Venture Investor’s Playbook: Part 2

The Power-Law of Venture Returns

Chip Hazard; General Partner, Flybridge

Source: Cambridge Associates, Venture Capital Index, and Benchmark Statistics, December 31, 2018. Data is for 2009 vintage US Venture Capital Funds.
Source: Cambridge Associates, Venture Capital Index, and Benchmark Statistics, December 31, 2018. Data is for US Venture Capital Funds.
Source: Cambridge Associates, Venture Capital Investment Level Benchmark Statistics, December 31, 2018. Data is for 2009 US early-stage investments.
  • Maximum TVPI: 254.9x
  • Mean TVPI: 18.6x
  • Median TVPI: 8.5x
  • Weighted Average (by invested capital): 15.4x
Source: Cambridge Associates, Venture Capital Investment Level Benchmark Statistics, December 31, 2018, and Flybridge analysis. Data is for 2009 US early-stage investments.
Source: Cambridge Associates, Venture Capital Investment Level Benchmark Statistics, December 31, 2018, and Flybridge analysis. Data is for 2009 US early-stage investments.

Finally, I would argue that the power-law has become more critical in venture capital over time as winners generate outsized returns more quickly and at a greater scale than before. Interconnected global markets and the power of network effects, whereby the strong get stronger with more success, results in winner-take-most markets on a global scale.

From what I remember of the top-performing Greylock funds from when I was there, there was a fatter distribution curve with fewer losses, more strong returns, and relatively few 100x returners. I suspect the lower impact of the power-law in the 1980s and 1990s was because of these factors.⁴

Seed-stage VC working with entrepreneurs to leverage the power of community.