Fund returns / power law

Venture returns are dominated by a tiny number of enormous winners rather than by average performance.

Example

One investment returning 100x can outweigh twenty that return nothing.

Important

This is why a VC asks 'could this be a billion-dollar company?' rather than 'will this work?'. A safe, good business is often a genuine no for them and a genuine yes for you.

Related terms

• Fund — A pool of committed capital with a fixed life — typically ten years — that a VC invests and then returns to its LPs.
• Limited partner (LP) — The investors IN a venture fund — pension funds, endowments, family offices, wealthy individuals.
• Investment thesis — The specific kinds of company a fund has told its LPs it will invest in — sector, stage, geography, cheque size.

Lessons that explain it

• How a VC fund actually works — A VC is not a person with money. They manage a fund with its own investors, and that single fact explains almost everything they do. (15 min)

All 176 terms in the Founder glossary