Should early-stage investors underwrite every deal to an outlier outcome or to a modest step-up at the next round?

Sumeet Gajri · Jan 17, 2020

An investment should only be made if it passes three tests: the company solves an intense pain point, there is a base case for a 10x valuation increase, and there is potential for unbounded upside above 25x.

The framework sounds simple but eliminates almost every opportunity from consideration, forcing the fund to spend its time only on potential outliers.

Scope: applied within a concentrated, stage-agnostic fund

10:19 20VC: Portfolio Construction, Optimising SPVs, Opportunity Investing "Between Rounds", Being Distribution-Centric Over Product-Centric and Capital Concentration Within Funds With Sumeet Gajri, Chief Strategy Officer @ Carta

David Tisch · Feb 27, 2023

Every opportunity-fund investment must have genuine outlier potential; a fund cannot be built on underwriting companies to a 3x outcome

These are net new investments rather than pro rata, and since you won't be perfect, underwriting to 3x leaves no room for error

Scope: what counts as outlier depends on the risk profile — later, more established companies have more confined but more predictable upside

47:20 20VC: How Multi-Stage Funds Changed The Game For Seed Rounds, Why Signalling Risk is BS, The Three Most Important Variables for Founders When Raising Rounds & A Debate on Portfolio Construction: Does Ownership Matter with David Tisch

Trae Stephens · Apr 3, 2024

Backing a company because it has 10x potential from a small Series A is a mistake; investors should only chase massive upside

A 10x on a small Series A won't return the fund or move the needle, and the opportunity cost of deploying those checks is high

33:04 20VC: Founders Fund's Trae Stephens on Why The Most Competitive Deals are the Worst, Why No Company is Successful Because of their VC, Why We are Making ZIRP Mistakes Again Today, Why Loss Ratio is BS and Upside Maximisation is Everything

Trae Stephens · Apr 3, 2024

Founders Fund's differentiator is refusing to invest unless the team believes the company can return the fund, which requires table-banging conviction on every deal

Every one of their big outcomes — Spotify, Stripe, Airbnb, Palantir, SpaceX, Anduril, Stemcentrx — had someone on the team insisting it would be a $100B company

34:16 20VC: Founders Fund's Trae Stephens on Why The Most Competitive Deals are the Worst, Why No Company is Successful Because of their VC, Why We are Making ZIRP Mistakes Again Today, Why Loss Ratio is BS and Upside Maximisation is Everything

Taavet Hinrikus · Apr 28, 2025

A firm should only do a deal if the partner would be willing to be a co-founder of the company and can imagine a 100x outcome; guaranteed 5x investments are for other investors.

The memo opens with why the company matters to the partner personally, which tests genuine conviction rather than spreadsheet logic.

Scope: specific to Plural's strategy; other firms should do the 5x deals

25:40 20VC: VCs are Spreadsheet Monkeys and are Commoditised | Why Fees and Carry Misalign GPs and LPs | Why Founders Will Realise Multi-Stage Funds Damage Seed Rounds | Why We Need European Sovereignty More Than Ever with Taavet Hinrikus

Harry Stebbings · Mar 9, 2026

Series A venture is not about singles and doubles — you should build a portfolio diversified enough that you can swing for $100BN outcomes on every investment

You only need one or two of thirty investments to hit, so the portfolio absorbs the risk of maximal swings

33:08 20VC: Inside Accel's $4BN Growth Investing Machine | Cursor is Dead is Total BS: Here is Why | What Missing Rippling and ElevenLabs Taught Us | Are $2BN-$10BN IPOs Dead | Why Now is a Great Time to be Thoma Bravo with Miles Clements

Miles Clements · Mar 9, 2026

You should never underwrite an investment to a 3x outcome; the only justification for entering these large private rounds is a case that the company's comps are platform businesses like Google, Microsoft and Amazon

Funds revert to the mean, so if every investment is only aimed at 3x you will never actually generate a 3x net fund

Scope: a 3x net fund is itself a good business to be in

35:33 20VC: Inside Accel's $4BN Growth Investing Machine | Cursor is Dead is Total BS: Here is Why | What Missing Rippling and ElevenLabs Taught Us | Are $2BN-$10BN IPOs Dead | Why Now is a Great Time to be Thoma Bravo with Miles Clements

Ryan Petersen · Jun 20, 2026

Angel investing is so power-law driven that a 3x outcome is effectively irrelevant to returns, so an angel should mentally mark every check to zero when writing it

A couple of 1000x or 500x outcomes completely dominate the spreadsheet; removing a 3x has zero impact on IRR, and assuming zero removes the worry about failures

Scope: based on roughly 200 angel investments, most of which didn't do well

56:15 20VC: Why Remote Work is White Collar Fraud | Why Revenge and Patriotism are the Best Founder Traits | Two Questions Every Founder Needs to Ask | The Wild Story of Raising $1BN from Masa Son in an Hour Long Meeting with Ryan Peterson, Founder @ Flexport

Mike Mignano · Jul 6, 2026 · hedged

At later stages a small fund should only invest if it believes in a gigantic outcome — absent that, the bet doesn't make sense

Fund size constrains how many rounds you can follow into, so the remaining upside from entry has to be very large to be worth it

Scope: specific to USV's later-stage investing

43:54 20VC: Why Now is the Time for the Application Layer | Why OpenAI & Anthropic Won't Win the App Layer | Why Startups Should be TokenMaxxing | Why VCs Should Reduce Weighting on Price & Ownership in an Age of AI with Mike Mignano, USV

David Frankel · Aug 8, 2026

Every company he invests in is underwritten with the hope it could be another Uber or Suno, never as a merely-good 10x outcome

It follows from running a concentrated portfolio

41:29 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

Jason Lemkin · Aug 23, 2023

The better investment test is 'am I confident the next round will be 3x this valuation?' rather than trying to predict a massive terminal outcome

It breaks the decision into one atomic unit you can actually assess — good founder, enough good things happening — and if every investment 3x's you have a 3x fund

Scope: he says the heuristic got blown up by crazy valuations; regrets having moved away from it

39:53 20VC: NEW FORMAT: Mega Funds Will Come Back, Why Markups Have Corrupted VC, Why RIFs Should Always Be An Embarrassment To SaaS Founders and Why Pitching is BS and Fake with Jason Lemkin and Rick Zullo

Jason Lemkin · Aug 23, 2023 · hedged

Stair-stepping a company's valuation is a better route to a unicorn outcome than whiteboarding a huge-TAM swing-for-the-fences thesis

He has personally done better stair stepping than whiteboarding, and stair stepping forces valuation discipline by breaking the bet into one atomic question: am I confident of a 3x to the next round?

Scope: based on his own track record; stair stepping requires being more valuation sensitive, which is why many investors abandoned it

42:11 20VC: NEW FORMAT: Mega Funds Will Come Back, Why Markups Have Corrupted VC, Why RIFs Should Always Be An Embarrassment To SaaS Founders and Why Pitching is BS and Fake with Jason Lemkin and Rick Zullo

Jason Lemkin · Aug 23, 2023

Stair stepping is not risk mitigation but a way of keeping investing simple, and the industry lost track of the fact that you can stair step to an epic outcome

It reduces the decision to one thing both investor and founder can be ultra confident about: tripling the value

44:40 20VC: NEW FORMAT: Mega Funds Will Come Back, Why Markups Have Corrupted VC, Why RIFs Should Always Be An Embarrassment To SaaS Founders and Why Pitching is BS and Fake with Jason Lemkin and Rick Zullo

Rick Zullo · Aug 23, 2023

Stair stepping is better for both founders and investors, but is hard to execute because the ecosystem lacks patience

An early-stage investor's job is to get many high-quality shots to product-market fit and early scale, then be draconian about the portfolio and harvest a couple of fund turns from companies that won't become decacorns; that discipline gets thrown aside when people hunt decacorns between seed and Series A

Scope: requires meaningful ownership and keeping companies alive

45:05 20VC: NEW FORMAT: Mega Funds Will Come Back, Why Markups Have Corrupted VC, Why RIFs Should Always Be An Embarrassment To SaaS Founders and Why Pitching is BS and Fake with Jason Lemkin and Rick Zullo

Harry Stebbings · Aug 25, 2025

Jason Lemkin's rule is to skip TAM analysis entirely and instead ask only whether the founder is world class and whether you can see a 3x by the next round

Nobody thought Twilio would be a $10B business, so trying to forecast the eventual outcome is futile

Scope: framed as advice for early-stage entry decisions

51:31 20VC: Do Margins Matter in AI? | Is Defensibility Gone For Good? | Is Vertical SaaS Dead in a World of AI | What SaaS Rules Are BS and No Longer Apply in a World of AI | The Future of Venture: Why Chanel vs Walmart is BS with Byron Deeter

Harry Stebbings · Jan 12, 2026

You get comfortable paying up by underwriting forward to the next round: if the company's revenue in eighteen months supports a price giving you three x on the entry, the high entry price is justified

Mapping Ask Leo's revenue projections to their next raise, he could still see a 3x even at a $300M entry — so he should have paid up and doubled down

41:22 20VC: a16z's $15BN Fundraise with Alex Rampell | The Best Companies Have Hostages Not Customers | The Best Founders Materialise Capital, Customers and Labour | Mid-Sized Funds with Die and The Future of Venture Capital

Harry Stebbings · Feb 23, 2026 · hedged

His entry-price litmus test is whether he can 3x the entry price by the next fundraising round, based on the growth the company will actually achieve in its sales cycle

If growth is 1 to 10 you can see the 3x from 70 to 350; if growth is only 1 to 4 on a slow enterprise sales cycle at a $150M entry, you're likely facing a flat round

Scope: he concedes this test will cause many mistakes and arguably should be changed

19:53 20VC: Inside Coatue's $70BN Machine: Why Price Matters Least | Why Mega Markets are the Most Important | How to Assess Durability of Revenue and Margins in AI with Lucas Swisher

Harry Stebbings · Aug 8, 2026

Jason Lemkin invests when he believes he can get a 3x at the next funding round alongside a great CEO and CTO, rather than trying to predict the future

Lemkin's stated view that he isn't smart enough to predict the future

41:52 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

Marcelo Claure · Jul 31, 2023

Bicycle should be highly selective and aim for doubles and triples while minimizing losses, rather than run SoftBank's portfolio play in pursuit of grand slams

As a first-time fund they have no choice but to deliver a great fund, so avoiding big losses matters more than swinging for 10-20x outcomes

Scope: applies to the first fund

35:08 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

David Frankel · Oct 14, 2024

You cannot build a seed fund strategy around catching the generational outlier company

There are only one or two such companies a generation, maybe one a year — being in one is great but it isn't a repeatable strategy

Scope: specifically at seed stage

49:37 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

Miles Clements · Mar 9, 2026

Investors should focus on hitting singles and doubles and let the home runs take care of themselves.

0:00 20VC: Inside Accel's $4BN Growth Investing Machine | Cursor is Dead is Total BS: Here is Why | What Missing Rippling and ElevenLabs Taught Us | Are $2BN-$10BN IPOs Dead | Why Now is a Great Time to be Thoma Bravo with Miles Clements

Miles Clements · Mar 9, 2026

Trying to identify a $100BN outcome at the Series A makes you overswing and fail; you do better focusing on your own edge and founder relationships and letting the home runs take care of themselves

Constantly stepping to the plate trying to see the enormous outcome in advance leads to momentum-chasing deals where you are no better than the next investor

Scope: concedes a 'single and double' today looks different than in 2000; frames it as one of several valid ways to practice the craft

32:36 20VC: Inside Accel's $4BN Growth Investing Machine | Cursor is Dead is Total BS: Here is Why | What Missing Rippling and ElevenLabs Taught Us | Are $2BN-$10BN IPOs Dead | Why Now is a Great Time to be Thoma Bravo with Miles Clements

Harry Stebbings · Aug 25, 2025

Investors must be willing to pay up fast in their best companies rather than anchoring on the price they just paid

He got this wrong himself, refusing to pay 5x a seed price months later, and anchoring on your own entry price is a dangerous mindset

Scope: applies to your best companies

45:54 20VC: Do Margins Matter in AI? | Is Defensibility Gone For Good? | Is Vertical SaaS Dead in a World of AI | What SaaS Rules Are BS and No Longer Apply in a World of AI | The Future of Venture: Why Chanel vs Walmart is BS with Byron Deeter

Byron Deeter · Aug 25, 2025 · hedged

A company offered a 2x step-up the day its round is announced can still be a great investment at that new price

46:15 20VC: Do Margins Matter in AI? | Is Defensibility Gone For Good? | Is Vertical SaaS Dead in a World of AI | What SaaS Rules Are BS and No Longer Apply in a World of AI | The Future of Venture: Why Chanel vs Walmart is BS with Byron Deeter

Lucas Swisher · Feb 23, 2026

The right entry-price test is whether, if the company executes, you would want to put more money in at a higher price six months later

That question forces you to judge whether the idea is big enough, generational enough and the founder good enough to justify following at a doubled valuation

Scope: qualitative, not a hard and fast rule

20:40 20VC: Inside Coatue's $70BN Machine: Why Price Matters Least | Why Mega Markets are the Most Important | How to Assess Durability of Revenue and Margins in AI with Lucas Swisher

Logan Bartlett · Aug 29, 2022

Probability-weighted outcome scenario planning is worth doing even though it's false precision, because decisions should be judged on best risk-adjusted return given available information rather than on the single outcome that happened

The world has enough randomness that you sometimes make the right decision and get the wrong outcome, and vice versa — like splitting tens against a dealer's six in blackjack

Scope: concedes it can be dangerous; acknowledges the precision is partly false

28:47 20VC: Is Now Really the Best Time to Be Investing? WTF is Happening at Growth Stage Investing? Why VCs Have Gotten Lazy Over the Last 2 Years? Investing Lessons from Hitting with Braze and Missing with Snowflake with Logan Bartlett, Managing Director @ Re

Cem Sertoglu · Nov 20, 2024

Scenario-planning outcome sizes is worth doing as investment discipline even though the estimates turn out laughably wrong.

Their UiPath memo assumed it might return the fund and it has returned 12.5x the fund; the exercise still forces them to confirm the market is there.

17:19 20VC: Turning $16.5M into $2.1BN; Lessons from the Greatest Venture Investment in European History: UiPath | Why VC is Not Being Commoditised | Why Price Does Not Matter | Lessons on Loss Ratio, Selling and Signalling with Cem Sertoglu

Tom Hulme · May 8, 2024

It is wrong to insist every investment must be capable of returning the whole fund; much VC strategy is a lagging indicator of what worked in the past and other portfolio models (PE-style, debt-style) can also succeed

The 25-company power-law fund model demonstrably worked, but that it worked doesn't mean alternative approaches can't; PE and debt models show other ways to succeed at growth stage

Scope: mainly referring to growth-stage strategies

39:31 20VC: GV's Tom Hulme on Why Investing in Foundation Models is like Investing in "Power Stations", The Conventional Wisdom in VC that is BS & Lessons from a 24x Angel Track Record, 255x on Robinhood and Making Billions on Uber

Harry Stebbings · Mar 10, 2025 · hedged

Venture's fixation on every deal having to return the fund is overdone — returning half the fund is still very good, and investors underestimate how big their winners get

Scope: 'part of me is like'

64:25 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 · Oct 14, 2024

The right investment test is whether you can 10x with high conviction — if you can't, you shouldn't invest, and that test is what creates alignment with the entrepreneur

Everything else — the economics, deal size, valuation — flows from the 10x question, and it puts the investor and founder on the same side

Scope: framed as Eric Paley's original rule, adopted as their own

54:05 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

David Frankel · Oct 14, 2024

Investing only for massive-outcome-or-bust is insanity and also boring; a 10x bar gives you an easier on-ramp into a wider range of fascinating situations

The huge-company-or-bust framing is great PR fodder for raising the next fund but it closes off interesting companies where you can't see the outlier outcome at the start

55:11 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

Lucas Swisher · Feb 23, 2026

A 3x upside case is not exciting enough to invest; you need to believe that after your 3x, the next buyer can also make their own 3x

To deliver a 3x net fund return you need 5-6x winners to offset 1x outcomes and losses; and if no one can make money after you, the company won't exit and you won't get liquidity

28:24 The next buyer must also make 3x

Harry Stebbings · Jan 6, 2025

Outcome scenario planning is built on a flawed assumption because you can never know how big your winners will be

13:43 Outcome scenario planning is fundamentally flawed because winner size is unknowable

Wesley Chan · Aug 22, 2022

Rather than formal outcome scenario planning, the right test is back-of-the-napkin: what has to come true for this company to return the fund, and can you say that to your LPs with a straight face.

With at most ~20 core positions and a ~30% hit rate, four to five fund-returners produce a 5x fund, so every investment has to be defensible as a potential fund-returner to the charities and foundations whose endowments he manages.

19:44 Back of napkin fund returner test beats formal outcome scenario planning

Peter Singlehurst · Mar 19, 2025

Every investment case should be modelled to the same five-times upside so that what you are actually testing and comparing across companies is the probability and the assumptions required to get there

Holding the upside constant gives mental comparability across investment cases

24:45 Model every case to the same fixed upside multiple to compare probability not payoff

Peter Singlehurst · Mar 19, 2025

A 30-50% probability of a company going up fivefold is an excellent bet worth taking every time, because the base rate for a randomly picked company doing so is only about 5%

Thirty years of public market data suggest a ~5% random base rate for a 5x, so 30-40% odds are very good relative odds

25:29 Thirty to fifty percent probability of a five x beats the five percent base rate so it is an excellent bet

Shardul Shah · Sep 16, 2024

There is no such thing as a safe 2x; even at growth stage and high prices, investment cases should require 5x+ upside.

When Index reviewed its first growth fund's performance, the 3-5x-in-3-5-years private-equity hypothesis didn't hold — a power law showed up, with a few 5-10x+ companies and very few in the 3-5x band, so they are venture investors at growth stages, not value investors.

21:43 Growth stage checks must also underwrite to 5x plus not a safe 2x

David Frankel · Oct 14, 2024

A 10x bar is not too low for a seed investor if you run a small fund — four companies at 10x returns the fund

Small fund size means a handful of 10x outcomes is enough to return the fund

54:40 10x bar suffices for small funds few outcomes return fund

Shu Nyatta · Jul 31, 2023

At growth stage not every investment needs fund-returner potential; underwriting each deal to two to four x is the right target

LPs want materially different exposure from growth than from early stage, and the more modest target carries much less risk

31:13 Growth stage should underwrite to modest 2x 4x not fund returner potential