Power law in venture capital

Topic

The power law in venture capital is an investment principle stating that a small percentage of startups in a portfolio generate the vast majority of the fund's total returns. Unlike a normal distribution where returns cluster around an average, venture capital returns follow a highly skewed distribution where a single outlier investment can outperform the rest of the portfolio combined. This dynamic shapes the risk-tolerant, home-run-seeking strategy central to modern venture capital investing.