VC Incentives: Logo-Hunting and Optionality

This is the weekly free edition of The Diff, the newsletter that tracks inflections in finance and tech. Last week’s subscriber-only posts:

• A Golden Age for Individual Investors, on how cheaper trades and changes in market structure make now a fun time to be individual investor.
• Vacations as the Linchpin of Eurozone Economic Stability, on the macro and political risk of a very bad summer travel season.
• Guidance: Too Little, Or Too Much? Companies are pulling guidance, and analysts are annoyed. But earnings guidance doesn’t make much sense at a time when one form of uncertainty dominates outcomes.
• Mexico’s Covid Crisis — Eventually: Mexico seems like the kind of country that should be economically hard-hit by Covid-19, but two of their biggest exports won’t face problems just yet.

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VC and Public Choice Theory: Logo-Hunting and Optionality

Agency conflicts involving mispriced options are the root of all evil in finance. Incompetent people have little job security, so while they can make mistakes, those mistakes are usually small — the worse you are at your job, the lower the dollar threshold for a “career-ending” mistake. To really lose a lot of money, you need to hire competent, hardworking people, and then give them terrible incentives.