Harari says that technological disruption has become so widespread that distinction between fictional and factual information have blurred so that it's difficult for anyone to grasp what is happening and forecast the future.
In our hearts I believe that the majority of us would be able to agree that he is correct. The world has become so complex for anyone to understand the vast array of information available. It is quite unlikely that any of us will have the same degree of knowledge into the future, what will occur, what is about to be popularized, or what technologies will eventually succeed as we formerly had due to the massive interweaving of unpredictability that is constantly evolving.
With this in mind is it possible that ordinary venture investors be able to prosper in the near future? It is possible to understand what's going on with constant advancements in technology and the introduction of new and fascinating areas of technology. Is it possible for anyone working in the field of venture capital to claim to be sufficiently knowledgeable about the market and the latest innovations available to enable them to select the best firm to commercialize these technologies?
There are alternatives that can be used to fill the knowledge insufficiencies.
Hatcher+ has spent many years studying the variables that influence venture capital firms their decisions. Together with Wissam Ottaky and Dan Hoogterp, I have spent years studying the factors which influence venture capital firms' decisions. We've also conducted studies and came to this conclusion: It's very likely that the best investments you made were your most successful investments simply because of luck.
We discovered that the returns of ventures are probabilistic, so we began to investigate how to build a portfolio of ventures using a power-law distribution curve. Capital investment in venture capital is governed by a power law that creates distributions that are different from those that are generated when investing in shares of the public. Some of the results in smaller venture portfolios may sway your portfolio dramatically in either a favorable or negative direction. The power curve could help design portfolios in bigger funds with a greater chance of generating regular, predictable returns that are similar to indexes.
We launched the H2 Fund, a data-driven fund that was based off the venture power law, as well as studies on more than 600,000 venture-related transactions and hundreds of venture funds in the wake of this study. The fund was established in the year 2018, and then stopped for a time during Covid. It has been delivering impressive results within the planned limits. This is an excellent news for investors seeking more predictable results for an asset class that's not often praised for its predictability.
Returning to Harari, I'm beginning to think that the advantages of the H2 Fund strategy may go further than the application of the power law and instead require a greater understanding of the nature of decisions-making process and how they may be altered as our knowledge levels exceed our understanding.
If the majority of venture investors (and their young associates, regardless of how well-educated they are) are in agreement with Harari's assertion that things are becoming too complex for one person to grasp what's happening, then the traditional model of investing in ventures could be flawed and likely to be weakened because technology is becoming more complicated.
However in the event that we take a look at the superscale deal origination strategy that we have developed for the H2 fund, we can discover that it brings a number of advantages in addition to the power law dynamics.
The filters you use to filter your information will decrease and your choices will be more diverse when you work with literally hundreds upon hundreds of deal origination partners. Choices made by just a few people are now replaced by crowdsourced choices which involve hundreds of people involved in every process.
This is a resounding affirmation. It could be so. It's been fascinating to see the H2 Fund portfolio grow and how the best performers have evolved. If I'm honest, I didn't know enough about technology, the market areas of focus, or the resources required to be successful in order to make a confident investment in the many options made by the fund's leaders. Go to the website
In addition, the H2 leaderboard is believed to have a huge number of investments that somehow managed to find their way into portfolios, possibly due to the greater number of players involved in deal the funnel of origination.
In a way, I view this as further proof that a network of creators can be more effective than one single decision maker in a world getting more complex. But this is just one portfolio. As technology improves both horizontally and laterally, it could be interesting to learn from other investors.
Note: First Degree is based in Singapore and manages the H2 Fund. This strategy was developed by Hatcher+. The fund uses a diversified early stage venture approach to guarantee predictable returns on startups in the early stages of their development. The plan requires investments in more than 1,000 startups using a technology platform which allows fund managers to work with a myriad of highly-performing accelerators, angel networks, and Venture Capitalists to initiate, review and rank deals. The speed of investment is about one per 100 startups who apply for funding. At the end of next year the fund will have half as many investee firms than it currently has and it will have come close towards its goal of producing an unpredictably high-quality top quartile of 4.2x net return, based on the present amount of dry powder and the current pace of investing.