Frameworks Lag Reality
Spotting asymmetries between what's popular and what's true
The world is complex, so we all use heuristics, or short-cuts. We pattern match, and we put concepts into buckets, or frameworks. We derive frameworks from data we experience and collect. They are our rough-cut approximations to explain what we have seen. It is therefore difficult for frameworks to be predictive, or forward looking.
“To a man with a hammer, everything looks like a nail,” or so goes the well-trodden quote attributable to Samuel Clemens, otherwise known as Mark Twain. To the person with a framework, everything looks like it fits, or deviates, from expectation.
As frameworks seek to explain our world, but are derived from past data, they lag reality. Reality is dynamic, while frameworks are largely static. As such, in time frameworks stop explaining the current state of reality accurately. They get stale.
I’ve noticed that for a time mainstream opinions that may fit within a given framework can be both popular, and still accurate. But in time, while they remain popular, or at least putative, they can begin to lag reality, and become quite inaccurate. As such, there is a period of time where popular opinion inaccurately describes reality, or lags, because the late majority, or the laggards, in a given domain are using a formerly accepted framework to describe a world that no longer exists.
Let’s discuss what many call “Deep Tech.” “Deep Tech” as a framework might accurately be described as a true frontier technology that is heavily reliant on science, and may have a bimodal outcome of success or failure. Perhaps it’s so frontier that it’s reliant on certain unknowns becoming true, and if those things do not become true there is no possible way for the technology to come to fruition. Quantum computing, or certain methods of CRISPR gene targeting, perhaps fall into this bucket. But whereas “Deep Tech” is a framework that can accurately describe parts of the world, it’s often misattributed as a framework to describe things that were once science experiments that no longer are. I’d argue that many elements of technology as relates to drones, or perhaps Low Earth Orbit (LEO) satellites, were once deep tech, but no longer are. Components are a commodity, and organizations like SpaceX have reduced both the cost and risk of getting into orbit to be accessible, even pedestrian. Many continue to use this framework to describe a world, and a reality, where this descriptor is no longer accurate to the inherent risks in these companies.
It might therefore be “Contrarian” to invest in these companies, as many presume their risks to far outpace reality. In fact, on a risk adjusted basis perhaps the returns in these spaces is now better than it ever has been before. We recently backed a number of companies that are focused on drones and space and someone came to me and said, “I didn’t realize that you guys did Deep Tech at Everywhere Ventures.” My response was, “these aren’t Deep Tech companies, this is the Future of Work.” My beef isn’t with the nomenclature, but rather with the presumption of risk. Deep Tech implies frontier science, and bimodal risk; Future of Work implies fait accompli reality.
I have a broader contention with “venture capitalists” who seem to forget that our asset class is one of wide variance in outcomes. Wide variance implies that we must actually take broad risk, and actually take on risk that society writ large isn’t willing to. The very job of a venture capitalist isn’t to isolate and target low variance returns by backing only “SaaS businesses between $1M and $5M ARR;” it is to capitalize ideas and founders who seek to change the world, and build fundamental technology.
In developed markets, technologies largely dis-intermediate or disrupt incumbents; in developing markets, technologies seeks to organize or consolidate out of disorder.
The job of a venture capitalist is to spot asymmetries in how things are being done, to see when commonly accepted frameworks lag reality, and take a contrarian position.
Enterprise resource planning (ERP) for first responders is beginning to happen with drone overflights. This isn’t deep tech, but rather future of work ERP that better optimizes human resources in a constrained environment where human safety and response time are paramount. More and more data is being collected from space, and data download, in-orbit computing, and space-based cyber operations aren’t so much frontier as they are essential to how cloud computing is already beginning to take shape. The lenses and frameworks of “Deep Tech” lag reality, and there exists an opportunity that is to disagree, be contrarian, and invest despite the framework mismatch with how others judge your risk taking. As an investor I believe our job is to spot these asymmetries in how the world is acting, and where you disagree, and it’s to lean into environments where visionary founders aren’t just taking the bet, they’re wagering years and decades of their life that these opportunities are ripe.
Where are the frameworks lagging? What lens do you spot that mismatches reality, where you fundamentally disagree with a popular opinion? Chances are if you can be intellectually honest as to why you disagree, and it isn’t for the sake of Sophistry or being argumentative for its own sake, you’ve probably spotted opportunity. If you have that conviction and no one else is doing it, chances are it’s big. Own it.