Invest Like the Best is one of my favorite podcasts. Hosted by Patrick O’Shaugnessy, Invest Like the Best profiles investors from many different disciplines. Recently, New York seed investor Jerry Neumann spoke on the show and talked about three key ideas on the technology innovation cycle.

First, he discussed reading Carlota Perez Technological Surge Cycle. I first read Perez’ book after Fred Wilson wrote about it. Jerry describes the theory very well in about 10 minutes. The key idea is each technology cycle lasts 70 years, and is broken into two phases installation and deployment.

The installation phase requires huge amounts of capital to create infrastructure. Perez calls this capital finance capital. Finance capital is risk seeking capital, which is distinct from operational capital, the cash on corporate balance sheets. It’s nearly impossible for most companies to invest in speculative technologies like Bitcoin three years ago, because the business case for return on investment simply can’t be made credibly.

During the deployment phase, new technology advances diffuse through the world and change people’s lives. The investment risks are lessened, because infrastructure exists, business models are clearer and demand more apparent. Consequently, operational capital is now used to further technology adoption.

Second, Jerry distinguishes between uncertainty and risk. Insurance companies deal in risk. Risk can be measured, analyzed and hedged. Uncertainty, as defined by Frank Knight, a professor at the University of Chicago, is impossible to quantify. No one really knows what will happen. The very earliest companies all face uncertainty. Later stage businesses defuse that uncertainty into risk. There’s a parallel in Perez’ installation and deployment phases.

Third, technology revolutions are systems that only move as quickly as the limiting factor. The American diner revolutionized restaurants in the US. But it wasn’t the car that gave rise to the diner. Gas stations popped up every 100 miles with service stations. Interchangeable parts and novel manufacturing techniques reduced automobile prices. But, it was the creation of tens of thousands of interstate highways by Eisenhower’s Interstate Highway System in the 1950s and 60s that changed the American landscape. Each of those parts, in addition to others, was essential.

Overall, the interview is wide ranging and a fascinating 90 minute tour of technology revolutions, and the impacts for modern Startupland. If you’re looking for a deeper summary of the interview, Conor Witt has written one here.