(2004-03-29) Mayfield Power Laws Equity

Ross Mayfield on Power Law and Private Equity. Risk Management has always learned from trial and error. Bets are made on models... The grand horse pucky of risk management was Long Term Capital Management, a massive rock star hedge fund that bet on convergence only to discover the spillover of the Asian currency crisis to Russian default and more. (Maybe a Scenario Planning approach has more value for identifying conditions under which continuous mathematical models might break down.) And with all this interdependence, why would you do anything that isn't a win-win? (Positive Sum)

The point is there is a great opportunity to re-evaluate how venture works. Private Equity earns its historically amazing 25% returns through long-term investing in a diverse portfolio. Hmm weird thought Of The Day: maybe Venture Capital gets these returns because Start Up founders like to start companies, like the Creative Class likes to be creative, so they'll take less financial remunderation than they "deserve".