In chapter "Ignorance: You Know Less than You Believe" in Yuval Noah Harari's book "21 Lessons for the 21st Century," Harari makes the claim that technological disruption has become too widespread that the distinction between fact and fiction have become so blurred that it's now impossible for anyone to know what's happening, much less anticipate the future.
In our hearts, I believe the most of us would believe that it is true. In order for anyone to "make sense of the whole," the world *hasbeen made too complex. It's very unlikely that we will all have the same amount of insight into what's about to happen, what's about to be popularized, or what technologies will ultimately succeed as used to due to the huge interweaving of unfolding uncertainty.
In light of this is it possible that ordinary venture investors be able to prosper in the near future? In light of the rapid development in technology as well as the rapid growth of exciting new areas of technology, can it be feasible for one angel or a few venture partners to comprehend what's going on? Are there any people within the venture capital industry to claim to be knowledgeable enough about the market and the novel things available to aid them in selecting the most appropriate firm to market their products?
The good news is that we are able to address these gaps in knowledge by making use of alternatives.
We at Hatcher+, we've spent time studying the factors that determine venture capital firms their decisions. Along with Wissam Ottaky and Dan Hoogterp, I have spent years studying the factors which influence venture capital firms' decisions. We also recently did study and came to the following conclusion: It's very likely that your top investments were the ones that made you the most money due to luck.
We realized that the returns from ventures are probabilistic, and so we looked into how to create a portfolio of ventures using a power-law distribution curve. As many of you know, venture capital investment follows the power law, which results in distributions which are different from those that are generated by investing in public shares. Some of the results in smaller venture portfolios can alter your portfolio significantly in either an upward or downward direction. Power curves are a great tool to build portfolios for larger funds, with a greater likelihood of producing predictable index-like returns.
Following this study, we launched the H2 Fund. It is an investment based on data that utilizes the venture power law, research that covers more than 600,000 transactions, and hundreds of venture funds. The H2 Fund, which was launched in the year 2018 and then temporarily suspended during Covid the year, is now performing within the anticipated parameters. This is a great result for investors who want more predictability from an asset that isn’t generally regarded as a reliable asset.
Returning to Harari I'm starting to believe that the benefits of the H2 Fund strategy may go further than the application of the power law and instead , require a better understanding about the inner workings of decisions-making process and the way they could alter as our levels of ignorance exceed our understanding.
Harari believes that the majority of venture capitalists and their younger associates agree with Harari's view that things are just too complex for one person to grasp them all. This means that the old model of investing in ventures could not be the most beneficial. Technology is only going increase the complexity.
We also can appreciate the advantages of the superscale deal origination method we created for the H2 fund.
When you're working with hundreds of deal-originating partners, the biases of your filtering systems are bound to disappear and your options will increase in variety. As decisions made by just one or two people are replaced by crowdsourced selection procedures which involve hundreds of people during each step and are less biased.
Has this been proven true? This may seem to be the case. It has been fascinating to see how top performers have changed over time as the H2 Fund portfolio has expanded. To be honest, I didn't know enough about the technology or market for me to make informed investment choices. Browse around this site
The H2 leader board is also a good source of numerous investments that somehow found their way into the portfolio since it was broad enough to cover certain outliers that appeared, possibly due to the wider variety of the players in the deal origination funnel.It is
In a way, I see this as a further proof that a network of origins with a variety of sources may do better than an individual decision-maker in a environment that is getting more complicated. But this is only one portfolio. It's fascinating to learn about other people's experiences in investing since technology is becoming more sophisticated both vertically and laterally.
Note: First Degree, located in Singapore, manages the H2 Fund, which employs an approach developed by Hatcher+. It employs a diversifying early stage venture model that ensures predictable returns from startups in the early stages of their development. Fund managers can collaborate with hundreds of angel networks and accelerators to invest in more than 1000 startups. Around one in 100 startups make a request for funding. By the end of the year the fund will be able to boast less than half the amount of companies it invests in than it currently has and it will be halfway towards its goal of producing the most predictable top quartile, 4.2x net return, based on the present amount of dry powder as well as the current rate of investment.