Harari claims that technological disruption has become so widespread that distinction between fictional and factual information have blurred so that it's hard for anyone to know what is happening or determine the future.
In our hearts I think that the majority of us would be able to agree that this is the case. The world has become too complex for any one to understand it all. Because of the interconnectedness and escalating uncertainties, it's unlikely that anyone will have the same degree or level of understanding as to what's happening, what is going to be successful, or which techniques will succeed.
How will the ordinary venture partner be able to thrive in the coming years given this situation? It is possible to understand what's happening due to technological advancements that are constantly occurring and the introduction of new and interesting sectors of technology. Does anyone in the venture capital industry in the near future be able to claim that they are knowledgeable of the latest and intriguing items, and the market that they will be able to compete in, to decide which company will be the best placed to market these technologies?
The positive side is that we can address these gaps in knowledge by using alternatives.
Hatcher+ has spent years studying factors that impact venture capital firms’ decisions. Through the years of investing with my co-founders Dan Hoogterp & Wissam Obaky along with recent research, we came to the conclusion that in a limited portfolio your most profitable investments may turn out to be the best, since luck is your ally.
We discovered that the returns of ventures are not guaranteed, so we set out to figure out how to build a portfolio of ventures using a power-law distribution curve. Venture capital investments are governed by an inherent power law that results in distributions very different from investing in public stock. Two or three outcomes in small venture portfolios can significantly affect the direction of your portfolio. The power curve may help design portfolios in bigger funds that have a far higher chance of delivering predictable, index-like returns.
We launched the H2 Fund, a data-driven fund based on the venture power law and on research of more than 600,000 venture transactions as well as hundreds of venture funds, in the wake of this research. The fund, which was began in 2018, and later was suspended during Covid it is doing well within the projected parameters, which is fantastic news for investors who want more reliable results from an asset class that's not normally recognized for predictability.
Harari's perception is changing. I think the H2 Fund strategy has the potential to provide a greater understanding of the decision-making process and the changes that might be triggered as our knowledge grows.
In the majority of venture partners (and their younger partners, regardless of how well-educated or educated they might be) accept Harari's view that things have become too complex for any one person to grasp what's happening, then the traditional method of venture investment could be flawed and likely to get worse as technology gets more complicated.
It is also possible to observe the advantages of the superscale deal origination strategy we designed for the H2 fund.
The biases of the filtering system will diminish and your options will be more diverse when working with literally hundreds of deal-originating partners because decisions that could have been taken by a tiny handful of humans are replaced by crowd-sourced selection procedures that include hundreds of people in each process.
Has this been proven true? It may appear that way. It's been interesting watching the H2 Fund portfolio grow and the way that the top performers have evolved. To be truthful, I didn't know enough about the technology or markets for me to make informed investment choices. Helpful site
(Interestingly, the H2 leaderboard seems to also have a good number of investments that made it into the portfolio because it was broad enough to include some outliers, possibly also due to the wider range of deal-makers.[
In a way, I view this as further proof that a network of originators might be more effective than one single decision maker in a system that is becoming increasingly complicated. But this is only one portfolio. It's interesting to find out about other people's experiences with investing as technology becomes more advanced, both vertically as well as laterally.
*Note: First Degree, located in Singapore is the manager of the H2 Fund, which employs a strategy devised by Hatcher+. It employs a diverse early stage venture approach to ensure predictable returns on the early stage of startup investments. Through a technology platform fund managers can work with dozens high-performing angel networks, accelerators, and VCs to develop, filter, or index deals. Each time a startup submits a funding request. Based on current dry powder levels and investment speeds the fund should have about half of the investors companies in the next fiscal year.