Secrets VCs Use To Shatter Ray Dalio's Model

Ray explains that the economy works like a simple machine.

What we found

In my last company, we used AI to discover things about the global economy. For example, the price swings of everyday items are a more vital indicator of economic change than the S&P 500. Certain items, like bananas, are critical economic indicators, and others, like the Costco hotdog, are not.

Coastline test

Benoit Mandelbrot's far more complex but highly accurate model of a coastline is a better description. The length of a coastline depends on the size of your measuring stick because a coastline is a complex shape with fractal properties. A similar thought experiment can be applied to a VC fund.

Venture math

Those involved in VC funds understand that the economy works differently from how most people believe it works. Stanford and MIT's inputs with high market demand do not necessarily equal a meaningful exit. Likewise, state college, inexperience, and rural Nebraska could collide into a significant company.

Network

Influential social media posts often impact more significantly than a large-scale business newspaper. Similarly, a founder with a strong network of influencers has a higher probability of accelerated growth than one with more talent but less reach. However, the thing people should talk about is the agenda.

Agenda

Many need to realize that economic activity has an agenda. By understanding the agenda, you can predict what will happen next. In VC terms, this includes the ideology of the founding team, the opinions of executives, and especially those of significant shareholders. Such agendas can help or hurt a company based on other factors in the global economy.

Macroeconomics

Like climbing a Himalayan Mountain, building a company includes many things outside your control that can kill you. The global economy is one of those things. However, it is not an absolute killer; it is more of an indicator that adjustment is needed. Like the prices of commodities, different economic conditions create alternative opportunities.

Conclusion

Building a company is not a linear equation. It is far more fractal. Like markets and waves, things are sometimes interrupted by periods of upheaval and moments of unexpected terror. Mandelbrot was the first to mathematically prove that moments of sheer panic are more common than most believe.