Power-Law Distribution in Venture Capital Returns and Its Implications for Venture Capital Portfolio Construction

This paper looks at whether venture capital returns follow a power-law distribution, meaning a tiny number of startup investments generate most of the money. Using real industry data and academic research, the paper shows that around 60% of venture-backed startups fail, while roughly 5% of investments drive the majority of total returns. Companies like Airbnb, Uber, Stripe, and Coinbase are used as real examples of how one big win can make an entire fund successful. The paper also explains why this matters for how venture capital funds should build their portfolios and why the usual rules of diversification from stock markets don't quite apply here.