The Most Powerful Force in the Universe
Eric Rosenfeld
January 2025
Albert Einstein purportedly said, “The most powerful force in the universe is compound interest,” referring to the exponential growth potential of accumulating interest-bearing investments over time. After having the privilege of supporting many, many startups over the past 20 years, we believe entrepreneurs may also deserve the moniker of “most powerful force in the universe.” At least figuratively. After all, nearly every commercial innovation and life-saving therapy traces back to individuals who bore personal financial risks. The cures for cancer and dementia, the pathways out of poverty, and the solutions for saving our planet will likely come from the irrationally hard and risky work of intrepid entrepreneurs.
Why do some founders risk everything they have, not just cash, but their careers, their reputations, and sometimes even homes, health, and marriages? It can’t just be the profit motive, as the financial risk/reward proposition of most startups is akin to trying to extract honey from a live beehive, with your tongue. The most successful entrepreneurs, we believe, are propelled by something deeper – an irresistible, transcendent urge to make the world a better place. But the lure of potentate-level riches also helps.
Imagine a home run derby where a batter earns exponentially more points the farther they hit the ball. In a normal home run derby, a batter tries to hit as many balls as possible over the fence. That’s baseball. In our world, a batter tries to hit the ball as hard and as far as possible, because every extra yard beyond the fence earns an exponentially greater reward. The very last yard yields the greatest points of all.
Applying this to VC, imagine investing $1M for 10% of a home-run startup that generates $1M in revenue in year one, and then doubles revenue annually thereafter. By year 2, the startup has doubled in revenue and your investment has also doubled in value. By year 8, this rare startup is at $128M revenue and your investment is at $128M in value. This is where things get weird and interesting. Should you continue to hold or sell [not that you have a choice]? If you think the company can continue to double in revenue and value annually, then in each successive year your annual gain is greater than the sum of all prior gains. This compounding magic is less pronounced but still holds with lower growth rates. If a startup has approached $100M in revenue, as several of OVF’s have, and the projected growth rate exceeds 20%/yr [our hurdle rate], then each incremental year produces a dramatically greater absolute gain than the year before. That’s the power of compounding…and the reason we happily have several holdings more than 10 years old.
This is also why Charlie Munger famously said, “The big money is not in the buying or selling, but in the waiting.” Einstein would certainly agree.