The complex systems investing principles I developed did not happen overnight. It was actually a long, difficult, and, at times, breathtaking journey to get where I am right now. I have discussed some of my experiences in other blogs.

My investment background is a mixture of research and portfolio management. I have a passion and skill for diamond in the rough investing. In an environment where the big companies get bigger and dominate everything else, it is a dying art to excel at something the financial world seems to undervalue. The incoherence of this current system is hard to miss, but if you do not chase the Nvidias of the world, people lose interest quickly. Even if you feel that Nvidia is overvalued, it still dominates most conversations about the market.

However, even years ago, before the market was so out of balance, it was already obvious there were big problems. I spent many years studying healthcare and life science businesses. The companies that got most of the funding were rarely the businesses that improved healthcare the most. They were the businesses that made investors the most money. The system itself incentivizes this reality, so just calling investors greedy does not change anything. Most investors care about the world and their families as much as anyone else. People are much more awake to the current reality and how perverse the incentives are, especially since the last election with the MAHA movement.

However, did you ever wonder how it got so bad that we just ignored basic common sense things like making sure the water is clean and the food not poisonous? People get fatter, so we give them fancy biotech diet drugs that make investors and company executives a fortune. People get more cancer in all age groups with all the environmental toxins, so we make more cancer drugs with fancy new genetic technologies. Though I discuss the need for systemic problem analyses in my investment process, do you really need super computers to connect the dots here?

Even most environmentalists were preoccupied by climate change to a fault. In recent years, how many conversations about healthy food and agriculture did not start with a conversation about climate change? Somehow, to get the money to address the issues with toxic food and water, entrepreneurs had to fold the story into the climate change narrative or you would get no money and no fancy tax benefits. Government kept feeding these narratives in the bills and regulations they passed. The incentives were so distorted, even if you wanted to do something different, it was a big uphill battle whether you were an innovator, a scientist at a university, or an investor motivated by systemic value.

I spoke to gifted entrepreneurs that were well intentioned and authentically motivated to tackle hard problems like pollution and ecocide, but just could not find a way to make their models work in the current paradigm without chasing the big narratives. Somehow, carbon credits were going to fix everything. Well, the bills created money out of the air, put our government in more debt, but fixed nothing. We have a special kind of economic system that creates 7 new problems for every 1 problem we theoretically fix.

Lately, the zero sum game economic system has been falling apart very quickly. In the current liminal space, you do not have years to get lost in a money making narrative the way you once could. The mighty can fall hard very quickly and the small can rise up just as fast. As chaotic as all this sounds, there is a necessary unwinding of old toxic incentives and siloes, as commons sense starts to take over by necessity. “Wax off” Mr. Miyagi reminds us. Natural cycles will eventually have their way whether we like it or not. Things have just gone too far. Emulating Nature’s complex adaptive systems starts by following basic principles and a large dose of common sense. So, wait, is complex really simple in disguise?….yup, it can be, but going from complex to simple still needs to follow certain circular and nonlinear processes to re-establish coherence. It is also no small thing to unwind systems and processes that have made billions for incumbent groups regardless of how unbalanced things are.

“Complexity is nature’s way of hiding simplicity in plain sight. Look closer” - Professor Richard Feynman

I met so many special interdisciplinary entrepreneurs over the years that got little attention by investors for some of the reasons discussed above. I used to doodle for hours how to fix things and how to steer more support and resources to these renaissance engineers. I mean, what kind of economic system ignores the most creative and resourceful people in the room by design?

My particular ideas do not involve changing accounting practices or re-architecting the money system from the top down. My ideas are practical, bottoms up, and seemingly simple. However, there is no reason why they can’t start to improve things, make investors fair returns and start to address these large systemic issues, one step at a time. There are already structures and processes used in other areas that you apply right away. I did not realize until I stumbled across permaculture and other ecosystem based design principles that my ideas were really not mine. I started to realize that the predominant economic paradigm follows principles that are completely disconnected from ecological realities. Extreme incoherence is the only result possible in such a system, and so is corruption and extreme disequilibriums of power and money. Most importantly, ecosystem based design principles are so grounded and authentic that they have the power to bring fractured groups back together again.

“Nothing is invented, for it’s written in nature first.” - Antoni Gaudí

In the following case study, I discuss how to apply a simple hub and spoke model to re-architect the entrepreneurial and financial model in the medical technology area. This same model can apply in many other vital areas.

View the full case study video and presentation materials

To learn more about Pythia Capital’s services, click here.

Medical Technology Hub & Spoke Investing Case Study Transcript

0:09 Hello, I’m Lynn Marie from Pythia Capital, and I just wanted to say hello, and, introduce you to Hub-and- Spoke Investing, which is one of the core services here at the Capital that we’ll be rolling out soon.

0:30 And as you can see, this is a variation of an investment model in the sense that it combines business development and investing into one integrated package in the sense that when you are talking about critical products and services such as medical devices or diagnostics as an example, where the existing

0:53 venture capital paradigm does not work too well because as it is very complex to design these products and deal with the regulations, deal with the FDA, take the risk of product development that it will be something that results in sales in the sense that it’s indirect, the people that are using the

1:14 service and that the actual patient are two different parties. So it’s a very complex process to build, develop and sell these products, except if you actually look at things from a systemic perspective, you realize that these products in many ways are more important than very big-selling products such

1:34 as weight loss drugs or other things like that, because there are many devices that can help empower people to feel better about themselves, for example.

1:44 But if you go the consumer product route and don’t do the clinical trials, you’re restricted on what you can market and what you can do and what you can actually sell, You also cap out at a certain sales level often times and the people that really need the products often don’t get it because they can’t

2:05 afford it. So in order to have things paid for by insurance companies, you have to do the trials, you have to raise a lot of money.

2:12 To raise a lot of money, you have to have a big market and once upon a time when the venture capital industry was smaller, when the funds were smaller and financial industry was different.

2:22 and people came public much earlier. There was less regulation, the funds were smaller. There were lots of market makers. There was lots of support for these small companies.

2:32 There was much less of all of those things today. It’s highly predatory and very difficult to come public. And many of these companies used to come public long before they had any sales just because there was a recognition of the value of what they were going to build versus the actual sales.

2:49 And that was an extremely difficult thing to accomplish today, to convince people that there’s enough of a market opportunity that they should take back kind of risk.

2:57 But when you look at things from this ecosystem perspective, you realize that you can start to build these products and services with this model, so you bring the business development team together with the investor team, and then you give investors a choice to invest either at the hub level or the spoke

3:15 level or both. and not gives the flexibility to build lean products and services, for example. If you look at the different spokes, you can potentially be much more lean because each spoke doesn’t necessarily need an entire product development team.

3:33 For example, there’s many things at the hub level they can take advantage of without having to replicate those services. So today, at the hub level, at the spoke level, people have to build from scratch everything that’s at the hub level.

3:45 So it’s it’s a wasteful in terms of resources, and it’s also extremely ineffective, especially in these complex situations. So you can imagine that this looks similar to what people call a DAO and blockchain, but when you start looking at blockchain from that perspective, you see all blockchain really

4:01 is just a different way of thinking about technology in the decentralized distributed way. But you don’t necessarily need blockchain to move forward with this type of a business model.

4:12 this type of situation, many of you have seen this in the real estate industry, it’s just rather intuitive and rather logical.

4:22 It’s pretty organic, but when you look at the existing regulations, the existing fund structures, the existing way people allocate assets, there’s nothing organic or natural or flowing about those things.

4:35 Some things you can do something about and some things you can’t in terms of the high regulatory or barriers, for example, but there’s many obstacles that you can reduce the friction and increase flow and increase the likelihood that some of these products will be successful and still align your incentives

4:51 with the investors where they can make the right returns and better yet, you can potentially make the same or higher returns that you’re making now at much less risk.

5:03 And what that basically means is you would have many more shots on goal that actually make it. So when you look at the existing venture capital model of one and ten making it, there’s no reason to assume in a situation that you couldn’t have more, such as eight out of ten making it.

5:17 If you change your expectations in terms of, I’m going to go public and I’m going to create this large monstrous company.

5:24 Instead, you create value for the world and for the consumers that you get paid your return. And so it’s a different way of thinking about marketing.

5:32 It’s a different way of thinking about building. It’s a different way of thinking about how to realize the value. because in this sense, you could eventually, for example, package together various spokes and integrate them and create a new company and bring that public, or you could sell off the different

5:49 spokes and not bring any of them public. You could potentially design a model such as, an evergreen model where the investors are not investing in fund after fund after fund, but they continue to invest money at both the hub and spoke level.

6:02 So you could occasionally do cash distributions, for example, if there were large payouts, you could bring the entire spoke public.

6:09 So there are many more opportunities to create liquidity events than you have now. There’s also a much higher probability that you would be successful in this, using this process.

6:25 And you’re using a process that is organic and natural and takes advantage of how nature does things to be more coherent and more abundant.

6:37 And it’s not really all that complex, even though we talk about complex systems here at Pythia Capital. This is not complex to organize yourself in this way.

6:49 What’s complex about it is perhaps understanding all of the science and all of the physics to understanding why this paradigm is so unbelievably effective and efficient but what’s also really complex is breaking down all the walls in society to get in the way of you doing things like this.

7:11 I, for example, have been trying to talk about this for years and got caught up in all sorts of discussions about ESG and DEI and all these counterproductive conversations when the reality was is my attraction towards this methodology from the very beginning was to open up flow for critical products

7:28 and services and to make sure that the investors would get the returns that are fair for the risks they’re taking.

7:35 It’s really that simple. And to do that, we do have to re-architect the model, but it doesn’t really—it can’t really happen just at the investor level.

7:43 It actually has to happen at the company level too, I would—for my conversations with many entrepreneurs, especially in industries like this, you aren’t going to have entrepreneurs and companies resisting a strategy that makes so much sense but there has to be a willingness on both the investor side

8:04 and the company side to gather together in this way and start changing how you work together. It’s really that simple.

8:11 Anyway, I appreciate your attention and I look forward to talking to you soon.