I arrived at this month’s inaugural Slow Money Canada meeting ready to share an excerpt of Michael Lewis’s new book, Flash Boys. Is there a more stark counterpoint for slow money, a better argument for bringing money back down to earth, than the excesses of high-frequency traders racing to achieve a few-millisecond trading edge?
Turns out there is.
And it is this: A venture capital fund called Deep Knowledge Ventures has just announced the appointment of a computer algorithm to its board of directors.
No, I’m not making this up. No, this is not an article in The Onion. This is real news. This is financial reality as of June 2014, on this little old ball of whirling, zooming, and life-of-its-own cyber-money called Planet Earth.
Makes me think back to Niall Ferguson’s prescient observation in The Ascent of Money: “Planet Finance is starting to dwarf Planet Earth.”
Here’s the Business Insider piece on the algorithm’s appointment:
A Hong Kong VC fund has just appointed an algorithm to its board.
Deep Knowledge Ventures, a firm that focuses on age-related disease drugs and regenerative medicine projects, says the program, called VITAL, can make investment recommendations about life sciences firms by poring over large amounts of data.
Just like other members of the board, the algorithm gets to vote on whether the firm makes an investment in a specific company or not. The program will be the sixth member of DKV’s board.
VITAL’s software was developed by UK-based Aging Analytics.
“[The goal] is actually to draw attention developing it as an independent decision maker,” Deep Knowledge Venture’s Charles Groome told BI.
How does the algorithm work?
VITAL makes its decisions by scanning prospective companies’ financing, clinical trials, intellectual property and previous funding rounds.
Groome says it has already helped approved two investment decisions (though has not yet cast its first vote), both of which resemble its own function: In Silico Medicine, which develops computer-assisted methods for drug discovery in aging research; and In Silico’s partner firm Pathway Pharmaceuticals, which employs a platform called OncoFinder to select and rate personalized cancer therapies.
“It’s not what you’d call AI at this stage, but that is the long-term goal,” Groome said.
Let’s leave out the irony of the venture firm’s name: Deep Knowledge. No, let’s not leave it out. I suppose this is the fundamental issue: What is the difference between data and knowledge? Between knowledge and wisdom? What kind of information do we need in order to make what kind of decisions? What kind of knowledge might we call deep?
Slow Money board member Eliot Coleman speaks eloquently about the difference between deep organics and shallow organics. No need to belabor the distinctions here, other than to recite Eliot’s wonderfully insightful maxim: “Feed the soil, not the plant.”
It makes me imagine two cartoons. The first depicts a board table around which five people and one laptop are seated, with everyone saying “Aye.” The second, the same board table, around which five laptops and one person are seated, with the five laptops saying “Aye” and the one person saying “No.”
The “Ayes” have it.
Of course the ultimate irony is that much of the VC’s efforts (age-related disease drugs and regenerative medicine) are unneeded and will be rendered unnecessary as we take aging and health into our own hands, with free “treatments,” like eating regenerative food, engaging in disease-defying activity, tackling mind-strengthening challenges and enjoying less stress.
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What makes this story so resonant and odd is appointing a computer program as a Board Member. It’s like a bad scene from the Matrix Trilogy. It’s totally understandable to launch a venture where the board is guided by an algorithm. Internal Rate of Return is an algorithm and most Boards are guided by this algorithm when making decisions or deciding whether to award a Fund Manager their share of profits or “carry.” Hence, algorithms are not new to finance and fiduciary duty. However, switching from the posture where the algorithm is evaluated by the human Board Members to a scenario where the algorithm is a decision-maker — equal to the Board — is entierly perverse. It’s more like a publicity stunt than a sensible financial control. First, a computer program is subject to gross manipulation by those who select the data inputs. In addition, the architecture of the program is probably not transparent to be evaluated by shareholders for conflicts and prejudices. Second, there is a good chance that the algorithm architecture is protected as Intellectual Property of the Third Party Licensor. And, Third, even if the Architecture of the Algorithm were public and transparent, what investor would be able to discern the nature of the structure of the equations in a manner that would allow him or her to evaluate the risk of entrusting his or her funds to this decision maker. I know it seems crazy to delve into the specifics of the “deal”. But the nature of the fund is troubling on many levels. Thanks for bringing out this example for discussion.
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