Snippets about: Venture Capital
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Follow The Money
The power law of venture capital means that investments follow a steeply uneven distribution of payoffs. A small handful of companies wildly outperform all others. This implies that:
- The most likely outcome for a startup is failure, while a few rare companies achieve extraordinary success.
- To succeed as a VC, you must only invest in companies with the potential to be one of those few huge hits - not just ones with a good chance of modest outcomes.
- Rankings of VCs are not very stable over time because they depend on one or two extremely rare and unpredictable big hits.
As an individual, you also want to follow power law distributions in your career. That means aiming to join or found a company with the potential to be a 100-billion-dollar company, not just one with a good shot at moderate success.
Section: 1, Chapter: 7
Book: Zero to One
Author: Peter Thiel
Small Number Of Events Explain The Majority Of Outcomes
The distribution of success isn't even - a small number of outliers have a disproportionate impact. Consider:
- Venture capital: 65% of investments lose money, 4% earn 10x+, 1% earn 50x+. That tiny minority generates most returns.
- Stock markets: Less than 10% of public companies account for all the market's gains over time.
- Art: Most works have little value, but the tiny number that are considered masterpieces drive the market.
In many fields, a tiny proportion of successes explain the vast majority of results. Success is often driven by gaining exposure to such "tail events" - outcomes that are statistically unlikely but enormously impactful.
Section: 1, Chapter: 6
Book: The Psychology of Money
Author: Morgan Housel
