LFP201 – Rethinking Investment Risk & Deep Dive Into Investing in VC w/Alan Vaksman co-founder Digital Horizon

Investment risk has changed radically from what regulators and the media propound. A prime example is that with negative real interest rates and at the end of a secular 40 yr bond bull market the idea of bonds being “low risk investments” is nuts yet widely followed in asset allocation. Furthermore as we touched on in LFP197 on the dollar, hyperinflation and much more and LFP199 on Gold the trend to invest in real assets is growing. As we haven’t yet covered VC from a “how to invest in it” we also dive into this important topic – especially during a tech bull market when most of the value creation happens before the IPO.

So throw out your textbooks and so-called modern portfolio theory (from the 1950s a long long time ago) and start thinking afresh.

Alan is a great guest to discuss this topic with having been a CRO as well as a banker and consultant and now head of Digital Horizon, a VC and Venture Builder firm.

We discuss investing in the 2020s with a particular focus on understanding what investment risk is now, what key new investment risk exists that was never really a thing in recent decades but is now and wrap up with the practicalities of retail investment in Venture Capital. Key points discussed being:

  • a recommendation not to catch the ba2 variant of covid
  • busyness levels in London
  • the Galapagos islands
  • Alan’s professional and geographical background
  • the importance of having a background in building businesses not just being “in finance” for being a successful VC
  • Digital Horizon have offices in London, Tel Aviv, Dubai – looking also in south Europe and Asia
  • the major and growing importance of a new category of risk – jurisdictional risk
  • the Nomad Capitalist (on YouTube and book on Amazon)
  • “legacy brands” re countries
  • increasing importance of diversifying your business as well as investments by country to overcome this challenge
  • also the importance of investment across stages for VC risk
  • not just that things are changing but the rate of change itself is increasing which produces a radically different investing background
  • the irrelevance of textbook theory of risk as short term price volatility in the current markets
  • bonds are hardly “low risk” when you are guaranteed to lose money in real terms!
  • PE & VC in an environment of higher inflation
  • importance of changing your mentality in a totally different investment world
  • the two philosophical positions on Finance risk from the 1920s – “the future is unknowable” vs the statisticians playing with numbers as a guide to the future
  • the above covered in “Radical Uncertainty: Decision-Making Beyond the Numbers” Lord King and John Kay
  • the need to both understand the business (in VC) as well as “understand the figures”
  • VC investing in tech considerations
  • “clicktrust” as a factor in how fast tech can grow in different countries
  • Aristotelian vs Platonic views of the world and risk/business/VC
  • integrating the top-down and bottom-up perspectives on VC investing
  • listing and correlation with monetary policies
  • correlated and non-correlated assets
  • the correlation and lack of correlation with listed assets across the stages of VC investment
  • the need for all to consider VC as an investment category in the current market
  • Alan’s suggestions on relevant percentages of portfolios that should be in VC
  • the time period of VC investments compared to stage
  • how to invest in a good spread of VC investments – challenges and possibilities
  • multi-stage funds
  • geographically-diversified VC funds cf regional
  • number of unicorns – 1st US, 2nd China (but hard to invest in), 3rd Israel
  • speed of growth in tech: hardware vs software
  • biotech longer too
  • speed compared to how much human intervention vs automation
  • Digital Horizon’s upcoming platform to enable smaller ticket investment
  • challenge of investing in a market where VCs raise funds rarely and then spend a lot of time investing it before raising more
  • liquidity, secondary VC markets
  • open funds
  • cf listed VCs
  • Digital Horizon’s focus on “smart investors”; diversification across several parameters
  • cf smart angels – money and expertise
  • too many people are not invested in/exposed to the tech boom even though they use it every day
  • crypto cf Bankers Trust
  • the vital importance in a world of discontinuities of a discontinuous attitude to investment and FS risk

And much much more 🙂

Share and enjoy!