Harari in his chapter "Ignorance" in Yuval Noah Harari’s book "21 Lessons for the 21st Century" states that technological disruption has become so commonplace that the boundaries between actual information and fiction are so blurred that it is impossible for anyone to understand the changes taking place or to predict the future.
We all know that he's right. It is impossible for one individual to grasp the sheer complexity of the world. It is quite unlikely that we will all have the same amount of insight into what is going to be happening, what's going to be popularized, or what technologies will be successful as we were able to do prior to the huge interweaving of ever-changing uncertainty.
Given this reality, how will ordinary venture partners be able prosper in the future? Is it really going to be feasible for one angel or even a handful of venture partners who understand the current trends in the constant advancements in technology as well as the development of many different and intriguing areas of technology? Can anyone in the venture capital sector to claim to be competent enough about the marketplace and the new technologies available to enable them to select the most appropriate firm to market their products?
There are many options that can be employed to fill in these knowledge gap.
We at Hatcher+, we've spent time studying the factors that determine venture capital firms and their choices. In the years that we've invested along with my co-founders Dan Hoogterp and Wissam Otaky and our recent study, we've arrived at the following conclusion: If you have even a tiny portfolio it's very likely that your most profitable investments were actually your top investments due to luck. played you well.
Recognizing that the return on venture investment aren't always predictable caused us to look at ways to construct a portfolio using the power distribution curve. Venture capital investment is controlled by a law of power that creates distributions that are different from those that are generated when investing in public shares. Your portfolio may be affected by small results in the venture portfolios. The power curve can aid in the design of portfolios for larger funds that have a far better likelihood of producing predictable, index-like returns.
We introduced the H2 Fund, a data-driven fund that was based off the venture power law, as well as studies on more than 600,000 venture-related transactions and hundreds of venture funds in the wake of this study. The fund was launched in 2018 but was halted temporarily during Covid. It is showing amazing results within the expected limits. This is fantastic news for investors looking for more predictable results for the asset class which isn't usually regarded as reliable.
Harari's views are changing. I believe the H2 Fund strategy has the potential to give us a better understanding of the decision-making process and the changes that may occur as our ignorance grows.
Harari believes that the majority of venture partners and their young associates are in agreement with Harari's opinion that things are just too complex for one person to grasp them all. This means that the traditional method of investing in ventures might not be the most beneficial. Technology is only going to make it worse.
However looking at the superscale deal origination plan that we've created for the H2 fund, we can see that it offers many advantages in addition to the use of power law dynamics.
The biases that you have in the filtering system will naturally diminish and your choices will become more diverse as you work with hundreds of deal origination partners, since decisions that might have been made by a few humans are replaced by crowd-sourced selection processes that involve hundreds of individuals in each process.
It is a powerful affirmation. This could be true. It's been amazing to observe how the top performers have changed in the course of time, as the H2 Fund portfolio expanded. If I'm being really truthful, I didn't have enough about the technology, the market that is targeted or the resources that would be necessary for success to feel confident investing in the various options made by the fund's leaders.
[Interestingly, the H2 leaderboard does have a good amount of investments that made it into the portfolio since it was wide enough to accommodate some exceptions, and possibly due to a larger variety of deal-makers.]
Logically, I see this as a further evidence that a network of initiators could be more efficient than one decision maker in a system that is becoming increasingly complicated. This is just one portfolio, however. It's interesting to hear from others about their experiences with investing, as technology continues to progress.
Note: First Degree is located in Singapore and manages H2 Fund. Hatcher+ developed the strategy. The fund employs a highly diverse early-stage venture model to ensure regular returns for startups in the early stages of investment. It is a strategy that calls for investments in more than a thousand startups by utilizing a technology platform that allows fund managers to work with a multitude of top accelerators or angel networks as well as VCs to source, filter and then index deals. Investments are made at the rate of about one out of every 100 startups who submit the application for funding. At the end of next year the fund will comprise half as many investee firms than it currently has and will be half way towards its goal of producing an attainable top quartile 4.2x net return in the current amount of dry powder as well as the current rate of investing. here