The Biggest Problem With portfolio, And How You Can Fix It 54674
Harari in the chapter "Ignorance" from Yuval Harari's book "21 Lessons for the 21st Century" states that technological disruption is so widespread that the lines between real information and fiction are obscure that it's difficult to comprehend what is happening or predict the future.
In our hearts I am sure that the vast majority of us would think this is the case. It's impossible for a single person to comprehend the complexity of the world. Due to the interplay of uncertainty, it's unlikely that we will ever have the same level of awareness as we had before.
Based on this fact How will regular venture investors be able to prosper in the future? Does it really be feasible for a single angel or even a handful of venture partners to understand the current situation given the continuous advancements in technology and the advent of many different and intriguing areas of technology? Are people working in venture capital today boast sufficient knowledge to be able say they know enough about exciting and new technologies and the market to choose which company is the most suited to take them on the market.
There are many options that can be employed to fill in the knowledge gaps.
Hatcher+ has spent years studying factors that impact the choices of venture capital companies. After years of investing together with my co-founders Dan Hoogterp & Wissam Obaky, as well as recent research, we arrived at the conclusion that in a limited portfolio the best investments you make could end up being the best, since luck is your friend.
We realized that venture returns are not guaranteed, so we began to investigate how to create a portfolio of ventures by using a power law distribution curve. As most of you are already aware that venture capital investments follow an underlying law of power that results in distributions which are different from those of investing in public shares. A few outcomes in small venture portfolios could alter the portfolio significantly in either a favorable or negative direction. The power curve might assist in designing portfolios in larger funds that have a far greater chance of generating consistent, similar returns to index funds.
The H2 Fund was created as an investment fund driven by data. It was created based upon research involving more than 600,000 transactions and hundreds of venture funds. The H2 Fund, which was created in the year 2018, but was temporarily was suspended during Covid and Covid, is now operating within the anticipated parameters. This is fantastic news for investors looking for more predictable results from an asset that isn’t usually recognized as being predictable.
Harari: I think the H2 Fund strategy could have many advantages beyond the application of power law. It can help us to better understand the process of decision-making , and how it can alter when our ignorance is greater than our comprehension.
If the vast majority of venture investors (and their young associates, regardless of how well-educated or educated they may be) accept Harari's view that technology has become too complicated for one individual to grasp the significance of what is happening, then the old model of venture capital may be flawed and likely to be weakened because technology is becoming more complicated.
We can also appreciate the advantages of the superscale deal origination strategy we developed for H2 fund.
When you're working with hundreds of deal-originating partners, the biases of your filtering systems will eventually disappear and your options will increase in variety. Because decisions made by only the handful of individuals are replaced by crowdsourced decision-making procedures that involve hundreds of individuals in each step which means they are less biased.
Do you believe this? It could be. It's been interesting watching the H2 Fund portfolio grow and the way that the top performers have changed. If I'm honest, I did not have sufficient knowledge of the technology, target markets or the resources required to achieve success to feel confident in investing in a lot of these selections made by the best.
It is interesting to note that the H2 leaderboard seems to also contain a large number of investments which somehow ended up in the portfolio because it was wide enough to accommodate some exceptions, and possibly due to the wider range of deal-makers.It is
Logically, this is a further instance of how a diverse origination network could be more efficient than one single decision-maker in a world that is becoming increasingly complex. This isn't the only portfolio. It's fascinating to hear about others' experience with investing as technology becomes more sophisticated both vertically and laterally. venture
Note: First Degree is based in Singapore and manages the H2 Fund. This strategy was designed by Hatcher+. The fund uses a diversifying early stage venture model to ensure predictable returns on startups in the early stages of their development. Fund managers have the ability to work with hundreds of accelerators and angel networks to invest in more than 1000 startups. About one out of 100 startups sends out a request for funds. By the end of the year the fund will have only half the number of investee companies than it currently has and it will be halfway to its goal of generating an attainable top quartile 4.2x net return in the current amount of dry powder as well as the current pace of the investment.