🌊 The Black Swan: What Founders Miss About Risk
I’m Ivan Landabaso, VC at JME.vc. Startup Riders is a weekly newsletter where I go down startup rabbit holes and share actionable insights.
Summary
🦃 Black Swans & Turkeys: lessons from Nassim Taleb
💪 European Startups: and why they are on the rise
💵 Recent Deals in Spain: come join the Spanish startup scene
💭 Thinking or Reading: Natural Language Processing 101
🦃 Black Swan’s and Turkeys
Nassim Taleb’s Black Swan is a must read for anyone interested in risk and uncertainty. The guy is super interesting and a clear outlier (former trader).
I remember thinking how full of cr*p most of the economic models I studied at university where, especially when it came to their assumptions. I liked econometrics, but as an intellectual exercise - not a tool to predict real-life events.
Net net: We are chronically unprepared for the next big unexpected event because we rely too much on incomplete theories, limited models and wobbly historical narratives.
1. We humans are really bad at predicting stuff
The main idea = humans are pretty blind with respect to randomness, especially when it comes to large deviations. He discusses (at length…) how often we use statistics and probability to falsely estimate the likelihood of real-life events.
A key concept discussed is epistemic arrogance - which occurs whenever people begin to think they know more than they actually do. Today, we have a lot of those people.
2. Unlikely events (Black Swans) happen and have dramatic consequences
Dutch explorers found black swans in Western Australia in 1697 - and their jaws dropped to the floor because it was believed to be impossible.
Taleb refers to Black Swans as unpredictable events not because they are random, but because our “predictive” outlook is consistently too narrow.
There’s a long list of black swans out there, 3 examples:
Covid-19
Smallpox killed >90% of the native population in the Americas.
Both World Wars
Those who are the least aware of a Black Swans, will suffer the most from its often extreme consequences.
3. Do not use past events to predict the future
Here’s where the turkey emoji comes in 🦃.
Lets assume you are a turkey, you are born - and every day that passes by reaffirms your belief that you will continue to be fed by this gentle human.
At day 400, you are living the dream.
On day 1000, its Thanksgiving - and you get your head chopped off.
Taleb uses this story to illustrate the philosophical problem of induction - aka past performance is no indicator of future performance. He links this argument to a long list of activities we humans engage in today as jobs or hobbies - and warns us not to be turkeys.
4. You can train yourself to better expect the unexpected
Avoid the problem of induction aka don’t be a turkey.
Avoid the ludic fallacy aka don’t try to assess real world risk as if it were a game. Taleb presents a great example on how casinos spend tons of $ on security, but their biggest losses come from hidden risks i.e. an employee forgetting to submit taxes or an owner’s daughter being kidnapped.
Avoid narrative therapy - when something unexpected happens, we comfort ourselves by piecing together a story and get our sense of control back. Prescription? Admit you don’t know more often!
Avoid “Platonifying” the world - mathematical models taught at university have led us to believe real life to be much more clear-cut than it actually is. Better not forecast than to follow the wrong map.
Beware of silent evidence - we all have our hidden biases (unknown unknowns), meaning we tend to focus far more on evidence that is easily available than that which is hard to dig out. A good example is survivorship bias in the startup world. Prescription? Spend time finding counter-examples - don’t just study the successful startup, look at all the ones that launched the same year.
Barbell investment strategy [Not investment advice]: This is what Taleb used as a trader. It consists of avoiding medium risk investments and putting 90% of money in the safest instruments available, with the remaining 10% placed on extremely speculative bets.
💪 European Startups
Here’s some feel-good content: European startups are on the rise, and we should be adding fuel to the fire 🔥.
According to Index Ventures’s 2020 report, things are taking off. Here are my 3 main take-aways from the report:
1. We’re growing unicorns, and most are venture backed
2. Snowball Effects: Role Models Emerging
3. Startups Leading Job Creation
💵 Recent Deals In Spain
You love startups and want to 10x your quality of life?
Come join the Spanish startup ecosystem. Here’s a list of recently funded startups:
KubikData (adtech) raised €1.5m
Cornea Project (healthtech) raised €1m
Nebeus (Crypto) raised €955k
ChainGO (Logistics) raised €950k
Laagam (fashion) raised funds.
Alias (Robotics) raised funds.
💭Thinking or Reading
NLP Zero to Hero
A great use of 35 minutes - get yourself a bird’s eye intro to natural language processing with this Google guy:
The greatest combat sports documentary - ever.
Intelligence and fear are very close together. - Rickson Gracie
I don’t care if you know nothing about martial arts, or even if you are not interested in them - this documentary is worth it.
Following Rickson Gracie, Brazilian Jiu Jitsu legend, the documentary shows how he enters a crazy tournament in Japan. Most underrated documentary / film ever.
Learning to learn
If you are interested in learning, this talk at Google by Barbara Oakley is fantastic.
If you find this interesting, please consider sharing with your friends. I’d also love to get your thoughts and feedback on Twitter. Until the next one! 🤙