What is Method Driven VC?

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In order to truly address global problems facing society, many of which stem from resource shortages, we turn to technology, a resource multiplier. However, technology needs capital–for successful access, execution, and deployment at scale. 

Thus, the question becomes, how do we enable new and potentially impactful technology to reach the broader commercial market? Capital is both a crucial barrier and enabler at every point throughout the commercial lifecycle. It is through the lens of early-stage venture – from inception through scalable revenue – that we approach this question. By exercising the intelligent application of capital, we maintain that there is a higher probability of overall success as opposed to a random approach.

Venture investing is an environment with ambiguity, uncertainty, and rapid change. Decisions must be collapsed into binary outcomes with less than perfect information and a number of practical realities. How do you make the best decisions in an environment that is inherently noisy and uncertain? What steps can be taken to systematize this decision-making process so that it is repeatable, scalable, and can be measured and improved over time? 

At Creative Ventures, we’ve built our method-driven approach to address these questions.

In the rest of the post we’ll address the what, why, and how of method driven VC.

What is Method Driven VC?

At its core, method-driven investing is a system of investing that puts repeatable rules and processes in place to improve decision quality over time. These rules, and the process itself, are not set in stone. Far from it in fact, as the goal is to modify and update rules and processes as more information becomes available. 

Money management can be compared to a long game of poker. Though an imperfect analogy, especially in that we don’t think of our investments as ‘bets’, it’s illustrative from the standpoint of assessing decisions that involve both luck and skill. You can be on a long winning streak, but if it’s driven purely by luck, it’s more likely than not that by the end of the night you’ll end up going home with a much lighter wallet. Professional poker players curtail the unavoidable factor of randomness by following a certain philosophy: as long as you play your hand correctly, it’s okay if you lose it. Play with enough skill and small losses won’t matter. Long-term, strategy equals success. 

Ironically, in venture capital, thinking long-term increases the likelihood of more short-term returns. Instead of betting on the next unicorn that may drive profits over a decade down the road, method driven investment leads to much shorter turnaround times on profit. 

Why Method-Driven VC?

Successful investment has strong elements of both skill and luck. You can’t take luck or randomness completely out of the picture, but you can constrain the boundary conditions such that success is less contingent on being ‘lucky’ and more contingent on being ‘skilled’. Randomness will always be present, but there’s a way to shift the distribution of outcomes in our favor. Developing repeatable and scalable systems to maximize our skill results in ’curve shifting’ our distribution of probable outcomes as far to the right as we can, generating a higher overall probability of success. 

Some may ask “why not invest in the technology?” Our simple answer is that it just isn’t reliable. Every investor salivates over finding the next Facebook, Uber, or Twitter, but it’s incredibly unlikely. We find success in steady investments that consistently generate revenue, as opposed to one miracle company.

How to Successfully Implement Method Driven VC

That leads us to our most important question: How do you know if a decision you make is the ‘correct’ one? In venture, it’s not often immediately clear whether you are succeeding, as there’s a long feedback cycle (especially in early-stage startups). 

Method driven venture-capital investment embodies the same strategy as that of a seasoned poker player: it’s all about playing the correct hand for the right reasons. If a company we choose to invest in succeeds, but the reasoning behind our investment ends up being incorrect, we still consider that a failure of strategy. The opposite is also true–it’s not helpful to us if a company we declined to invest in does poorly, but not for the reasons we projected. 

The idea is to improve enough in skill and research to accurately predict a prospective company’s success and failures, potential challenges that the company will face, and even issues we anticipate a company will easily overcome.

It’s All About the Process

Overall, method-driven investment is all about accountability. We keep our strategy in writing, creating a record for ourselves that we can learn from and be held accountable for. For us, creating a method that’s not only accurate, but repeatable and scalable is where we view the true success. 

This is why we say at Creative Ventures that we’re not in the business of predicting the future, of placing bets. We don’t take on R&D risks with unknown horizons. We invest in scalable technologies primed to meet existing market demand. 

When investing, ask yourselves this: at the end of the day, are you riding on the coattails of one big hit that made your entire fund and your reputation? And if so, can you depend on that luck, or like most poker players, will you lose your hand?

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