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5% of $2.6 billion returns a fund
The median outcome
That median comes from the top 500 companies created in the last 25 years. Fewer than 100 of them are sustainably worth more than $10 billion, and a handful of names such as SpaceX, Tesla, Meta, Palantir, and Palo Alto Networks account for roughly $5 trillion of market cap.
The coming roadkill
This is the wave of a lifetime, and the roadkill from it will be heavy: about 95% of its companies are not going to be there. OpenAI, Anthropic, and SpaceX are already shaping up as the Metas and Googles of their era.
Why seed survives
That is why seed investing isn't dead, even though it is crowded and, to a degree, commoditized. An early investor doesn't have to hold one of the giants, and a $500 million outcome is still an incredible result.
Why do a few companies drive venture returns?
Venture returns follow a power law: a small fraction of investments produces most of the profit, while many return less than was invested. A single company that grows a hundredfold can outweigh dozens of losses. Funds are built around the chance of rare outliers rather than the typical outcome. Correlation Ventures, which analyzed thousands of venture deals, found that roughly 65 percent returned less than the capital invested.
How does dilution shrink an early stake?
Each time a startup raises a round, it issues new shares, so every existing holder owns a smaller slice of a larger company. A typical round sells somewhere around 15 to 25 percent of the company. After several rounds, a stake of 5 percent at the seed stage can shrink to a fraction of that. Investors with pro rata rights can buy shares in later rounds to hold their percentage.
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