A reality check for founders & investors
Moneyball is a fortnightly newsletter from Koble exploring the limitations of human decision-making and their implications for startup investing.
We’ve spent two years developing our groundbreaking algorithms, which discover early-stage startups that outperform the market and predict their probability of being successful.
This week
🧠 Mental model #8 – Reality Distortion Fields – A reality check for founders & investors
📖 Investor reading – Venture capital’s $300bn question – Carolynn Levy, inventor of the SAFE – Inside Alameda’s European startup portfolio
💬 Some tweets – “Send me stuff in your portfolio” – The difference between private equity and venture capital – Venture Capital due diligence during bull markets
A reality check for founders & investors
The Reality Distortion Field (RDF for short) is a powerful force in startups and venture investing. But where did it come from? And how can it help founders and investors to build enterprise value?
When we think of RDF, we think of one man. The story goes that the term was coined by Bud Tribble at Apple Computer in 1981, to describe Steve Jobs’ magnetic charisma and its effects on developers working on the Macintosh project.
RDF was said by Andy Hertzfeld to be Steve Jobs’ ability to convince himself – and crucially, others around him – to believe almost anything. It was generated through a mix of charm, charisma, bravado, hyperbole, marketing, appeasement and persistence. And it was said to distort co-workers’ sense of proportion and scales of difficulties.
In other words, Jobs’ RDF made the impossible possible.
Fun fact – the term actually originated from Star Trek. In an early episode (“The Menagerie”), RDF was used to describe Talosians with the power to create illusions indistinguishable from reality. These humanoid aliens created their own world through sheer mental force, deceiving the crew of the Starship Enterprise in the process.
This concept of world-building is a powerful way of thinking about startups. It’s exactly what Jobs did at Apple, creating a physical and psychological place with abnormal expectations, behaviours and outcomes. And it’s what all great founders do – in varying degrees – to get from 0 to 1, parents’ garage to Cupertino campus, and make their vision a reality.
As preposterous as it sounds, Apple as Starship Enterprise with Steve Jobs as Captain Kirk (and Steve Wozniak as a kind of brilliant-but-socially-uncomfortable Spock) is a neat way of conceptualising the archetypal startup, exploring new frontiers and pushing the limits of human-technological potential.
Jobs’ biographer Walter Isaacson provides an illuminating example of how RDF functioned on an operational level. In 1984, whilst developing the Macintosh computer, Jobs asked engineer Larry Kenyon to reduce the Mac boot time by 10 seconds. When Kenyon replied that it was not possible to reduce the time, Jobs asked him:
“If it would save a person’s life, could you find a way to shave 10 seconds off the boot time?”
Kenyon responded that he could. Jobs went to a white board and pointed out that if 5 million people wasted an additional 10 seconds booting the computer, the sum time of all users would be equivalent to 100 human lifetimes every year.
A few weeks later, Kenyon returned with rewritten code that booted 28 seconds faster than before.
This story is instructive. It’s not enough for founders to believe their own hype. They must find ways to bring their vision to life – translating possibilities into practicalities for people around them.
There’s also a darker side to RDF. It’s well documented (anecdotally, at least) that Jobs’ could use his power for evil, as well as good. He often appropriated (i.e. stole) others’ ideas as his own, even having the audacity to propose ideas back to their originators!
Bill Gates alludes to this when he says that Jobs used RDF to “cast spells” on people. Bills considered himself immune to this wizardry, explaining:
“I was like a minor wizard because he would be casting spells, and I would see people mesmerized, but because I’m a minor wizard, the spells don’t work on me.”
One person’s magician is another’s charlatan. RDF is a powerful force in startups that creates and destroys value in equal measure. Mozido, Hampton Creek, Bouxtie, Nikola, NS8, Theranos, FTX... the history of startups is replete with hyperbole, mis-selling, and downright fraud. How much of this was enabled by RDF?
Implications for investors
The Reality Distortion Field is a key driver of startup success – it should be sought out by investors and leveraged for maximum impact. But left untrammeled, it destroys more value than it creates.
Elliot Carver is one of the more forgettable Bond villains, but he has one of the most memorable lines:
“The line between insanity and genius is measured by success.”
Villainous techno-terrorists, humanoid aliens, and founders are seductive. Their power radiates outwards, mesmerising employees, shareholders, even users. They can fool even the most skeptical investors into taking uncalculated risks.
To profit consistently from founder wizardry we must recruit cold, hard science. Data can help us to mitigate the distortive effect of founder intangibles. And AI can help us to scale and leverage that data into repeatable alpha.
Our Bond villain was right. The distance between insanity and genius can – and must – be measured.
Work with Koble
At Koble, we’ve spent two years developing our groundbreaking algorithms, which discover early-stage startups that outperform the market and predict their probability of being successful.
We’re working with forward-thinking angels, VCs, family offices, and hedge funds to re-engineer startup investing with AI. If that resonates, get in touch.
The Moneyball Project
The Moneyball Project is a series of short but spicy interviews with founders and investors exploring the future of startup investing.
This week, we speak with Hustle Fund’s Will Bricker – part investor, past systemiser – to explore the art vs science debate in VC.
Investor reading
💰 Venture capital’s $300bn question – Why isn’t the industry spending its enormous pile of cash?
💡 Carolynn Levy, inventor of the SAFE – A pioneer shares how she wrote the 5-page document that underpins much of early-stage venture capital today.
🤑 Inside Alameda’s European startup portfolio – A quarter of the total cash Alameda Research invested went towards European companies
Some tweets
Parting shot
“The measure of a man is what he does with power.”
― Plato
Regards from your [world-building] startup investing AI,
About Koble
Koble is re-engineering startup investing with AI, applying quantitative strategies that have disrupted public markets to early-stage startup investing.