This Week in Venture Capital and Artificial Intelligence: The Art of Venture Capital: Bets and Risks

Every week I will share and summarize ideas and insights with the LinkedIn community. Some of the summarizations I may have covered during the week, and other things may have just been passing thoughts.

You can find out more about me by tuning into my LinkedIn profile daily and peaking my CV that is listed below from time to time. Also if you would like to be a guest on my 2 podcasts, Capital Unscripted, or Explainable AI, or if you would like to be a contributor to any of the medias I write for or am partnered with, -- includes AI Accelerator Institute , Idea Scale, AI news or other well-known media outlets such as Yahoo Finance -- then please reach me by inboxing me. CV: www.paulclaxton.io

Betting On What You Cannot See

Someone told me a bit ago, “I only invest in what I can see!” As in I only invest in something I can physically touch. I said really?!?! I think maybe people in Southern California, Los Angeles thought this too when they invested in properties that were in fire prone areas. No, no, no! They could not see these massive fires coming could they. Now many of these real estate investors are at a loss. No we can’t predict every investment, even if you can see it, you cannot see what it will be, no one can. The truth is, in venture capital we are artists, and we draw what we want to see, with painting our canvas with many colors, called diversified investing, and if we cannot see it, we imagine it…

When we predict future profits, we rely on two main things:

1. What we know now: Facts and data about the present, which we can assume are fairly certain or reliable.
2. What we guess about the future: Events or changes that haven’t happened yet, which we can only estimate with some degree of confidence.

In essence, predicting the future involves a mix of solid facts and educated guesses, and we need to accept that some uncertainty will always be involved.

I have been a self-taught and classroom taught student of economics for many years, particularly the economic practice of venture capital. This won’t change. In my studies, two things have amazed me is how people look at venture capital, and also why venture capital overall is an industry full of failures: definitely more failures than successes. I believe it has to do with how we look at venture capital as well as the people in the industry.

Today’s systems and processes are very complex and expansive, and the industry is not comprehensively understood. Quite honestly, it is really not meant structured to be understood entirely. This is why it is so difficult to pick winners and losers when investing.

?It is the creativity of the human mind coupled with our need to survive that makes winning and losing anybody’s destiny. My need to survive may not be your need to survive, and this is where my creativity comes into play, and where my innovation also may not be yours, and for this reason you will not be able to see what I see and this is why venture capital is so important. – PAC

Most people view venture capital as a complex industry, because they view it as a complex science that is always being refined. No, what we need to understand are frameworks and foundations. Yes, venture capital is an industry of very simple frameworks and foundations. Venture capital is actually a very simple, gut-driven industry when you break it down. It is an industry not about money or products, it is an artist driven industry about people. In other words, venture capital is an art, not a science.

It is the frameworks and foundations that help us manage what we do not understand by analyzing opportunities and placing the most educated bets.

Venture capital is a game of betting and taking risks; I think everyone knows this. And so to prove my point, if we fully understood the art of venture capital, it wouldn’t be called the art of taking bets and risks would it, instead it would be called the science of assured outcomes. Founders take risks on investors and investors taking risks on founders, but nothing is ever guaranteed is it.

The Pablo Picasso of Venture Capital

The venture capital industry owes its origins to Georges Doriot, a visionary financial Picasso who redefined the boundaries of innovation and investment. The man is regarded as the “Founder of Venture Capital,” Doriot’s journey is compelling.

Before founding the American Research and Development Corporation (ARDC) in 1946, he served as a Brigadier General in the U.S. Army during World War II, where he specialized in research and development. His military role wasn’t just about strategies on the battlefield; it was about innovation—building new tools, technologies, and processes to ensure the military’s competitive edge. This experience laid the foundation for his eventual pivot to private enterprise.

Doriot wasn’t just a military man—he also had ties to one of the most prestigious institutions in the world, Harvard Business School. Though he briefly attended and later dropped out, he would return to Harvard with an entirely new purpose. It was at this intersection of military discipline and academic ambition that Doriot began to imagine a new kind of investment model—one that bet on human potential rather than immediate tangibility.

I found Doriot’s story particularly fascinating because it mirrors elements of my own journey. While I wasn’t a Brigadier General or a Harvard dropout, my time in the Marine Corps and my brief tenure at Harvard taught me invaluable lessons about leadership, adaptability, and ambition. Like Doriot, I have always believed that the ability to link seemingly disparate experiences—military service, academic pursuits, corporate leadership—can unlock unexpected potential.

Launched in 1946, ARDC became the first venture capital firm to channel private investment into businesses, especially those led by returning veterans. Doriot recognized that many veterans brought back technical expertise and innovative thinking from their time in the service. They had knowledge in fields like engineering, logistics, and communications, which could be harnessed to drive growth in emerging industries.

One of ARDC’s landmark successes was its investment in Digital Equipment Corporation (DEC) in 1957. With just $70,000, ARDC backed DEC, and by 1968, the company’s value had skyrocketed, yielding a 500x return on investment. This was more than just a financial victory—it was a testament to Doriot’s vision that investing in people, rather than just products, could reshape industries.

ARDC’s success stemmed from Georges Doriot’s visionary approach to venture capital, which prioritized investing in people with potential over tangible assets. Doriot recognized the untapped expertise and innovative spirit of returning World War II veterans, channeling capital into their businesses to drive post-war economic growth. His strategy was rooted in long-term thinking, focusing on industries with significant potential rather than immediate profitability. ARDC’s landmark investment in DEC, which turned $70,000 into $38 million, exemplified this approach—spotting opportunities in emerging technologies and nurturing them to maturity. This people-centered, forward-looking philosophy set ARDC apart and solidified its legacy.

Similar to Doriot, I have had the honor of inspiring others with some of my own perspectives and frameworks of what venture capital should be like.

The beautiful thing about Georges Doriot’s framework of thinking is that although it has been almost 80 years since he launched ARDC on these foundational principles and views, today it is still relevant…

Frameworks and Foundations

Georges Doriot's frameworks and foundations of thinking revolved around 7 principles that shaped his revolutionary approach to venture capital:

1.???? Invest in People, Not Just Products Doriot believed that the quality, vision, and character of the people behind a business were more important than the product itself. He emphasized the importance of backing individuals with the drive, creativity, and resilience to solve problems and lead companies to success.

2.???? Long-Term Vision Over Short-Term Gains He championed the idea of patience in investments, understanding that the best returns often required time and sustained effort. Doriot preferred to invest in ventures that promised significant growth and innovation in the economy, even if the profits weren’t immediate and even if the investments were not sexy.

3.???? Value the Power of Innovation Drawing from his military experience in research and development, Doriot understood that innovation starting at the government or macro level—whether in technology, processes, or strategy—was critical for staying competitive and creating value in a rapidly changing world. This means not technologies that will create value in some micro component of the economy, but to drive true change, the value needs to be virtually ubiquitous.

4.???? Leverage Diverse Experiences Doriot believed that individuals with varied backgrounds, particularly veterans with technical expertise and leadership skills gained from military service, could bring unique perspectives and drive innovation in business.

5.???? Balance Risk with Guidance He saw venture capital as more than just providing funding; it was about actively mentoring and supporting entrepreneurs. Doriot emphasized the importance of being a partner who could offer strategic advice, network connections, and operational insights to help ventures succeed.

6.???? Focus on Building a Better Economy Doriot’s investments were motivated not just by profit but by a desire to contribute to societal progress. He believed that fostering entrepreneurial ventures, especially those led by skilled veterans, was essential to building a dynamic and competitive post-war economy.

7.???? Bet on Potential, Not Certainty Doriot acknowledged the inherent uncertainty of investments and embraced the idea that success required taking educated risks. His philosophy was that betting on unproven ideas and emerging industries could yield transformative outcomes.

These principles formed the foundation and massive success of Doriot’s approach to venture capital and remain very useful in the industry today.

Venture Capital: A Failing Industry With A Bright Future

Today, venture capital investments are inherently high-risk, with a significant proportion not yielding returns. Research indicates that approximately 75% of venture-backed startups fail to return cash to investors, with 30% to 40% resulting in complete losses. ?Harvard Business School

Other analyses suggest that up to 90% of startups ultimately fail. ?Exploding Topics

I think this is because many venture capitalists are seeking to minimalize risk by investing in profits over impact. In other words looking at micro - trends/short-term focus, not macro-shift impacts/long-term focus which does not reduce risk. Everyone wants to be the next Netflix or TikTok but not the next IBM. Although IBM wasn’t viewed as "cool" like other companies, it became the backbone of the computer revolution and worldwide economy.

Why is this? Watch the video: Why Venture Capitalists Fail…

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Many of the failures in the venture capital industry can arguably be traced to straying away from Georges Doriot’s foundational principles. Here’s why and how shifting focuses have contributed to a diminished quality in the industry:

Short-Term Thinking Over Long-Term Vision

Doriot emphasized patience and long-term vision, understanding that great returns often come from nurturing companies over time. Today, many VCs focus on rapid exits—chasing the next unicorn, rushing toward IPOs or acquisitions, and prioritizing quick ROI. This "growth at all costs" mindset often leads to overvaluations, unsustainable business models, and failures when companies cannot deliver on their inflated expectations.

Overemphasis on Market Trends Instead of People

Doriot believed in investing in the character, vision, and ability of founders. Modern venture capital often prioritizes trends and hype—pouring money into buzzwords like AI, blockchain, or “hot” markets—sometimes at the expense of vetting whether the team behind the idea has the ability to execute or adapt. This results in a focus on fads rather than building sustainable businesses.

Diminished Mentorship and Partnership

Doriot saw venture capital as more than providing money; it was about guiding and mentoring entrepreneurs. Many VCs today take a hands-off approach, primarily functioning as financial backers rather than strategic partners. This leaves founders without the support or expertise they need to navigate challenges, increasing the likelihood of failure.

Focus on Immediate Profitability Over Innovation

Doriot viewed innovation as a cornerstone of venture capital, often taking risks on unproven technologies and ideas that could transform industries. However, in recent years, there has been a tendency to prioritize safer, proven business models (like consumer apps or marketplaces) rather than riskier, breakthrough innovations. This risk aversion stifles the potential for significant advancements.

Overfunding and Valuation Bubbles

In Doriot’s time, venture capital focused on disciplined funding—providing just enough capital to test and grow an idea. Today, the industry is plagued by overfunding and inflated valuations, creating pressure on startups to scale too quickly, often before their fundamentals are solid. This leads to high-profile collapses when growth proves unsustainable.

Loss of Economic and Social Responsibility

Doriot believed venture capital had a broader purpose: to rebuild and advance the economy, particularly by supporting innovative individuals like veterans who could drive change. Today, much of venture capital focuses on maximizing shareholder value rather than fostering businesses that contribute meaningfully to society. This shift can result in a lack of focus on long-term impact or sustainability.

Doriot’s insight into the transformative potential of veterans as entrepreneurs wasn’t just practical—it was profoundly human. He saw them not merely as individuals with technical skills but as people with the resilience, creativity, and determination to tackle complex problems. His approach wasn’t just about financial returns; it was about rebuilding an economy and society in the wake of war, one innovative venture at a time.

The success of Doriot and ARDC reminds us that venture capital, at its core, isn’t about money or even technology. It’s about people. It’s about taking risks on those who dare to imagine a future no one else can see and helping them bring it to life.

Painting a Better Future With Venture Capital

I don’t think anyone would disagree with me that the entire world has been handed a fresh canvas to paint on, thanks to the rise of artificial intelligence and other transformative technologies. It’s a rare moment in history, one that echoes the post-WWII era when innovation, resilience, and vision gave birth to industries that reshaped the world with help from the likes of people such as Georges Doriot. Like then, today’s venture capitalists have the chance to be artists, painting bold and imaginative futures while grappling with the challenges of rebuilding from a series of disasters.

After World War II, the United States emerged from a period of immense hardship: the Great Depression, the Dust Bowl, World War I, and the lingering threat of polio. These were not just economic or medical challenges—they were existential ones. Yet it was from this turbulence that the seeds of innovation were planted. Leaders like Georges Doriot, through ARDC, recognized that the devastation of the past could serve as fertile ground for rebuilding not just industries but society itself. Fast forward to today, we find ourselves in a similar position. The global community is still reeling from its own series of catastrophes: pandemics like COVID-19, climate disasters such as the fires in California, and the geopolitical conflicts reshaping economies and industries. But just as ARDC emerged in the aftermath of chaos, proving that adversity could spark progress, we now have the opportunity to channel our focus into innovation-driven, people-centered investments

Just as ARDC became a inspiration of hope for rebuilding the post-war economy, companies like Open AI and their Stargate initiative are revolutionary for what we need in this age. But what makes a venture truly revolutionary? It’s not simply about funding flashy technologies or jumping onto fleeting trends—it’s about creating new frameworks and foundational shifts that have long-lasting impact. This is where the parallels to Georges Doriot’s philosophy become critical.

At its core, Stargate is a venture capital initiative designed to address the most pressing global challenges by funding scalable, innovative, and human-centered solutions. Stargate operates as a hub for transformative investments, channeling capital into ventures that not only aim for financial success but also seek to create lasting, meaningful change in industries critical to the future of humanity…

The focus of Stargate is not on what is trending and wanted, but rather it is focusing on what is inevitable and needed for the quality of our futures. I believe Stargate will help spur a shift in venture capital thinking that will inspire us back to proper frameworks and foundational ways of thinking.

Stargate focuses on macro shifts, not micro trends. This means investing in technologies and industries that fundamentally reshape the way we live, work, and sustain the planet. By targeting areas like clean energy, AI-driven automation, global health innovations, and next-generation infrastructure, Stargate prioritizes ventures that align with societal progress.

The Stargate Project is similar to ARDC, in several ways, and its existence highlights the need for more initiatives—albeit smaller-scale versions—that focus on macro shifting investments.

In Summary

Venture capital, at its core, is an art form—a delicate balance of imagination, risk-taking, and belief in the potential of people and ideas. From Georges Doriot’s transformative vision with ARDC to the modern emergence of initiatives like Stargate, the thread of investing in human potential and tackling macro shifts remains critical. Today, as we face global challenges reminiscent of post-WWII struggles, the opportunity to rebuild industries and redefine societal progress lies before us. By embracing long-term thinking, fostering innovation, and prioritizing impactful investments, we can paint a future that aligns with the frameworks and foundations laid by pioneers like Doriot. Let’s remember that venture capital isn’t just about funding; it’s about believing in a better future—one bold bet at a time.

?You can find out more about me by tuning into my LinkedIn profile daily and peaking my CV that is listed below from time to time. Also if you would like to be a guest on my 2 podcasts, Capital Unscripted, or Explainable AI, or if you would like to be a contributor to any of the medias I write for or am partnered with, -- includes AI Accelerator Institute , Idea Scale, AI news or other well-known media outlets such as Yahoo Finance -- then please reach me by inboxing me. CV: www.paulclaxton.io

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

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-- Other than LinkedIn, if you want to know more about me or hear more from me you can view my CV here: www.paulclaxton.io

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