• It takes a top-quartile VC fund to outperform the early-stage venture market because the market portfolio is generally 75th percentile of manager returns from an investment portfolio sample size of 1,808.
• Early-stage investments follower a fairly extreme power-law distribution.
• Power-law distributions in empirical data: “Power-law distributions occur in many situations of scientific interest and have significant consequences for our understanding of natural and man-made phenomena. Unfortunately, the detection and characterization of power laws are complicated by the large fluctuations that occur in the tail of the distribution -- the part of the distribution representing large but rare events -- and by the difficulty of identifying the range over which power-law behavior holds. Commonly used methods for analyzing power-law data, such as least-squares fitting, can produce substantially inaccurate estimates of parameters for power-law distributions, and even in cases where such methods return accurate answers, they are still unsatisfactory because they give no indication of whether the data obey a power law at all. Here we present a principled statistical framework for discerning and quantifying power-law behavior in empirical data.”