First-Principled Venture vs. Venture Speculation

Venture, the high-stakes world of startups and innovation, offers two distinct approaches: "First-Principle" and "Speculation." In this blog post, we'll define these approaches in the context of venture and delve into how speculation, driven by the allure of hype, can lead investors into the hands of skilled "Grifters."

First-Principle Venture: This approach is grounded in fundamental, data-driven analysis. It involves breaking down complex problems into their most basic elements to gain an understanding of a business's core principles. First-Principle investors focus on scrutinizing the market need, team expertise, business model, and scalability potential. They seek startups with a sound business model, a clear value proposition, and a realistic growth plan.

Speculation: In contrast, speculation in venture involves forming biases and making conjectures about startups without firm evidence. Speculators often invest based on hype, buzz, or superficial indicators. They are drawn to companies that are making headlines or generating excitement, or even other investors’ participation, often without a personal understanding of the business's fundamentals.

The Allure of Hype and the Grifters' Game

Hype, characterized by promoting a product, idea, or market intensively, often exaggerating its importance or benefits, is a powerful force in the world of venture. The allure of hype can lead Speculators to make decisions based on excitement rather than rational analysis. This opens the door to skilled manipulators known as "Grifters."

Grifters are individuals or teams exceptionally proficient at creating hype and attracting investments. They excel at marketing themselves and their ventures, often using smoke and mirrors to conceal weaknesses. The story of Fast Payments serves as an illustrative example.

The Fast Payments Fiasco: A Lesson in Grifting and Hype

In 2021, Fast Payments raised a staggering $124 million at a unicorn valuation, creating a buzz that attracted investments from venture capitalists, including Stripe. A year later it shut down having burned through the money with only $600,000 in revenue to show for it. What could have possibly justified such a high investment at a Unicorn valuation in the first instance?

The answer lies in the power of grifting and the allure of hype. Grifters, like the founder of Fast, have a knack for making their ventures appear more significant and promising than they are. The Fast Payments saga underscores the risks of speculation in venture and the consequences of failing to take a First-Principled approach to look beneath the surface of a business.

Balancing Act

Venture is a dynamic and exhilarating realm, but it demands a delicate balance between the calculated, first-principle approach and the temptation of speculation. While some may achieve short-term gains by riding the hype, the lasting success is rooted in the fundamentals that George Doriot, the "Father of Venture Capital," emphasized.

As the venture landscape evolves, and more people enter into it, it's crucial to recognize that both approaches coexist. Investors must remain vigilant and strive to find the equilibrium between the allure of hype and the bedrock of fundamentals. This equilibrium, forged through critical analysis and due diligence, is the key to long-term success in the world of venture.