Harari in his chapter "Ignorance" in Yuval Harari's book "21 Lessons for the 21st Century" claims that the impact of technology is so widespread that the lines between real information and fiction are now so blurred that it's impossible for anyone to grasp the current situation or anticipate the future.
We all know that he's correct. It is difficult for one person to fully comprehend the complexity of the world. Because of the interconnectedness and ever-growing insecurity, it's unlikely that any one person will have the same level or depth of knowledge about what's taking place, what will be popular, or which technologies will succeed.
How will the ordinary venture partner gain success in the future based on this reality? With the rapid advances in technology as well as the rapid growth of new and exciting sectors of technology, will it be possible for one angel or a few venture partners to understand what's going on? Can anyone in the venture capital market to claim that they are sufficiently knowledgeable about the market and the new technologies available to aid them in selecting the best firm to commercialize them?
The good news is that we can fill the ever-growing knowledge gap employing alternative methods.
Hatcher+ has spent many years studying the factors which influence venture capitalists their decisions. Through years of investing with my co-founders Dan Hoogterp & Wissam Obaky and more recent studies, we have come to the conclusion that in a limited portfolio your best investments might turn out to be your most profitable because luck was your ally.
The fact that the returns of venture capital can be unpredictable caused us to look at ways to build a portfolio using a power distribution curve. As many people are aware the venture capital investment process follows a power law that produces distributions very different from those that are generated by investing in shares that are publicly traded. Your portfolio could be influenced by a small number of outcomes from venture portfolios. The power curve can aid in the design of portfolios for larger funds that have a far more likely to produce steady, comparable returns to an index.
The H2 Fund was created as an investment fund that is based on data. It was built on research conducted on more than 600,000 transactions and hundreds venture funds. The fund was launched in 2018 but was halted temporarily during Covid. It has been delivering excellent results within its projected parameters. This is a great news for investors seeking more predictable results for an asset class that's not usually regarded as reliable.
Recalling Harari I'm beginning to believe that the advantages of the H2 Fund strategy may go further than the application of the power law and instead , require a better understanding of the complexities of decision-making processes and how they might alter as our levels of ignorance exceed our understanding. data-driven
In the majority of venture investors (and their young associates, regardless of how educated they are) support Harari's idea that technology has become too complex for one person to grasp what's happening, then the current model of investing in ventures could be flawed and will likely to be weakened as technology gets more complicated.
On the other hand in the event that we take a look at the superscale deal origination strategy that we've created for the H2 fund we can discover that it brings several advantages, in addition to the power law dynamics.
If you're working with hundreds of deal-originating partners, the biases of your filtering systems will eventually diminish and your choices expand. Since decisions made by just a handful of people are replaced by crowdsourced decision-making processes that involve hundreds of individuals during each step They will not be as biased.
Has this been proven true? It could be. It's been interesting to watch the H2 Fund portfolio grow and how the top performers have changed. To be truthful, I didn't have enough knowledge of the technology or target markets to make the correct decision on investments.
[Interestingly, the H2 leader board also seems to feature an impressive number of investments which somehow managed to make it into the portfolio as it was wide enough to allow for the oddities, perhaps because of the larger number of participants in the deal origination funnel.]
From a logical standpoint, I see this as another proof point that a network of initiators could be more efficient than one decision maker in a system that is becoming more complex. But, this is not the only one. It would be interesting to know about the other's experiences with investing since technology is becoming more advanced, both vertically as well as laterally.
Note: First Degree, located in Singapore manages the H2 Fund, which employs the strategy developed by Hatcher+. The fund follows a highly diversifying early stage venture strategy to guarantee predictable returns on the early stage of startup investments. Through a technology platform fund managers have the ability to work with a variety of high-performing angel networks, accelerators, and VCs to design, manage, or index deals. The fund invests at the rate of about one-in-100 companies that make an application for funding. The fund will comprise only half of the investee businesses by the end of next year. It will also be halfway to its goal to generate a predictable top quarter, 4.2x net return, based on the quantity of dry powder and present investment speed.