Why startups are hard -- the math of venture capital returns tells the story

andrewchen.co

Great read from Andrew Chen of a16z: Here’s another surprise from the data, which is that the best investors don’t seem to be better at avoiding startups that fail. It’s not about the downside. Instead, the data says that a “good” 2-3x fund and a fantastic >5x fund lose money about the same % of the time. However, for a fantastic fund, its winners are much, much bigger than everyone else’s. For these top funds, the biggest startups end up generating 90% of the returns. It’s all about upside! For startups that ask why investors seem so obsessed with market size and say that few ideas are big enough, here’s the data that explains why.

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