Venture capital is a power law business
Venture capital is a power law business
- Venture capital returns are not normally distributed; they follow a power law.
- A small number of companies in a venture capital portfolio will generate the vast majority of the returns.
- Most startups fail, but the few that succeed do so on an exponential scale, more than making up for the losses from the failed companies.
- This is why venture capitalists are not looking for companies that will provide a modest return; they are looking for companies with the potential for exponential growth.
- The Power Law governs the universe