Some of You May Die

But it's a price someone is willing to take a bet on

Venture Capital is like war. It’s fought by the young (founders) for the old (investors).

To be fair, company death is a lot better than actual death.

But what makes them similar? One person is making a bunch of repeated bets that all need to work out, and the other is making a bunch of parallel bets that only some of them need to work out.

One person is ergodic. The other is not ergodic.

Another Example:

The experience of one person playing Russian roulette 6 times is very different from 6 people playing Russian roulette 1 time. This is an intuitive example of ergodicity. Identifying an ergodic or non-ergodic situation means looking to see if you get the same result when you track one person’s trajectory over time vs. a population’s average trajectory at a single point in time. If yes, this is considered ergodic; if not it’s non-ergodic.

This can be a useful decision-making lens and, as in the startup example above, whenever someone else gets to turn your non-ergodic bet (one company over 7 years) into their ergodic bet (invest in 7 companies over one year), you are being had.

Most economic models make the math easier by assuming ergodicity. So when two people have a relationship where one is ergodic and the other isn’t, the one with ergodicity is arbitraging this bad math. They collect $ on the risk of death that you take on.

One person is arbitraging the other person’s non-ergodic risk.

Ergodicity is outlined in a profound paper by Ole Peters in Nature. If you want to read more, some summaries can be found here and here.