Notes On Early Stage Technology Investing; Art, Science, or Both?

Conducting market research is an important part of the investment decision making process.

Conducting market research is an important part of the investment decision making process.

Often when I have asked other people this question I get a response that leaves me feeling dissatisfied. It seems most investors are compelled to take one side over the other, and, at least as far as the admittedly small sample  of investors I have asked this question are concerned, insufficient thought is given to the notion that perhaps early stage investing has elements that make it like art in some respects but like science in others.

I am writing these notes on early stage technology investing in order to clarify my own thinking on the subject.1 Ideally, once I am done I should have a clearer understanding of how my process for arriving at “yes” or “no” decisions should work, in what context certain steps can be truncated or even eliminated altogether, and the risks I am exposing our fund’s limited partners and myself to by the choices I make during the period over which I study and analyse an early stage startup that is an investment prospect.

To ensure we are on the same page, and thinking about the issues from the same starting point . . . first, some definitions.

Definition #1: What is a startup? A startup is a temporary organization built to search for the solution to a problem, and in the process to find a repeatable, scalable and profitable business model that is designed for incredibly fast growth. The defining characteristic of a startup is that of experimentation – in order to have a chance of survival every startup has to be good at performing the experiments that are necessary for the discovery of a successful business model.2 As an investor, I hope that each early stage startup in which I have made an investment matures into a company.

Definition #2: What is art? 

The expression or application of human creative skill and imagination, typically in a visual form such as painting or sculpture, producing works to be appreciated primarily for their beauty or emotional power.3

In an article published in 2010, Marilina Maraviglia says:

This question pops up often, and with many answers. Many argue that art cannot be defined. We could go about this in several ways. Art is often considered the process or product of deliberately arranging elements in a way that appeals to the senses or emotions. It encompasses a diverse range of human activities, creations and ways of expression, including music, literature, film, sculpture and paintings. The meaning of art is explored in a branch of philosophy known as aesthetics. At least, that’s what Wikipedia claims.

Art is generally understood as any activity or product done by people with a communicative or aesthetic purpose – something that expresses an idea, an emotion or, more generally, a world view.

It is a component of culture, reflecting economic and social substrates in its design. It transmits ideas and values inherent in every culture across space and time. Its role changes through time, acquiring more of an aesthetic component here and a socio-educational function there.4

Lastly, according to Tolstoy:

To evoke in oneself a feeling one has once experienced, and having evoked it in oneself, then, by means of movements, lines, colors, sounds, or forms expressed in words, so to transmit that feeling that others may experience the same feeling — this is the activity of art.

Art is a human activity consisting in this, that one man consciously, by means of certain external signs, hands on to others feelings he has lived through, and that other people are infected by these feelings and also experience them.5

I will attempt to extract a few key characteristics that I think qualify something as art on the basis of the preceding quotations.6

First, art is initially conceived or imagined entirely in the artist’s mind.

Second, the artist uses an artistic medium to transform what has been an intangible object in the artist’s mind into something tangible that other people can experience.

Third, art evokes a response from the people who experience it.

Finally, art is transformative in nature. Once experienced, art changes how we see and experience the world.

Definition #2: What is science? Conventional, and commonly held notions about what constitutes science often mistake and confuse the “pedagogy of science” with the “practice of science” . . . What does that mean precisely?

When we learn science we do so in a very formulaic manner. This makes sense, the first step in becoming a scientist is learning a sufficient amount of the body of knowledge that man has accumulated over time thanks to the work done by generations of scientists. The same is true for mathematics. That makes sense . . . Structure and process are important if the typical student of science is to make steady progress through the accumulated body of knowledge, until that student has built enough mastery of the subject to begin making new contributions to the knowledge we keep accumulating about the world. Out of necessity, the process of learning science adheres to the “scientific method” . . . It is linear, and simple, and provides structure for how one goes about mastering the accumulated knowledge of science. Generally, the process of teaching and learning science leaves little room for creativity. This leads many to develop and embrace the notion that the practice of science is an endeavor devoid of creativity. The way science is taught and learned also leads to the misconception that science is uniformly precise at every stage, and that it leads to conclusive answers to the questions that scientists investigate.

However, how one learns science is not the same as how one practices science. The following images attempt to illustrate that point.

Real Process of Science (1 of 3) . Image Credit: University of California Museum of Paleontology's Understanding Science

Real Process of Science (1 of 3). Image Credit: University of California Museum of Paleontology’s Understanding Science

Real Process of Science (2 of 3). Image Credit: University of California Museum of Paleontology's Understanding Science

Real Process of Science (2 of 3). Image Credit: University of California Museum of Paleontology’s Understanding Science

Real Process of Science (3 of 3). Image Credit: University of California Museum of Paleontology's Understanding Science

Real Process of Science (3 of 3). Image Credit: University of California Museum of Paleontology’s Understanding Science

In real-life, scientists:

  1. Create knowledge using an iterative process in which new advancements are built on prior work, in relatively small, incremental steps. The process starts with ideas, beliefs, or guesses . . . conceived entirely in the scientist’s mind. Old knowledge is revised, and modified based on new discoveries made possible by advancements in technology.
  2. Conduct research for which there’s no pre-determined outcome. For example, the evidence obtained from observation and experimentation might contradict the researcher’s best before-the-fact guesses and assumptions as well as established and accepted theory.
  3. Always begin with an idea that can be tested through observation, experimentation, measurement, and analysis. Observation, experimentation, measurement, and analysis – together, these constitute the scientist’s medium.
  4. Conduct experiments to test the ideas that they seek to investigate. The process of conducting experiments is the method by which they collect the necessary evidence that leads them to ultimately accept or reject the idea under investigation. To succeed at this they must be willing to reject conventional-wisdom, and scrutinize closely-held and cherished beliefs based on the evidence and observations of the experiments they perform.
  5. Typically work in collaboration with other scientists, or scientists-in-training. For example, as an undergraduate mathematics and physics double major at Connecticut College, I spent three years assisting Prof. Arlan W. Mantz with research on the temperature dependence of molecular absorption line widths and shapes using tunable semiconductor diode lasers. The nature of scientific collaboration can be direct or indirect.
  6. Often say that ” . . . further research needs to be conducted on this topic . . . ” This refrain seems to be a common feature of presentations in which scientists present their work. Yet, if one understands science as the pursuit of a deeper, nuanced, and increasingly sophisticated understanding of the laws that govern the natural world . . . That makes complete sense. Scientific research is ongoing in its search for better answers to questions that non-scientists might consider closed-to-debate.
  7. Transform our understanding of the laws of nature, and in so doing change the relationship that we each have with the world around us.

I can’t find a substantive difference between what we stereotypically call “art” and that which we stereotypically call “science” . . . Can you?

Does science evoke a response from the people who experience it? Each time I use one of the many objects that has become part of modern life, I am filled with awe at what scientists have accomplished. I will grant that there is one difference between “art” and “science”; namely it is that art is related to notions of aesthetic beauty. Yet, one could argue that there is aesthetic beauty in science as well.

Consider the equation:

Mass-Energy Equivalence

Mass-Energy Equivalence

Let’s set dogma aside, for a moment; Can one argue objectively that this equation is not an aesthetically pleasing way to express the relationship that exists between the energy and the mass of an object?

What are the implications for me as an early stage investor, if “art” and “the practice of science” are more alike than they are different?

Here is a scientist’s code of conduct according to the University of California Museum of Paleontology:7

  1. Pay attention to what other people have already done. Scientific knowledge is built cumulatively. If you want to discover exciting new things, you need to know what people have already discovered before you. This means that scientists study their fields extensively to understand the current state of knowledge.
  2. Expose your ideas to testing. Strive to describe and perform the tests that might suggest you are wrong and/or allow others to do so. This may seem like shooting yourself in the foot but is critical to the progress of science. Science aims to accurately understand the world, and if ideas are protected from testing, it’s impossible to figure out if they are accurate or inaccurate!
  3. Assimilate the evidence. Evidence is the ultimate arbiter of scientific ideas. Scientists are not free to ignore evidence. When faced with evidence contradicting his or her idea, a scientist may suspend judgment on that idea pending more tests, may revise or reject the idea, or may consider alternate ways to explain the evidence, but ultimately, scientific ideas are sustained by evidence and cannot be propped up if the evidence tears them down.
  4. Openly communicate ideas and tests to others. Communication is important for many reasons. If a scientist keeps knowledge to her- or himself, others cannot build upon those ideas, double-check the work, or devise new ways to test the ideas.
  5. Play fair: Act with scientific integrity. Hiding evidence, selectively reporting evidence, and faking data directly thwart science’s main goal — to construct accurate knowledge about the natural world. Hence, maintaining high standards of honesty, integrity, and objectivity is critical to science.
Image Credit: Tasha S. K. Aoaeh

Image Credit: Tasha S. K. Aoaeh

What are the risks I take if I cling to the notion that early stage investing is “all art” and “no science”? For one, I will not subject my own assumptions, hunches, guesses, biases, ideas, visions, opinions to the level of scrutiny to which they should be subjected. Worse yet, I might fail to subject other people’s ideas and assumptions to sufficient scrutiny and testing. Instead; I might rely on decision-making heuristics like “pattern-matching” and I might engage in “groupthink” or succumb to social-proof bias . . . I might fail to maintain a mind that is sufficiently open and flexible to recognise an early stage startup founder poised to transform the world because that founder does not fit my idea of what such a founder “looks like” . . . I might pass on a great startup investment for reasons that are completely irrelevant simply because I have failed to develop my own thinking and ideas about its prospects . . . I might fail to unlock promising new markets before the greatest returns have already been harvested by other early stage investors because I lacked enough curiosity and discipline to ask nuanced questions and challenge myself to acquire new knowledge and insights from other sources and other people – possibly people outside circles within which I am most comfortable . . . I might spend my career in early stage technology investing in a self-imposed exile to the land of piddling mediocrity.

I find none of those possible outcomes palatable; early stage investing is both an art and a science. The best early stage venture capitalists behave in keeping with that belief. It is their trade secret.

Science is Uncertain - Freeman Dyson

Science is Uncertain – Freeman Dyson

Further Reading

  1. The Pleasure (and Necessity) of Finding Things Out

  1. Let me know if you feel I have failed to attribute something appropriately. Tell me how to fix the error, and I will do so. I regret any mistakes in quoting from my sources. 

  2. I am paraphrasing Steve Blank and Bob Dorf, and the definition they provide in their book The Startup Owner’s Manual: The Step-by-Step Guide for Building a Great Company. I have modified their definition with an element from a discussion in which Paul Graham, founder of Y Combinator discusses the startups that Y Combinator supports. 

  3., acessed Jun 18th, 2015. 

  4. Marilina Maraviglia, What Do We Really Mean By Art? Accessed on Jun 18th, 2015 at 

  5. Leo Tolstoy, Art and Sincereity. Accessed on Jun 18th, 2015 at 

  6. Adapted from: What is art? An Essay on 21st Century Art, Sylvia Hartmann. Accessed on Jun 18th at 

  7. “Participants in science behave scientifically.” Understanding Science. University of California Museum of Paleontology. Accessed on Jun 18th, 2015 at 

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