Harari in the chapter "Ignorance" from 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 have become so blurred that it is impossible to comprehend the current situation or anticipate the future.
We are all aware that he's right. The world has become too complicated for anyone to comprehend everything. It's unlikely any of us will have the same amount of insight into what's about to be happening, what's going to be popularized and what technologies will eventually succeed as we used to due to the vast interplay of ever-growing uncertainty.
Given this reality what will normal venture partners make it in the future? Given the rapid advancements in technology as well as the rapid growth of exciting new areas of technology, will it be possible for one angel or a couple of venture partners to be aware of what's happening? Are people working in the field of venture capital currently be able declare that they have sufficient knowledge about novel and interesting items, and the market for them, to decide which company will be the best-suited to commercialize these technologies?
There are options that can be employed to fill in these knowledge gaps.
At Hatcher+, we've spent many years researching the factors that influence venture capital firms and their choices. Through years of investing with my cofounders Dan Hoogterp & Wissam Obaky along with recent studies, we have come to the conclusion that with an investment portfolio that is small, your greatest investments could turn out to be your most profitable because luck was your ally.
The fact that the returns of venture capital aren't always predictable has led us to investigate how to construct a portfolio based on the power distribution curve. Many of you know that venture capital investments follow the power law, which results in distributions very different from those that are generated by investing in public shares. Two or three outcomes in small venture portfolios can significantly influence your portfolio's direction. Power curves can be used to create portfolios for larger funds that have a higher likelihood of producing predictable returns that are similar to indexes.
The H2 Fund was created as an investment fund driven by data. It was based on research on more 600,000 transactions, and hundreds of venture funds. This fund, which we introduced in 2018 but temporarily ended in Covid it is doing fairly well within the predicted parameters, which is fantastic news for investors looking for more predictable outcomes from the asset class which isn't normally recognized for predictability.
Harari's view is shifting. I believe the H2 Fund strategy has the potential to provide a greater knowledge of the decision-making process as well as the changes that could happen as we become more ignorant. venture
Harari's claim that it's too difficult for anyone to comprehend the current state of affairs and if the overwhelming majority (and even their younger colleagues) support Harari the traditional approach to venture investing could be flawed.
But, the superscale deal strategy that we devised for the H2 fund can be viewed as offering various benefits as well as power law dynamics.
If you work with hundreds of deal-originating partners, the biases in the filtering system will gradually dissipate and your choices will be more diverse. Since decisions made by one or two people are replaced by crowdsourced selection procedures which involve hundreds of people throughout the process which means they are less biased.
Do you believe this? This could be true. It has been fascinating to see how the best performers have changed over time as the H2 Fund portfolio has expanded. To be honest, I did not know enough about the technology or target markets for me to make informed decisions regarding investments.
The H2 leaderboard seems to also contain a large amount of investments that ended up in the portfolio due to it being large enough to accommodate a few oddities, perhaps due to the wider range of deal-makers.The H2 leaderboard is a good example of this.
Logically, I see this as another proof point that a network of creators can be more effective than a single decision maker in an environment that's becoming more complex. But this is only one portfolio. It's interesting for others to share their own experiences investing as technology continues its upward march.
Note: First Degree is based in Singapore and manages the H2 Fund. This strategy was created by Hatcher+. The Fund follows a broadly diverse early-stage venture model in order to provide predictable returns for early-stage startup investment. Through a technology platform fund managers can work with a myriad of angel networks, high-performing accelerators, VCs, and other Venture Capitalists to make, refine, or index deals. The fund invests at an average of one in 100 companies that make a funding application. Based on current dry powder levels and the rate of investment the fund will be able to invest approximately half of its investee companies by the end of next year.