more. Each scenario requires different hardware and software, meaning AR hardware does not need to be standardized and can be customized for specific high-value applications. Startups can build moats in niche areas (e.g., a specialized company converting maintenance manuals into AR software).
Neumann's Falsification Condition: If VR hardware follows a "winner-takes-all" pattern similar to smartphones (a single standard, mass adoption), then the VR content space may be monopolized by large media companies, leaving limited opportunities for startups.
Jerry Neumann argues that successful VCs are not those who can predict the future, but those who can identify what is "possible" rather than "impossible."
Core Methodology:
1. Distinguishing "bad ideas" from "uncertain ideas": A perpetual motion machine is a bad idea; "may succeed or may fail" is an uncertain idea—the latter is worth investing in.
2. Scenario planning: Neumann invested in seven companies in the programmatic advertising space, corresponding to seven possible future scenarios—one of them (The Trade Desk) went public, delivering a 100x return for him.
3. Uncertainty checklist: List all risks, distinguishing which can be eliminated through due diligence, which are fundamental uncertainties, and which can be reduced over time.
4. Rejecting the "recipe" mindset: If there were a deterministic recipe for building a billion-dollar company, factories could mass-produce them—this is logically impossible.
Neumann's advice on "friends and family" investments: Never—unless it is to support a friend (treat it as a gift, not an investment). Because individual investors cannot compete with professional institutions on information advantage, and intuition is often misleading ("I would be a customer of this product" does not equal "there is a sufficiently large market").
On luck: Neumann admits that his 45% IRR fund from 1997 to 2001 was "pure luck"—anyone could make money back then. True skill is demonstrated by consistently generating alpha after beta has disappeared.
| Position | Guest Stance | Key Data |
|---|---|---|
| The Trade Desk | Bullish (listed, Neumann's 100x return) | Programmatic advertising company, one of 7 companies invested by Neumann |
| Bank Simple | Bullish (successful investment) | Customer-oriented bank, Neumann was the only early investor, later received investment from Ron Conway |
| Pebble | Risk warning (copied by Apple) | Successful Kickstarter crowdfunding, but Apple Watch created direct competition |
| Tumblr | Neutral (successful for investors, questionable for acquirer) | Acquired by Yahoo for $1 billion |
| Case reference (extreme tail event) | $18 billion acquisition, 10-person team | |
| Apple | Historical case (early investors made money, but innovation easily copied) | IPO in 1980 |
| Digital Equipment Corporation | Historical case (funding difficulties in the deployment era) | Founder Ken Olsen exchanged 70% equity for $70,000 funding |
| Eckert Mauchly Computer Company | Historical case (unable to raise funds in the deployment era) | Sold at a low price in 1950 |
1. "We are currently in the deployment phase, and the next 10-30 years will resemble the 1950s — large companies dominate, innovation slows, risk aversion prevails" (Jerry Neumann)
2. "The α (power-law parameter) of VC funds is deliberately maintained just below 2 — this is the dividing line between financial capital and productive capital" (Jerry Neumann)
3. "If there were a deterministic recipe for building a billion-dollar company, factories could mass-produce them — this is logically impossible" (Jerry Neumann)
4. "VR offers limited opportunities for startups (standardized hardware + content dominated by large companies), while AR may be more promising (fragmented scenarios + customizable hardware)" (Jerry Neumann)
5. "To evaluate early-stage companies, use the Teece framework: replicability of innovation × generality of complementary assets" (Jerry Neumann)
6. "Never invest in friends and family rounds on the grounds that 'I would be a customer' — you are not a market" (Jerry Neumann)
7. "Successful VCs are not those who can predict the future, but those who can identify what is 'possible' rather than 'impossible'" (Jerry Neumann)
8. "The α parameter of VC is determined by the interaction between the distribution of exit timing and the distribution of value growth — this is endogenous, not coincidental" (Jerry Neumann)