Harari says that technological disruption is so widespread that the lines between fiction and factual information have become blurred, and it's impossible for anyone to grasp the current situation or to predict what the future holds. Get more info
In my heart I am sure that the vast majority of us would believe that this is the case. If anyone can "make sense of everything," the world *hasbecome complicated. Because of the interconnectedness and unfolding uncertainty, it is very unlikely that any one person will have the same amount or depth of knowledge about what's happening, what is going to be popular, or which technologies are going to be the most successful.
What will the typical venture partner be able to prosper in the future given this reality? It is feasible to know the changes that are taking place with continuous advancements in technology as well as the introduction of new and exciting fields of technology. Does anyone in the venture capital market to claim they are competent enough about the marketplace and the latest innovations available to enable them to select the best firm to commercialize the technology?
The positive side is that we can address the ever-growing knowledge gap using alternatives.
At Hatcher+, we've spent years studying the factors that affect venture capital firms the choices they make. Through years of investing, together with my co-founders Dan Hoogterp and Wissam Otaky and the latest study, we've reached the following conclusion: With an investment portfolio that is small it's very likely that your most profitable investments were actually your top investments due to luck. was on your side.
We realized that the returns from ventures are probabilistic, so we set out to figure out how to build a portfolio of ventures by using a power law distribution curve. Many of you are already aware the venture capital investment process follows a power law that produces distributions that are quite different from those that are generated by investing in shares that are publicly traded. Your portfolio might be affected by small results from venture portfolios. Portfolios with larger funds may be better at generating regular and predictable returns that are similar to indexes.
In the wake of this research, we have launched in the year 2018 with the H2 Fund. It is an investment based on data that utilizes the power law for ventures, studies on more than 600,000 venture transactions, as well as hundreds of venture funds. The H2 Fund, which was launched in 2018 but temporarily stopped in Covid, is now performing according to the parameters expected. This is great news for investors looking for more predictable results from an asset that isn’t often regarded as being predictable.
To return to Harari, I'm beginning to believe that the benefits of the H2 Fund strategy may go well beyond the application of the power law . They instead involve a better comprehension about the inner workings of decisions-making process and how they can change when our levels of ignorance surpass our comprehension.
Harari believes that the majority of venture investors and their young associates are in agreement to Harari's assertion that the world of technology are just too complex for one person to understand them all. This implies that the traditional model of investing in ventures may not be the most efficient. Technology will only serve to make it worse.
On the other hand, if we look at the superscale deal origination strategy that we've designed for the H2 fund, we can observe that it has numerous advantages, in addition to the use of power law dynamics.
The biases that you have in your filtering systems will disappear and your options will be more diversified when you're working with hundreds of deal origination partners, since decisions that might have been made by a few human beings are replaced by crowdsourced selection processes that involve hundreds of individuals participants in each step.
Does this sound true? It could be so. It's been interesting to see how the best performers have changed as the H2 Fund portfolio has expanded. If I'm being really honest, I did not know enough about technology, the market areas of focus, or the resources that would be needed for success to feel comfortable investing in many of the decisions made by the top managers.
(Interestingly, the H2 leaderboard appears to feature a significant number of investments that ended up in the portfolio as it was sufficient to allow for some outliers, possibly also due to the wider range of deal-makers.[
This is, in my opinion, as maybe further evidence that a diverse origination network might be better than the single decision-maker in an world that is becoming more complicated. This isn't the only portfolio. As technology advances both vertically as well as laterally, it could 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+. It employs a diverse early stage venture approach that ensures predictable returns from investment in startups at an early stage. Fund managers are able to collaborate with hundreds of accelerators and angel networks to invest in over 1000 startups. Investments are made at the rate of about one-in-100 startups that submit the application for funding. Based on current dry powder levels as well as the speed of investment, the fund will have approximately half of its investee firms by next year.