Do venture fund returns necessarily concentrate in one or two positions?

Julio Vasconcellos · Sep 23, 2022

In early-stage venture, getting into the one category-defining company matters more than everything else, because that single hit will likely return more than the sum of all other investments in the fund

Experiencing ~100x returns firsthand solidified the reality of the power law and the asymmetric returns available only in early-stage venture

Scope: early stage specifically

33:17 20VC: Why Greed is the #1 Enemy of Venture Returns, Why Not Enough VCs Play to Win and Lessons from Scaling to $100M and 1,200 Employees and Then Cratering with Julio Vasconcellos, Founder @ Atlantico

Beezer Clarkson · Oct 18, 2023

An early-stage fund cannot outperform without a couple of fund returners, so managers must shoot for outsized outcomes rather than dominating small TAMs

The math of early-stage fund returns requires fund-returning outcomes; capturing all of a small TAM can work in private equity or growth stage but not for early-stage outperformance

Scope: specific to early-stage venture; different in PE/growth

24:27 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Jeff Seibert · Nov 22, 2023

Outliers outclass the rest of an angel portfolio to a remarkable degree — one deal paid for everything else

His Alchemy secondary exit put the whole portfolio in good shape on both paper and cash-returned basis

45:06 20VC: Why OpenAI Will Become an Infrastructure Play, Why Apple Will Win in an AI World, Why Google is the Most Vulnerable Incumbent, Will LLMs Be Commoditised, Which Startups Are Thin vs Thick Wrappers on Top of LLMs with Jeff Seibert, Founder @ Digits

Harry Stebbings · Apr 10, 2024

Outliers are so disproportionately large in venture that nothing else in a portfolio matters.

A single Mongo-scale outcome would have been enough on its own.

43:07 20VC: Are the Best CEOs the Best Fundraisers, Are the Best Founders Insiders or Outsiders to a Problem, Why Ownership Should Not Be a Focus in VC & The Biggest Lessons Scaling MongoDB to $26BN Market Cap with Kevin Ryan, Founder @ AlleyCorp

Harry Stebbings · Sep 6, 2024

Great venture returns come from single fund-returning outcomes, not an accumulation of half-fund returners

Top decile funds are characterized by having guaranteed fund returners

Scope: acknowledges it is an obvious point

35:12 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Shardul Shah · Sep 16, 2024

Venture investors should not seek good deals or average returns; the power law means only a few decisions generate disproportionate returns, so the job is hunting outliers.

Very few investments create disproportionate returns, so a value-investing posture misallocates effort.

15:07 20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style

Mike Maples · Jan 6, 2025

Everybody in venture has an incentive to keep the plates spinning; the business is hard but not complicated — you need a 100-bagger on the first check, and one to three of those in a fund makes it successful

The economics of seed funds rest on a small number of enormous first-check outcomes, which is why nobody wants to mark the truth

47:28 20VC: How To Do a 10x Seed Fund in 2025 | Three Frameworks to Evaluate Startups an Founders | Lessons from Losing Billions Missing Airbnb and Pinterest & Investing Lessons from Charlie Munger with Mike Maples @ Floodgate

David Frankel · Oct 14, 2024

Returning a seed fund does not require a single headline fund returner; four or five mid-sized exits in the $250M range will do it

Four companies sold at $250M each returns the fund, whereas ten companies at $100M each does nothing — big names are great for PR and story but the math is what matters

Scope: scaled to a small seed fund like his own $75M vehicle; he still credits Uber, Trade Desk, Coupang and PillPack as genuine fund returners

29:25 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Jake Saper · Mar 10, 2025

Emergence's fund three would still be a top-decile fund even with Zoom removed from it

Salesloft, Chorus, Zappo and other still-gestating companies like DroneDeploy generated large returns on their own

13:03 20VC: Lessons from Investing $2BN and Returning $8BN in Cash | Why Most Venture Partnerships are Broken | We Sold Salesforce Early and Lost Out on Billions | Are The Best Deals Always Expensive and Competitive with Jake Saper @ Emergence Capital

Jake Saper · Mar 10, 2025

Outliers have driven the bulk of Emergence's returns, but several of its funds would still be top decile even with the outliers removed, thanks to mid-size exits

Companies like Chorus that sell for ~$500M still generate strong returns when you invested at seed

Scope: applies to some of their funds, not all

64:41 20VC: Lessons from Investing $2BN and Returning $8BN in Cash | Why Most Venture Partnerships are Broken | We Sold Salesforce Early and Lost Out on Billions | Are The Best Deals Always Expensive and Competitive with Jake Saper @ Emergence Capital

David Frankel · Aug 8, 2026

His funds' returns have been far less concentrated than conventional venture power-law expectations would predict

Fund two spread returns across Viocada, Shield, Whoop and PillPack; fund one across Trade Desk, Uber, Coupang, Airtable, Simply and SeatGeek

Scope: about his own funds specifically

38:11 20VC: The AI Boom Will Create Enormous Roadkill: Who Wins & Loses | Why Founders Should Never Take Multi-Stage Money at Seed | Why Triple, Triple, Double, Double is Good Enough

Kevin Hartz · Jul 22, 2024 · hedged

Asking for your money back as an investor is not worth pursuing at small scale, because things that aren't going to work aren't going to work and returns are driven entirely by power law winners

Returns come from the big outcomes, so effort spent recovering capital from failures is misdirected

Scope: depends on the level/size of the amount involved

41:46 20VC: How I Lost Airbnb at Seed Because of an Exploding Term Sheet | Investing Lessons from Roelof Botha & Peter Thiel | Why VC is Less Collaborative Than Ever and Great Companies Are Being Destroyed by Too Much Cash with Kevin Hartz @ A*

Klaus Hommels · Nov 27, 2024

Building portfolios is not the point of venture; finding a few companies that make a difference is what drives returns

If you have one or two truly great companies, every portfolio looks great

0:00 20VC: Why Price Sensitivity is BS | Why "Portfolios" are Merely a Construct to Make LPs Happy | Why the Best Investment Never Happen in "Fundraising Rounds" | What Europe Needs to do to Become a Superpower Again | Klaus Hommels, Lakestar

Jake Saper · Mar 10, 2025

Even a 5-10x return on a seed investment doesn't move the needle for a fund that already contains multiple very large outcomes

That fund is already at roughly 16x DPI driven by Zoom and other large outcomes, so a 10x on a smaller position barely registers

Scope: applies to funds of a certain size with existing outsized winners

12:11 20VC: Lessons from Investing $2BN and Returning $8BN in Cash | Why Most Venture Partnerships are Broken | We Sold Salesforce Early and Lost Out on Billions | Are The Best Deals Always Expensive and Competitive with Jake Saper @ Emergence Capital

Philipp Freise · Jun 30, 2025

Private equity overlaps with venture in needing some real winners, but its model requires consistency rather than two massive winners offsetting mostly failures

You will always have one or two investments that are not great, so you need outsized winners, but you cannot survive on venture-style write-offs

15:26 Pe needs consistency and some winners unlike ventures reliance on outlier write offs

Adam Besvinick · May 29, 2023

Pre-seed is a grand slam game rather than a home run game: roughly 20-30% of the portfolio will drive nearly all returns and 40-50% should be expected to return zero or less than 1x

Returns at this stage are concentrated in a small handful of outcomes, so the inevitable zeros are an accepted feature of the model

25:40 Pre seed returns concentrate in 20 30 percent of portfolio with 40 50 percent a total loss