Harari in the chapter "Ignorance" from Yuval Noah Harari’s book "21 Lessons for the 21st Century" claims that the impact of technology is so widespread that the lines between factual information and fiction are now so blurred that it's impossible for anyone to know the current situation or anticipate the future.
We are all aware that he's correct. In order for anyone to "make sense of everything," the world *hasbecome complex. Due to the interweaving of uncertainty, it is unlikely that we will ever achieve the same level of awareness as we had before.
With this in mind is it possible that ordinary venture investors be able to prosper in the future? Is it really going to be possible for a single angel or a small number of venture partners to grasp the current trends in the unrelenting advancements of technology and the emergence of many different and exciting areas of technology? Does anyone in the venture capital industry in the near future be able to say they are knowledgeable enough about new and fascinating items, and the market they are available in, to know which firm would be the best-suited to commercialize them? Great post to read
There are many options that can be used to fill the knowledge insufficiencies.
Hatcher+ has spent years researching the factors that influence venture capital firms' decisions. Along with Wissam Ottaky and Dan Hoogterp, I have spent years studying the factors which influence venture capital firms their decisions. We also recently did study and came to the following conclusion: It's likely that the best investments you made were also your most profitable investments simply because of luck.
Understanding that venture returns can be unpredictable has led us to investigate how to construct a portfolio based on the power distribution curve. As many of you are already aware that investment in venture capital follows the law of force that creates distributions quite different from those that are generated by investing in publicly traded shares. The results of small venture portfolios could alter the portfolio in the opposite direction. Portfolios with more funds might be better at generating steady and consistent returns similar to index-type returns.
We introduced the H2 Fund, a data-driven fund that is based on the venture power law and on research of more than 600,000 transactions in venture and numerous venture funds, as a result of this research. The fund, which we began in 2018, and later stopped during Covid, is performing well within the projected parameters and is a great news for investors seeking more predictable outcomes from the asset class which isn't usually regarded as having a high degree of predictability.
In a return to Harari I'm starting to believe that the benefits of the H2 Fund strategy may go further than the application of the law of power and instead , require a better understanding of the complexities of decisions-making process and how they can be altered as our knowledge levels begin to outweigh our comprehension.
Harari believes that most venture partners and their younger associates agree with Harari's conclusion that things are too complex for one person to grasp them all. This means that the traditional method of investing in ventures may not be the best. Technology is only going to make the situation worse.
We can also appreciate the advantages of the superscale deal origination method we developed for H2 fund.
When you are working with hundreds of deal-originating partner, the biases in your filtering systems will eventually diminish and your choices become more varied. Because decisions made by one or two people are replaced by crowdsourced selection processes which involve hundreds of participants during each step, they will be less biased.
Is this true? It may seem that way. It's been fascinating to see how top performers ' performance has changed in the course of time as the H2 Fund portfolio expanded. To be truthful, I didn't know enough about the technology or markets to make the right decisions regarding investments.
(Interestingly, the H2 leadership board also seems to feature numerous investments that somehow made it into the portfolio, since it was large enough to allow for some outliers, probably because of the larger variety of the players in the deal-making funnel.[
This is, in my opinion, as maybe further evidence that a multi-faceted origination network might be better than a single decision-maker in a ever-growing world that's becoming more complicated. But this is only one portfolio. As technology improves both vertically as well as laterally, it will be interesting to learn about the experiences of other investors.
*Note: First Degree is based in Singapore and manages the H2 Fund. This strategy was devised by Hatcher+. The fund follows a highly diversifying early stage venture model to ensure consistent returns on early-stage startup investments. The plan requires investments in over 1,000 startups via a platform for technology that lets fund managers collaborate with a myriad of highly-performing accelerators, angel networks, and VCs to create, manage and index deals. The rate at which investments are made is roughly one-in-100 startups who submit funding applications. The fund will comprise half the number of investee businesses by the end of the year. It is also halfway to its aim of having an unpredictably high-quality top quarter of 4.2x net returns, based on the quantity of dry powder as well as the current investment pace.