Stay hungry. Stay foolish.
Preface: This essay would not exist but for the preceding work of those cited.
The past decade has given birth to several notable venture investing theses.
In 2011, it was Andreessen's Why Software is Eating the World thesis and Gibney's What happened to the future? manifesto. In 2014, it was Thiel with Masters' Zero to One. In 2018, it was Lewis and Stromberg's Narrative Violation thesis.
Each thesis became a meme: "X is eating the world"; "We wanted X but got  characters"; "Most people believe X, but the truth is the opposite of X", and "X is a Narrative Violation/Mirage".
Perhaps it is time for a successor.
In the age of data, narratives are more important than ever. It is part of the human condition to have narrative bias. The best narratives of the day triumph to become popular narratives.
Popular narratives are those storylines which captivate the majority of people. Popular narratives create an illusory layer between us and the truth. There are two ways to describe this. First, from Taleb: the narrative fallacy. Second, from Lewis and Stromberg: narrative mirages. In short, we're living in a narrative simulation. As a result, we must assume that all narratives (to a greater or lesser degree) are wrong and abstract away the truth; we must resist and denounce popular narratives in order to discover hidden truths.
Seek and Ye Shall Find
We can denounce popular narratives by seeking narrative violations. In the context of venture investing, narrative violations are those companies that are underestimated because they are incongruent with the popular storyline.
The irony with the narrative violation concept is that it has become a popular narrative; but, this is not the only connection between narrative violations and popular narratives:
First, if you look for a popular narrative or a narrative violation, you will find one (confirmation error). Second, whether one regards Narrative X as a popular narrative or a narrative violation is relative to oneself (the relativity of narrativity). Third, the distinction between popular narratives and narrative violations is a false dichotomy (the spectrum of narrativity). Fourth, there is probability that what is a narrative violation today will become a popular narrative tomorrow (the pendulum of narrativity). Finally, narrative violations are themselves narratives which makes them liable to the narrative fallacy and to becoming narrative mirages (the narrative violation paradox).
We arrive at this point: narrative violations are not necessarily hidden truths themselves. That is, all hidden truths are narrative violations, but not all narrative violations are hidden truths. Therefore, we must find a more complete mechanism for discovering hidden truths. For this, we must turn to Einstein (or, more accurately, Rovelli’s accessible description of Einstein’s work).
The General Theory of Narrativity
Einstein’s general theory of relativity has two parts: special relativity and general relativity.
Special relativity essentially states that time does not pass identically for everyone. General relativity essentially states that the gravitational field of matter and space (through which matter moves) are the same thing, and that:
Space is not distinct from matter;
Space (and time) curves where there is matter;
A large star (matter) can collapse when it has depleted its combustible substance to a point where it bends space and plummets into an actual hole (black holes);
The whole of space can expand and contract;
Space cannot stand still; it must be expanding from a genesis (the Big Bang); and
Space moves like the sea (gravitational waves).
What does this have to do with narratives? It is obvious:
Special relativity of narrativity essentially states that narratives do not resonate identically for everyone. This makes discovering an objective truth (near) impossible.
General relativity of narrativity essentially states that the gravitational field of narratives (i.e. the gravitational attraction of a specific narrative) and narrative space (through which all forms of narratives move) are the same thing, and that:
Narrative space is not distinct from narratives;
Narrative space can be warped by specific narratives (the gravity of narrativity);
Narratives can collapse when they have depleted their combustible substance;
The whole of narrative space can expand and contract;
Narrative space must be expanding from the narrative genesis; and
Narratives can cause narrative waves.
Does the analogy between tangible matter and intangible narratives hold? Matter can neither be created nor destroyed (conservation of mass). Can the same be true for narratives? At first, it seems that narratives can be created and destroyed. However, under further inspection we realise that this is not the case. Consider two points:
Narrative space, like space itself, is infinite (the infinity of narrativity). The implication of this is simple: infinite narrative space has been unexplored, i.e. the ‘unknown unknowns’. Further, because we- as humans- are not omniscient, we cannot easily see the unexplored narratives- or, more specifically, undiscovered truths which we formulate narratives around. We can call these unexplored narratives narrative voids. A good heuristic for finding a void: what is no one talking about or afraid to talk about? To be clear, we must remember that once narrative voids are found and filled by a narrative, the narrative abstracts away the underlying truths (see narrative fallacy and narrative mirage above); and
Because all narratives exist but remain undiscovered to be discovered, they can, equally, transition from being discovered to undiscovered. Those narratives which endure after initial discovery are those which are antifragile (the (anti)fragility of narrativity).
A final point on narrative space: it seems to be made of layers. The implication of this is simple: narrative space is not simply horizontally infinite, but vertically infinite also. Consider this from Lewis and Stromberg:
“Within the technology industry, narratives are constantly generated on multiple layers: Founder, company, category, industry, and societal. At each layer, they tend increasingly toward the extremes.”
This is the perfect segue to the question: what are the implications of The General Theory of Narrativity for venture investing?
The General Theory of Narrativity and Venture Investing
The core implication is simple: the most valuable companies not only defy popular narratives; but, fill a narrative void in narrative space. Let us explore this with an example. Consider the following category: search. We can understand the history of search in four main phases.
First, pre-search. Before search, the world’s information was organised in things like encyclopaedias and books about books. Before that, just books.
Second, pre-Google. Search engines existed before Google, but they left narrative voids; or, more specifically, hidden truths. This leads us to the third phase: Google. Google was based on the PageRank method whereas other search engines ranked results by counting how many times search terms appeared on a web page.
Finally, post-Google. Google itself left narrative voids undiscovered. These voids include:
The need for tracking-less, privacy-respecting search: DuckDuckGo;
The need for decentralized search: Presearch.
The need for internal search: Algolia;
The need for searching the deep web: AMPLYFI; and
The need to navigate applications: Command E.
Of course, some narrative voids are more valuable than others so that the value created and captured by companies filling narrative voids differs (the power law of narrative voids). In the immediate context, Google benefits from the power law.
It is not unlikely that other voids exist in the search category, i.e. what comes after search? However, narrative voids are not limited to the search category but exist across narrative space as a whole. This leads us to the following question: how do we discover narrative voids?
Perhaps somewhat counterintuitively, it is not by discovering narratives; rather, it is by reasoning from first principles (and/or data analysis) and, then, forming a narrative around the hidden truths discovered from that reasoning (to make it accessible to others).
Specifically for venture investing, this means seeking First Principles Companies. First Principles Companies are those companies which satisfy General First Principles, Specific First Principles and are initiating/exploiting a Foundational Shift(s). Another characterization of these companies is this: Incerto Companies; those companies which are Antifragile, Positive Black Swans, whose stakeholders have Skin-in-the-Game.
Stay hungry for hidden truths; and
Stay foolish, otherwise you’ll be blinded by narrative mirages.
Narrative genesis: the narrative that started it all
Popular narrative: a narrative captivating the majority of people.
Narrative mirage: an illusion caused by a popular narrative
Narrative violation: a narrative incongruent with the popular narrative
Narrative fallacy: human predisposition to fit a story or a pattern to a series of connected or disconnected facts
Narrative space: the area in which all narratives are contained
Narrative void: an undiscovered area of narrative space
Hidden truth: an irreducible fact concealed by narratives
First principles: truths which cannot be reduced further