A reductionist investment framework involves reducing complex investment opportunities into a few variables: the size of the prize, the probability of success, the investment cost, and the time to exit.

Most of us are very good at estimating the investment costs. For static investments, that’s simple. Even when there is some variable component, such as ongoing investments into a project, we are usually good at estimating the total investment costs.

We tend to overestimate the probability of success. Whether you are a founder, operator, manager, or investor, the more successful you’ve been in your career, the more optimistic you become. Slight overoptimism may lead to some flops, but at least we won’t waste our shots.

We are generally good at estimating short-term results. Beyond a year, however, we typically underestimate how long it takes to deliver a successful outcome, especially when looking out 5-10 years, which is the venture business.

Finally, with long-duration investments, we are wonderfully off about the size of the prize. Some say this is due to a lack of imagination. We didn’t imagine how large the internet, mobile, cloud, or AI could become or how large businesses such as Airbnb, DoorDash, or Uber could be worth. That may be true, but there is another reason: consistent compounding.

When I joined Sequoia 15 years ago, much ado was made that a few tech companies had a few hundred billion in market cap. To the imagination point, few believed that companies could be worth more than a few hundred billion, and it took imagination that tech companies could be a trillion dollars in market cap, thereby capping our size of the prize estimates for other investment opportunities. Yet, it is just simple math; if a few hundred billion market cap companies could compound 10% annually for 15 years, we would find our way to a few trillion dollars in market cap.

In the last few weeks, there has been much fanfare that Nvidia has reached $4 billion in market cap. The focus has been on how quickly Nvidia grew from $1T to $4T in market cap:

• 2023-06-13 crosses $1T
• 2024-03-01 crosses $2T
• 2024-06-05 crosses $3T
• 2025-07-09 crosses $4T

It took Nvidia 3 decades to reach $1T but a little over 2 years to go from $1T to $4T. Some joke that the first $1T is the hardest, which is true when you size up or down, as the first $1B is the hardest, and so is the first $1M. If Nvidia can compound another 10% annually for another decade, it will cross $10T!

We are fortunate to work in the technology business. An outlier founding team can turn a seed of an idea into a $1b to $10b company; the same company could be worth $10b to $100b in two decades; in three decades, that company could be worth $100b to $1T; and in four decades, it is possible for that company to be worth $1T to $10T.

We may need to update the size of the prize for future outcomes. More importantly, we need to update our scale of ambition and what it means to run the distance.