Venture capital portfolios should feel riskier to investors over time because the world is changing rapidly, according to Michael Dempsey, managing partner at Compound. Dempsey said limited partners are not always leading indicators for understanding global technological shifts.
"It should feel kind of crazy. If it doesn't, then what are we doing here?" Dempsey said, emphasizing the need for a venture approach that embraces the discomfort of fast-paced change.
Compound, a thesis-driven venture firm managing a little north of $200 million across several small funds, focuses on deeply technical and scientific areas. Current investment areas include machine learning and automation, biotechnology and healthcare, and crypto, with adjacencies in energy and materials science. The firm identifies core areas expected to matter most over the next decade, with the goal of achieving asymmetric upside.
Dempsey joined Compound in 2016 when its first fund was being raised. His investing approach was shaped by a hedge fund mentality: generate novel ideas, pressure test them, and invest before others recognize the opportunity. This contrasted with traditional venture capital, where investors often wait to see who commits first.
Before Compound, Dempsey joined CB Insights early on and helped build its data and research team, focusing on what he termed "frontier tech"—drones, robotics, virtual reality, space, artificial intelligence and Bitcoin.
Compound employs a bottoms-up view, analyzing how technology influences society and vice versa to identify which types of companies accrue value within evolving areas. Dempsey said the firm excels at understanding mismatches in time horizons between what is technologically possible and what others perceive as possible—a critical edge in fast-moving sectors like decentralized finance.
He cited human nature as a factor making it difficult to model change, noting that people often become set in their ways of thinking about technological progress. He referenced Bill Gates' observation about overestimating short-term changes while underestimating long-term ones.
Healthcare exemplifies this dynamic. Compound had previously reduced its focus on the sector but now sees it returning with the advent of artificial intelligence in healthcare and broader societal shifts toward patient-directed medicine.
