Skin in the Game

Certain books withstand the test of time and merit periodic rereading. I believe all Nassim Taleb’s books belong in this category, along with Orwell’s ‘1984’ and ‘Animal Farm’ and Kafka’s ‘The Trial’.

So, I just revisited Taleb’s ‘Skin in the Game: Hidden Asymmetries in Daily Life’.

Taleb was a successful Wall Street trader for many years, giving him a critical, in-depth, gut-insider understanding of the financial sector’s inner workings. This, unsurprisingly, did not earn him many friends.

Having dealt with the financial sector for a few years now, I find it remarkable how accurately Taleb’s insights resonate with reality. Thus, I wholeheartedly embrace Taleb’s insights on the financial sector’s non-skin-in-the-game ethos as my own – that said, we found a few truly notable skin in the game exceptions!

But, first, a definition: “No Skin in the Game: keeps upside, transfers downside to others, owns a hidden option at someone else’s expense – bankers, politicians, etc.”

“Don’t tell me what you think, just tell me what’s your portfolio”.

“Avoid taking advice from someone who gives advice for living, unless there is a penalty for their advice”.

“If you do not take risks for your opinion, you are nothing”.

“Those who talk should do and only those who do should talk”.

“Having an assistant (except for the strictly necessary) removes your soul from the game”.

“Beware of the person who gives advice, telling you that a certain action on your part is good for you while it is also good for him, while the harm to you doesn’t directly affect him”.

“Scars signal skin in the game. People can detect the difference between front- and back-office operators”.

“The skills at making things diverge from those at selling things”.

“Things designed by people without skin in the game tend to grow in complication (before their final collapse). Non-skin-in-the-game people don’t get simplicity”.

“Forecasting (in words) bears no relation to speculation (in deeds)’’.

“The same mechanism of transferring risk also impedes learning”.

Conclusion

To the best of our knowledge, no other VC fund has as much skin (and soul) in the game — as a % of total commitments — as Fabrica Ventures.

“Skin in the game, applied as a rule, reduces the effects of the following divergences that grew with civilization: those between action and cheap talk, consequence and intention, practice and theory, honor and reputation, expertise and charlatanism, concrete and abstract, ethical and legal, genuine and cosmetic, merchant and bureaucrat, entrepreneur and chief executive, strength and display, [Joinville and Brasília], human beings and [Keynesian] economists, authors and editors, …. science and scientism, love and money, the spirit and the letter, Cato the Elder and Barack Obama, quality and advertising, commitment and signaling, and, centrally-collective and individual”.