Aether, during the 19th century, was believed to be the medium through which light travel. By analogy, scientists thought waves travel through water, sound travel through the air, so light should be traveling through Aether. In fact, Aether was the thing that the 19th-century theories needed to possess in order to sound plausible. And given no evidence of Aether existed in real life, it was assumed to be undetectable: odorless, colorless, inert, etc.
Richard Thaler has proposed a new way of using the word Aether as “the component that makes a given theory work”. Aether is the undetectable component that makes a given theory untestable, hence making it a tautology until the theory is proven wrong at some future point.
Let’s take some of the venture capital jargon and replace it with Aether.
Value-add
Entrepreneurs take our term sheet because of our value-add.
Entrepreneurs take our term sheet because of Aether.
Hustle
He’s the best founder, never seen such hustle.
He’s the best founder, never seen such Aether.
Platform
We are different than our competitors because we’re building a platform.
We are different than our competitors because of Aether.
High-conviction
We are successful because of our high conviction investment philosophy.
We are successful because of Aether.
Data-driven
We can make better investment decisions thanks to our data-driven approach.
We can make better investment decisions thanks to Aether.
It is not quite surprising that it fits perfectly. Venture capital is an industry that is prone to Aetherization for a couple of reasons. First, feedback cycles are usually 10+ years and the dynamic nature of causality makes most of these 10+ years-old causal relationships worthless for new vintages. Second, venture capital is a game where a handful of good outcomes drive the results. You have a ridiculously low sample size to draw inferences from to see what works and what doesn’t and most of the time, anecdotes trump data. Last but not least, it is a people's business and it is very hard to well define or quantify people-related concepts like network, brand, value-add, conviction, etc. How could you measure the impact of something you cannot properly define?
Most of the time, we tend to believe in Aethers not because the particular Aether makes sense, but just because the existence of an Aether to support that hypothesis is plausible. Also, most Aethers in venture capital tend to be proven real in certain different settings—at least believed so. However, they get jargonized very quickly and get abused to create tautologies in completely irrelevant settings. An example could be value-add as it has been a real thing for certain investors or companies. But, it has quickly become jargon that was used by everyone to argue that they are the best investor out there. It became the Aether that is not detectable and that makes most venture investors’ theories work.
Once we Aetherize something, label it as value-add or platform, it also becomes a victim of nominal fallacy. We erroneously believe that the label carries enough explanatory information. However, the label of value-add or platform doesn’t carry much information. Instead, it creates a grandiose imaginary concept that cures every faulty argument instantly. We observe how adding extra information, like tangible examples, shrinks the meaning and importance of the given label, as value-add is often “making intros to potential hires, customers and other investors”.
We all hear many Aethers and tend to be less inquisitive of them during the bull cycles. When things are going well, we want to believe in theories and Aethers make theories easier to believe. Every hype cycle is fueled by Aethers. Aethers only get questioned once the hype is over. Then we start over and repeat.