Super-Vision, Anti-Vision, and Heretical Truths

Why Venture Capital is the Best Source of Long-Term Alpha

"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man."
- George Bernard Shaw, Man and Superman

"Today’s 'best practices' lead to dead ends; the best paths are new and untried. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them." – Peter Thiel, Zero to One

“Science is the belief in the ignorance of experts. When someone says, 'Science teaches such and such,' he is using the word incorrectly. Science doesn’t teach it; experience teaches it. If they say to you, 'Science has shown such and such,' you might ask, 'How does science show it—how did the scientists find out—how—what—where?' It should not be 'science has shown' but 'this experiment, this effect, has shown.' And you have as much right as anyone else, upon hearing about the experiments, to judge whether a sensible conclusion has been arrived at or not." –Richard Feynman, The Pleasure of Finding Things Out

We are frequently asked why we have such conviction in the prospects of venture capital and groundbreaking tech firms? It’s simple: we see these sectors as the ultimate engines of innovation and growth, capable of reshaping entire industries and creating unprecedented value. From the disruptive potential of artificial intelligence to the transformative impact of biotechnology, advanced technology companies are not just following trends; they are setting them.

As investors, we think venture capital and advanced technology startups are the key to unlocking extraordinary returns and driving societal progress. To understand this perspective, it might first help to discuss the importance of differentiated thinking and the courage to pursue unexpected outcomes.

TO ACHIEVE WHAT OTHERS CAN’T, YOU MUST DO WHAT THEY WON’T

In 1940, having recently completed his doctorate in Physics, Richard Feynman received a fellowship to attend Princeton University with unusual freedom to conduct research. To his advisors' dismay, the young physicist began spending his days stealing unused pie tins from the cafeteria (where the undergrads were using them as frisbees) and spinning them on the desk of his office. He was fascinated by how the light reflected off them.

His advisors, deeply rooted in traditional scientific methodologies, were less than impressed. In fact, they were quite candid in their opinion that he was wasting his time. Privately, they worried about his mental health.

Despite their scorn, Feynman continued spinning his pie tins. He was confused by the behavior of light hitting the rotating metal objects. He noticed patterns he couldn’t explain. He began to identify connections between the spinning pie tins and complex interactions of light particles at the quantum level. Ultimately, Feynman’s insights led to a significant breakthrough in quantum electrodynamics, which studies the relationships between light and matter.

Feynman's work introduced radical new perspectives on the properties of light particles and launched a new field of mathematical tools, now known as Feynman Diagrams, which provide a visual and intuitive way to understand particle interactions. In 1965, Feynman was awarded the Nobel Prize in Physics for his discoveries in quantum electrodynamics.

Truly disruptive innovation is always heretical. And heretics aren’t popular.

Feynman's story highlights the importance of pursuing unconventional lines of inquiry, despite skepticism and criticism. Breakthroughs often arise from the willingness to look beyond established norms and embrace the unexpected. But Feynman’s success wasn’t just the result of brilliance, it was also due to courage.

As we’ve noted before, innovation is often based in ideas that are unthinkable, unknowable, or unimaginable. Truly disruptive innovation is always heretical. And heretics aren’t popular.

ALPHA IN INVESTING: THE PURSUIT OF THE UNSEEN

In investing, the concept of Alpha represents the excess return on an investment relative to the return of a benchmark index. To drive Alpha and deliver outsized returns, investors must possess insights that others do not and have the conviction to act when others will not. In the world of venture capital, this often means identifying and backing technologies and business models long before they become obvious to the broader market.

Having the conviction to bet against the crowd is both crucial and challenging. It requires real technical expertise, an understanding of markets and trends, and incredible personal strength. It is not easy being unpopular. The collective “wisdom of the markets” is a formidable barrier to unconventional thinking.

We’ve written previously about the importance of founders and innovators to be willing to challenge the status quo (Priest, Prophets, Pirates, and Pedestrians). It’s why we foster a mindset that embraces entrepreneurial spirit and a willingness to venture into unknown waters. You cannot get Alpha by following the crowd.

SUPER-VISION AND ANTI-VISION

We believe there are only two ways for investors to capture alpha in today’s markets: by being able to see what others cannot (Super-Vision) or by being willing to see what others will not (Anti-Vision).

Super-Vision involves identifying opportunities that are not yet apparent to the market. It requires a sharp eye for trends and the ability to act quickly. However, the window for these opportunities is typically short-lived. In reasonably efficient markets, arbitrage opportunities disappear rapidly as others catch on.

Hedge funds are particularly well-suited for leveraging Super-Vision. They can move quickly into large, liquid markets without necessarily influencing prices, capturing value before the market corrects. One thinks of George Soros breaking the Bank of England or of those who identified the housing bubble in 2008 and shorted the market. These are strategies with durations measured in months, if not minutes.

Anti-Vision, on the other hand, requires the willingness to explore possibilities and accept realities that others will not. These are often Heretical Truths—ideas that challenge conventional wisdom and face significant skepticism.

Anti-Vision is not about teenage rebellion or putting a pin to someone else’s balloon. It is about the critical importance of establishing an objective and dispassionate perspective on reality.

Anti-Vision is different than contrarianism. To be contrary is simply to stand in opposition to an existing belief. It places a strong premium on alternative perspectives and non-consensus ideas, and in many ways is defined by opposition, not accuracy. Anti-Vision is not about the teenage rebellion of putting a pin to someone else’s balloon. It is about the critical importance of establishing an objective and dispassionate perspective on reality (see our post on perception vs. perspective).

THE SEARCH FOR HERETICAL TRUTHS

Anti-Vision focuses on truths that are visible but are heretical. It is about identifying and capitalizing on overlooked or denied truths within the market. We see several key characteristics of a Heretical Truth:

• Controversial: It goes against widely accepted norms.

• Evidence Based: There is substantial data or logic supporting it.

• Unpopular: It is unacknowledged due to cognitive biases or vested interests.

• Endangers Status Quo: It is likely to disrupt existing markets or industries.

• Sacrificial: It will trigger near-term negative repercussions.

One example of successful market Heresy is the rise of cloud computing. When Amazon Web Services (AWS) launched in 2006, the idea of renting computing power over the internet was novel and unproven. Traditional IT infrastructure was deeply entrenched in on-premises solutions. Yet, AWS, followed by Google Cloud and Microsoft Azure, demonstrated the immense scalability, flexibility, and cost-effectiveness of cloud computing. Today, cloud services are foundational to modern IT operations, and companies that were early adopters have gained significant competitive advantages.

More recently we see the rise of AI. For decades, AI was primarily confined to academic research with limited practical applications. However, companies like Google DeepMind and OpenAI envisioned a future where AI could perform complex tasks, from playing games like Go to generating human-like text. These advancements have paved the way for AI to become an integral part of industries, from healthcare to finance, driving efficiencies and enabling new capabilities.

THE PERSISTANCE OF ORTHODOX LIES

Periods of rapid change—technological advancements, market shifts, geopolitical upheavals—are fertile grounds for Heretical Truths. During these times, many beliefs and assumptions become outdated, yet they often persist as Orthodox Lies. These are the entrenched ideas that people cling to, not because they are true, but because questioning them is uncomfortable.

In contrast to the comparatively quick wins of Super-Vision, Anti-Vision requires patience. People can remain in denial for extended periods, resisting change to avoid disruption. As such, Anti-Vision is best expressed through investments in private companies developing disruptive technologies. These ventures operate outside the glare of public markets, allowing them to innovate without immediate pressures.

VENTURE CAPITAL: DRIVING ALPHA WITH HERETICAL TRUTHS

Good venture capitalists excel in identifying and nurturing Heretical Truths. VC firms invest in startups that are not only willing to question the status quo but are actively working to redefine it. This is why venture capital can be an exceptional source of alpha—it thrives on the willingness to accept and invest in change. It is, in some ways, willing to accept short term crazy for long term brilliant.

To be clear, doing so is always difficult, and the current environment for VCs has additional hurdles. In 2024, liquidity in venture significantly tightened, with funding rounds becoming scarcer and more competitive. According to PitchBook, global venture capital investment has dropped by nearly 30% year-over-year, despite favorable valuations. Despite these challenges, history teaches us that periods of constrained funding often precede transformational growth.

The years following the 2001 dot-com bubble and the 2008 financial crisis saw the emergence of some of the most impactful tech giants of our time—companies like Google, Facebook, and Airbnb. These firms were born in times of financial restraint but flourished as they capitalized on new opportunities and changing market dynamics.

For those seeking Alpha, it is imperative to critically examine Orthodox Lies and embrace Heretical Truths. This mindset aligns perfectly with the ethos of venture capital.

At Audere, we are seeing incredible founders building incredible technologies and companies that solve massive problems. Some of these businesses sounds outlandish, and a few even crazy. But like pie tins in sunlight, we’ve noticed some things worth focusing on. And despite the headwinds, we believe this current vintage of venture firms and the companies they support will someday be viewed as a generationally transformative cohort.

As always, we love to partner with exceptional founders and innovative investors. Don’t hesitate to reach out.

Let’s build a better future.

Peter & Maggie