Venture is non-consensus

TGIF! There’s been a growing discussion in venture circles that we have gone past the era of non-consensus investing. This thesis posits that building startups for the consumption of downstream investors with deep pockets is the new way to create value.

It’s not surprising that mega-funds are championing this movement. In his undergraduate thesis, John Bogle claimed that index funds should over decades outperform active funds since costs are controllable and the surest way to improve returns was to minimize costs. years later, he created the Vanguard 500 Index Fund. Everyone has a motive.

I wanted to share some of my thoughts on this topic with an obvious disclaimer that Fairbridge invests in the earliest stages of innovation. If consensus was the new model, we’d be out of work. It’s not true.

The Philosophy

The proportion of capital devoted to funding true innovation is the best predictor of success for any ecosystem. But, the more this capital aggregates into fewer hands, the higher the risk that innovation is driven by group-think characteristics – comfort, safety, pandering, familiarity, comparable, first-order, incremental, fear, mass psychosis – and not true, uncomfortable “outsider” thinking. The nerds advocating consensus know this well…they were once outsiders. Locally distributed networks of capital are critical to amplify the innovation coefficient.

My Takeaways

Where consensus works

1. Building for downstream can be a powerful proof of concept for smaller funds like Fairbridge. Series A graduation rates to reputable downstream investors are easy to measure and are a generally an objective reflection of the quality of the underlying asset.

2. Great ideas that require significant capital investment benefit from partnering with investors that can deploy tons of capital at once and can afford companies multiple chances to figure it out. This privilege isn’t available to all qualified companies.

3. Large players help boost the competitiveness of an ecosystem. They power the last mile delivery of liquidity to investors, shape policy and regulation, and help with competition against rival ecosystems.

 Where consensus doesn’t work

1. Diamonds in the rough: Innovative ideas don’t always fit the institutional polish that mega-funds require. What happens to great ideas that they can’t pattern match, don’t yet understand, lie outside of their distribution/ sourcing reach, or simply they just don’t want to fund?

2. Supply: Innovation requires a large supply of options upstream. Building for consensus shrinks the size of top-of-funnel. Only upstream managers with access to and with taste of the large funds will remain in business.

3. Waste: And who will be accountable for the hit to global return, the capital lost to bad ideas funded with consensus? Remember companies like Clubhouse, Quibi, Groupon/Living Social, the meal kits cohort, Juicero, Argo? This is an important question because mega-funds invest for important, but vulnerable people – teachers, firefighters, law enforcement etc.

4. Incentives: At scale, management fees alone can deliver a comfortable life to capital managers. Focusing on return becomes harder, also because superior return is harder with scale.

5. Syndication: There can only be so many large funds and eventually all “good” assets end up on the same capital tables. This is not good for return – systemic collapse, too big to fail etc. It’s especially bad for diversity of ideas: different philosophies of company-building, how capital shapes society, differences in personality, taste, sector allocation etc

   “There are many private markets out there, not just one.” - Brian Murray… this is still my favorite statement of 2025. It was Brian’s retort to a gentleman who aggressively tried to school him on what “the big investors” really wanted to see.

How this Impacts Fairbridge 

I recently had a lengthy catch-up about this topic with Ho Nam, the investor for whom I have the utmost respect. His firm is the blueprint for building for contrarian investing. He pushed me on this topic:  The hard thing and the real moat we are building at Fairbridge is the ability to back compelling companies and find ways to build them through full lifecycles. This means continually raising the bar of the founders we work with, a relentless focus on creativity of economic design, leveraging technology to boost capital efficiency, and clever coordination of capital formation within a small group of aligned capital partners. Most importantly, we need to nurture the gumption and team to brave the elements.

The Bottom Line

Ultimately, America’s USP is being at the forefront of technological innovation. We make money by selling this innovation to other countries via our bonds, stocks, and attracting the best global talent to work for us. Preserving this advantage depends on scalable, non-consensus models of funding innovation.

Resources

 Here is a podcast where the topic of non-consensus is discussed

 And here is a talk in my bible about successful contrarian investing in truly differentiated companies