I have always found investing, in whatever manner we define the term, pretty interesting. It’s like putting yourself into the game but with some level of control, as you (hopefully) have rational reasoning backing up your investment that you are leaning on. In other words, you are to some extent controlling the gamble you are getting into.
In this context, a particularly fascinating field is venture capital, where investment funds on average bet that one out of ten start-up investments will succeed on a scale that covers the losses of the other nine failed ones. It is very much a risky business, but nonetheless worth the shot in many ways, such as the high returns and the ability to provide a helping hand for a company that can change tomorrow.
It is all about weighting the risks and rewards.
Funnily enough, if you think about it, the power law that underlies the venture capital industry can also be pretty well applied to our individual personal efforts, projects, and success in general.
The Power Law of Venture Capital
I recently finished a book by Sebastian Mallaby on the Power Law of Venture Capital, which basically sums up what was just mentioned above. To reach extraordinary returns and success, you must have:
- An Investment Strategy Focused on High Risks and Novelties
- If you can’t fail big time, the potential returns are not attractive enough.
- Zero Risk Aversion
- There is pretty much zero risk aversion that is to say risking it is the way to go. However, this does not mean that the risks aren’t managed; they certainly are but through diversification of the portfolio.
- Willingness to Follow Up and Go All In
- It’s all about commitment and showing up when it comes to the interaction between VCs and startups. It is not just receiving the reward. You also need to but your effort in and nurture the relationship and process.
See Your Goals, Efforts, and Options as Investments
After reading the book, I kind of wrote down some lessons from it but applied to the personal projects, goals, and efforts in which we invest our time and energy.
When you think about it, every achievement you’re proud of is likely the result of dedication, persistence, and showing up for yourself repeatedly. That is to say, the principles that drive venture capital investments can also apply to your personal projects and success rate.
Imagine you’re not just living your life but investing [your time] in it, much like a venture capitalist. Here’s how you can make this analogy work for you:
- Set Clear, Ambitious Goals: Obviously, you need to have a target in mind. An ambitious one. One that almost scares you, yet you know deep down it is achievable even if you don’t know today how to achieve it.
- Risk it: Don’t shy away from risks when the reward is something you truly want to pursue. Understand the stakes, assess them carefully, but be willing to take the plunge when the potential payoff is high. Think of yourself as a bold investor, ready to venture where the rewards justify the risks. Sometimes you win, sometimes you don’t, but you won’t know unless you try.
- Diversify Your Efforts: You know the drill. Never be dependent on just one project, job, or whatever. Have a buffer and be ready to fail and fall at any time. When you have your own back, it’s amazing how much more confidence and peace of mind you gain.
- Stay Accountable and Track Your Progress: Almost nothing goes according to plan, so be ready to be flexible and take detours on your way to your target. The biggest failure is stopping your efforts while waiting for the perfect outcome or opportunity.
- Learn and Adapt: And when things take an unexpected turn, take the time to understand what’s happening and why. Learn from the experience and adjust your course accordingly. Really, don’t care about the failures so much as they are part of the process.
- Stay Committed: Perhaps the most crucial principle is unwavering commitment. Once you identify a project with high potential, give it your all. Dedicate the necessary time and resources to see it through. Treat it like your flagship investment—worthy of your complete dedication, even during moments of doubt or low motivation. This is when consistent effort and resilience truly pay off.
Closing Thoughts: Embrace Your Inner VC
Investing in our goals and projects mirrors the strategic approach of venture capitalists. Setting clear, ambitious goals acts as our guiding star, while embracing calculated risks propels us beyond our comfort zones. Diversifying efforts ensures resilience, adapting to challenges while staying accountable and tracking progress fosters discipline and motivation.
Consider the balance of risk and reward—is the effort worth the potential outcome? Think deliberately, act decisively—analyze thoroughly, act swiftly, and approach challenges logically rather than emotionally.
Success, also on a personal level and how big or small, is a journey of perseverance, resilience, and strategic thinking. So, stay calm and think like an investor.
