In chapter "Ignorance The Truth is You Know More Than You Think" in Yuval Noah Harari's book "21 Lessons for the 21st Century," Harari makes the claim that technological disruption is all-encompassing and the lines between fact and fiction have become so blurred that it's now impossible for anyone to grasp what's taking place, let alone to predict the future.
In our hearts I believe that the majority of us would believe that he is correct. To anyone who can "make sense of everything," the world *hasbeen made too complicated. It's highly unlikely that we will all have the same amount of insight on what's going to be happening, what's going to be popularized or what technology will ultimately succeed as formerly had due to the massive interweaving of unfolding uncertainty.
This fact will affect the capability of typical venture partners to be successful in the future. Can it truly be feasible for a single angel or a tiny number of venture partners to grasp the current situation given the constant advancements in technology and the advent of numerous new and fascinating areas of technology? Are people working in venture capital today claim enough expertise to claim they have enough knowledge of innovative and fascinating things and the market to determine which company is the most suited to make them commercially viable.
These knowledge gaps are becoming more complex. The positive side is that we can use alternative methods to address them.
At Hatcher+, we've spent long hours studying the factors which determine venture capital firms their decisions. Together with Wissam Ottaky and Dan Hoogterp, I have spent a lot of time studying the factors that influence venture capital firms' decisions. We also recently did studies and came to this conclusion: It's very likely that your best investments were also your most profitable investments simply because of luck.
The fact that the returns of venture capital aren't always predictable made us think about how to construct a portfolio based on a power distribution curve. The venture capital investment is an inherent power law that produces distributions that are very different from investing in public stock. Your portfolio might be affected by small results in venture portfolios. Portfolios with bigger funds could be better at generating predictable and index-like returns.
We launched the H2 Fund, a data-driven fund that is based on the venture power law as well as research on more than 600,000 venture-related transactions and hundreds of venture funds due to this research. This fund, which we introduced in 2018 but temporarily ended in Covid, is performing well within the projected parameters which is great news for investors seeking more predictable results from an asset class that isn't generally regarded as being reliable.
Harari The H2 Fund strategy could have many advantages that go beyond the use of power law. It can help us to understand the dynamic of the process of decision-making and how it could change as our ignorance becomes higher than our knowledge. data-driven
The vast majority of venture investors (and their young associates, regardless of how knowledgeable they may be) are in agreement with Harari's assertion that the world has become too complicated for any individual to grasp the significance of what is happening, then the current method of venture investment could be flawed and will likely to get worse as technology becomes more complex.
We also can recognize the benefits of the superscale deal origination method we devised for the H2 fund.
The filters you use to filter your information will reduce and your options will be more diverse when you work with literally hundreds on hundreds of deal-making partners. Choices made by just a few individuals are now replaced by crowdsourced decisions which involve hundreds of people involved in every process.
This is a strong affirmation. This may appear to be the case. It's been fascinating to see how the top performers have changed in the course of time as the H2 Fund portfolio expanded. If I'm honest, I didn't know enough about the technology, the market segments or the resources that would be necessary for success to be confident in investing in the many selections made by the leading investors.
The H2 leaderboard seems to contain a significant amount of investments that somehow managed to find their way into portfolios possibly due to the greater variety of players in deal creation funnel.
Logically, I view this as further proof that a network of origins with a variety of sources might be better than a single decision-maker in a ever-growing world that's becoming more complex. However, this portfolio isn't the only one. As technology advances both horizontally and laterally, it's fascinating to hear about the experiences of other investors.
*Note: First Degree, located in Singapore, manages the H2 Fund, which employs the strategy developed by Hatcher+. The fund uses a diversifying early stage venture strategy that ensures predictable returns from startups in the early stages of their development. Through a platform for technology, fund managers can work with a myriad of angel networks, high-performing accelerators, VCs, as well as VCs to create, filter or index deals. The speed that investments are made is around one out of 100 startups that apply 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 as it has now, and will be half way to its goal of creating an unpredictably high-quality top quartile of 4.2x net return in the current amount of dry powder and the current rate of investing.