The Power of Compounding

Build on what’s already working.

For an investor, the principle of compounding is fundamental. Small, consistent efforts can accumulate cumulatively to significant outcomes over time – a concept that's equally applicable to building a successful venture capital career.

The Early Struggle and Momentum Build

All careers begin much like riding a bicycle, pedaling from a stopped start. It takes considerable effort to overcome initial inertia. But then momentum begins to build, and build more so you’re going faster, and eventually shifting into a different gear to move even faster. This early phase demands trust and perseverance, as the real benefits of early efforts aren’t immediately visible.

I’m surprised when serial entrepreneurs in their second (or third company) pursue their next venture in a different domain. They often cite all of the troubles with a market, because they know too much, including the hard challenges associated with the category. Yet it throws away their expertise and understanding in navigating that tough landscape which would provide an unfair advantage for success. I’ve recently made two new investments, both of which are backing founders doing nearly the exact same thing again as their previous startups. Their knowledge and relationships have compounded their chances of repeated success in their next venture are stacked.

The Compounding Effect of Networks in Venture Capital

Back to venture, I’ve seen positive benefits of the compounding effect benefit my own career and that of us building NextView. On an individual level, the most salient place has been in building a professional network. Relationships with founders, co-investors, senior operators at potential acquirers, limited partners, and others within the ecosystem don't just add linear value… they multiply over time, enhancing deal flow and opportunities exponentially. For example, it’s quite satisfying to have an entrepreneur who you initially met a decade+ ago come to you with their newest venture to invest.

Building NextView for 14 years, it’s been remarkable recently to feel the network effects of assembling a portfolio, having invested in 250+ companies during that time. With typically two or more founders in each company, that’s hundreds of entrepreneurs with a high NPS score experience with our firm, embedded in the community evangelizing working with us to other entrepreneurs. That’s compounding benefits.

The obvious lesson here is about patience, as exponential compounding curves look linear in the earlier years. It’s a reminder about the second rule of venture - don’t lose your seat. I believe it’s inevitable that the more experience you accumulate and more reps in this business, the better the investor you naturally become. The only way that situation becomes derailed is being forced out prematurely before the benefits manifest.

Harnessing Your Wins: Accelerating Your Compounding Curve

A corollary lesson about compounding is to recognize how you can pull the compounding curve forward by building on what is already working in your career. Success in venture capital is a blend of diligent effort and luck, and there’s wisdom in leveraging the accomplished gains from both sources.

As we head towards the end of year here, it’s naturally a time for reflection. Ask yourself, “What’s already working for me?” and lean into that answer more next year.

If organizing dinners with founders or LPs has been fruitful, consider doubling down on these gatherings. If deep dives into specific sectors have resonated with founders and your colleagues, expand your exploration into adjacent areas or intensify your focus. Alternatively, consider a recent conversation I had with a Venture Upward reader, who became the leading advocate within her firm for a new investment that is quickly gaining traction, and she is now fully embracing its success. Capitalizing on this momentum could involve hosting a podcast or creating other content with the CEO, publishing insightful analyses on the space artfully noting your bias, or exploring similar, non-competitive investments that leverage the credibility earned from this initial success.

Identify and build on what’s working in your career to accelerate your compounding curve. Recognizing and harnessing the elements of your career that are working well can pull your personal curve forward, magnifying your impact and success. As you move into 2025 and beyond, lean into what works, expand upon it, and watch your venture career flourish under the principles of compounding growth.