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The Power Law Comes For Venture Capitalists Too
New research says we were looking at VC powerlaw one level too low
The venture industry intimately understands the power law: a tiny number of companies generate nearly all the profits, and the rest, statistically speaking, are rounding errors.
New research suggests we have been reading the power law one level too low. In an NBER working paper analyzing more than 100,000 venture investors at US firms, Stanford’s Ilya Strebulaev and the University of Florida’s Blake Jackson find that fewer than 40% of VCs who have made investments are ever credited with a single successful one. More striking: 90% of investment profits are generated by just 5% of venture capitalists.
Not 5% of firms. Five percent of people.
I interviewed Strebulaev in 2024 about his research on how the best venture investors make decisions. The through line of his work is uncomfortable for my industry: venture capital talks about itself as a firm business, but it behaves, empirically, like a talent business.
That finding lands on an industry moving aggressively in the opposite direction. Venture capital has spent the past decade institutionalizing. Nine firms collected half of all the money raised by US venture funds in 2024, according to PitchBook. Andreessen Horowitz alone took in more than a tenth. The top 30 firms captured 75%. The sales pitch behind that consolidation, to founders and limited partners alike, is the platform: the services team, the talent network, the brand that opens doors, the logo that de-risks the round.
Here is the contradiction. The platform pitch is an argument that the institution matters more than the person. The data says the opposite. The institution is, mostly, a distribution wrapper around a handful of individuals who drive nearly all of the profits.
This is one reason many emerigng managers are splitting off. Matt Miller left Sequoia to launch Evantic Capital with roughly $400 million. Villi Iltchev left Two Sigma Ventures to go solo. Elad Gil, the archetypal solo capitalist, raised a reported $1 billion for his latest fund without a traditional firm at all. Yours truly is also one.
By April 2025, CNBC was describing senior partners leaving big venture firms in droves.
A second dataset approaches the problem from a different angle. Kauffman Fellows publishes the Fund Returners Index ranking nearly 1,000 investors across 680 firms and more than 60 countries, scoring individuals rather than firms on the outcomes that actually return funds: unicorns backed, unicorn-scale exits, and total exit value.
Only one in 140 VC-backed startups become a unicorn, and only about one in 800 exits above that valuation (this ratio particularly surprised me).
The investors who reliably catch them are a small, identifiable group. (I was lucky enough to be 22nd on that index for having invested in a few unicorns). Which means we may be entering a fantasy team era of venture. For limited partners, the logic of the research is that you can now draft individuals for your own dream team rather than buy the full franchises. Backing individual investors (and passing on others) is the closest you can get to the person that actually generates returns: one specific person’s judgment, network, and hunger - with aligned economics and a fund small enough for the power law math to matter.
I believe this is the way the industry will evolve. On the one hand, more money for platforms (the largest firms with big firm repuations) and on the other, to individuals or smaller firms with specialist reputations.
For many players in the ecosystem this is a good thing, but with important implications.
Founders: you will be able to choose the partner, rather than the firm that represents you.
Limited partners: you will be able to underwrite at the individual level, rather than the platform level.
GPs: In an age when anyone can become an entrepreneur, many of you can do it!
And for the big platforms, the question the data poses is the one they least want to answer. If 90% of the profits come from 5% of the people, what exactly is everyone else for?