Investing Principles Based On Non-Linear, Complex Adaptive Systems (“Complexity Science” or “Chaos Theory”)

by | Sep 13, 2016 | Our Story

Nothing is invented, for it’s written in nature first. Originality consists of returning to the origin.

— Antoni Gaudí, Origin: A Novel

Pythia Capital follows a model of ecosystems-based investing principles that follow nature’s processes for creating and restoring sustainable agricultural systems.  They are very clear, organic philosophies on building systems where humans interact with each other and the environment in more balanced ways.  On the surface, this process may sound idealistic or too good to be true, but they truly are remarkable and revolutionary principles that are naturally creative, visionary and empowering.  We follow nature’s lead on how to solve our important problems in win-win ways as it is the only path that is truly sustainable for society.  That is because we are leveraging billions of years of evolution as a guide for how to create sustainable businesses within non-linear complicated systems in society.  These design principles and processes can be applied to any industry, business or creative problem solving exercise.

It has become very trendy in investment circles to discuss social entrepreneurship, venture philanthropy, and various high impact investing strategies for public and private investing.  There is considerable variation and subjectivity currently regarding what these terms really mean and how to apply the various principles.  There is general agreement that our current winner-take-all, short-term mindset, money-at-all-cost business and financial frameworks are unsustainable for society and for the environment.  However, investors still need to meet their long-term financial commitments and capitalism still has a very powerful role to play to empower people and to provide needed prosperity.

From our perspective, we strongly resonate with a business and financial framework that utilizes ecosystems-based design principles that mimic nature’s processes (“Complex Adaptive Systems” or “Complexity Science” or “Chaos Theory”).  It is a highly intuitive, solutions-based, win-win framework that leverages principles from billions of years of evolution.  The potential advantages of this approach are numerous such as more systematically and more easily identifying breakthrough innovations that solve important problems, better management of business and investment risks, and alignment of incentives with all stakeholders.  We have adopted and borrowed this 12-step process known as permaculture principles (a framework to study the relationship between human and natural systems, as described by Bill Mollison and David Holmgren) and adapted it to our business and financial process.  The permaculture framework is part of the evolving area of complexity science (complex adaptive systems or chaos theory).  Complexity Science is able to leverage all the big breakthroughs in interdisciplinary science and computer power to study non-linear, complex systems to analyze problems in more integrated ways and find more optimal and innovative solutions.  Since permaculture principles help to build more sustainable and regenerative systems, they are principles that help you find and build the “order in the chaos.”  The wisdom of permaculture is ancient, very similar to indigenous and shamanic ways of life passed down through generations. However, they are modernized into a framework that you can follow. You can also better understand big breakthroughs in advanced science and technology such as complexity science, chaos theory, quantum science and even blockchain technology. At Pythia Capital, we consciously integrate into our living systems framework wisdom from shamanism as well as from complexity science, chaos theory and quantum science.  Permaculture is the bridge that ties the ancient shamanic wisdom with more advanced science and technology. This framework is amazing.

The process is more ethical, creative, flexible, iterative, efficient and effective than existing investment paradigms.  Alignment of all incentives with all parties, active collaboration with diverse groups of interconnected people/groups, efficient processes, and a slow, iterative approach are examples of some of the more important principles. The real truths of complex problems are more clear, so greenwashing, corruption and narrative shaping are more difficult.

We are in the process of developing a variety of technical and analytical tools/applications to make the process more effective and efficient.

Our founder, Lynn Marie DePippo, once took a weekend symposium on this subject at the University of Massachusetts, in Amherst, Massachusetts. It was a very vibrant and enlightened group of people that organized this conference. It was at this meeting that Lynn Marie DePippo realized for the first time that her natural investment skills and “secret sauce” was her natural ability to process information and analyze in this system-based methodology. Her clear vision, as well as her strong strategic thinking and problem solving skills come from this system-based thinking. We also feel it is also one of the most powerful frameworks for reorganizing an investment process that addresses “people, planet, and profit.”

Bill Mollison and David Holmgren created and developed what is now known as the permaculture design principles to describe an “integrated, evolving system of perennial or self-perpetuating plant and animal species useful to man.” When is nature at its most vibrant, diverse, abundant, and balanced? What does it look like? What are the energy flows that allow this to happen? What are the processes that we can adopt and mimic from nature as we seek these abundant and balanced solutions to our human, animal, and environmental health problems? We are investors of science and technology businesses. Science is the process of learning from natural/cosmic systems and applying those tools and principles to help us live, work and play better.

12 Permaculture Principles

(as described by Bill Mollison and David Holmgren)

Application in Business

(as inspired by Rob Hopkins, co-originator of the Transition Network)
1. Observe and interact 1. Detailed observation of where we are, relying
on primary observation and accredited sources,
not second hand information.
2. Catch and store energy 2. Manage risks carefully, storing excess
reserves, not building beyond what resources can
3. Obtain a yield 3. Maximize profit that is productive, fair and
4. Self regulate, accept feedback 4. Actively incorporate feedback and look for
negative results
5. Use and value renewables 5. Focus on goodwill and trust; business inputs
sustainably managed; look to nature for answers
(do not replace it)
6. Produce no waste 6. Waste reflects poor design; output from one
system could be input to another
7. Design from pattern to detail 7. Step back and see from a bigger picture;
holistic perspective of how things are
8. Integrate 8. Maximize beneficial relationships for a more
integrated solution vs. increased specialization and
9. Use small, slow solutions 9. Big is not always better; new opportunities are
not always visible or easy to exploit from a macro
10. Use and value diversity 10. Monocultures are fragile and prone to disease;
a more vital and resilient community results from a
diversity of cultures, small business, local food and
energy supplies vs. more centralized systems and
globalization. We need to consciously plan our
businesses and investments to find better balance
11. Use edges; value the marginal 11. Innovation rarely comes from the center; it
comes from the fringe thinkers, which are often
excluded and marginalized in typical, elite
business, scientific, and investment circles
12. Creatively use and respond to change 12. Natural systems are not static; always observe
and look for new opportunities and new ways to
manage risk

Although it may sound unusual to compare a framework for a sustainable agriculture system to business and finance; however, they apply to every situation where the solution you are seeking requires the nonlinear, study of complicated systems. These principles lead you solutions and businesses that are more harmonious and balanced. The businesses you finance and create are naturally more inclusive, integrative, inter-disciplinary, regenerative, ethical, efficient, beautiful and abundant. There is no right or wrong as you iterate and learn as you go along.  There are only good intentions and good people coming together. There are no “chosen ones” as the fringe thinkers are welcomed and included. Everyone has an important role. The enabling factors include all the development of advanced computing power and new scientific tools as well as the interdisciplinary nature of how science and technology advances are evolving.  For example, It is normal today for physicists to work side by side with biologists, computer scientists and engineers of various types.  It requires a breaking down of old elite silos and more humility so that people can effectively gather, communicate and create better solutions.

With these principles, money is a source of energy, not held out as a tool for power, status or greed. It is not glorified but accepted as part of the creative process, integrated along with everything else. There is such a sense of belonging and community in coming together with a diversity of people to create something new, this process is naturally empowering. When you go off track and wonder what happened, you come back to these principles and you realize what happened and the lesson is stored away.

One of the best parts is that you can start small with a simple business such as consulting or building one business at a time with a small group of people and apply these tools. It is not about grandstanding or making big comments about “saving the world.”   It is much more simple and basic than that. It is about a creating vision for something new, aligning that with strong intention and then taking action, one step at a time, keeping these principles in your awareness as a framework or guidance. It is inherently flexible and not rigid. It is not a checklist of things to do.