#249: Venture Equations: Power Laws, Secondaries, and the Discipline Premium
Over the past two decades, venture capital has quietly—but fundamentally—rewired itself. The rise of trillion-dollar companies, the explosion in unicorn formation, and the strategic maturation of secondaries are reshaping how funds perform, how portfolios are constructed, and how liquidity is planned.
We’re not just playing a different game—we’re playing on a different board. Here’s what’s changed, and why it matters:
1. Mega-Winners Now Define Fund Outcomes
Trillion-dollar outcomes are the new 5-minute mile. A16Z, Sequoia, and the best in the business aren’t trying to be right more often—they’re trying to be right once, big.
“Top 100 VC investments often represent >70% of value creation in any given year” — Cambridge Associates
The number of unicorns has scaled dramatically:
• 1,560+ unicorns globally (35x growth since 2012)
• 50+ decacorns (> $10B valuation)
• Multiple hectocorns (>$100B), like OpenAI and SpaceX
The takeaway? Venture is no longer a hits business. It’s a breakout business.
2. Portfolio Construction Has Evolved
In a power-law world, the math flips: one right investment at the right entry price can return the fund. Everything else is noise.
“Portfolio construction note for founders: many funds aim for 10–20% ownership to ensure one breakout can return the entire fund.”
“With the inception fund, it’s better than a coin flip’s chance that a single company will return >2X the entire fund… and still have 199 positions at work.”
That’s why early-stage GPs are increasing volume, modeling for lower batting averages, and weighting ownership in the outliers.
3. Secondaries Are Now Part of the Liquidity Stack
The IPO window may be reopening, but liquidity timelines are still long. Median time to IPO has stretched past 10 years. Nearly half of all unicorns are now 9+ years old. By 2023, just 7% had exited.
Enter secondaries.
“For pre-seed funds like Precursor Ventures, 75–80% of the dollars returned to LPs in the next 5 years may come via secondary sales of private stock.” — Charles Hudson
What used to be a workaround is now a strategy.
4. Entry Prices Are Climbing—And So Is Selectivity
Early-stage managers are paying up—but also asking for more. Traction expectations are higher, especially at the seed stage.
“Seed fund managers who once were entering for $10M–$20M on average are now seeing YC companies looking for $30M–$60M valuations at demo day.”
Being early is no longer enough. Discipline at entry—especially in today’s pricing environment—is key to unlocking asymmetric outcomes.
5. The Edge: Discipline, Diversification, and Secondaries
What gives a fund structural edge in today’s market?
“Inception-stage investing—if executed with discipline—offers LPs a chance to access value at a lower entry point, with the diversification of Fund of Funds, and more liquidity options over time.”
Secondaries aren’t just a liquidity bridge—they’re an optionality engine.
The winning model: high-volume, high-discipline portfolios built around early exposure, broad diversification, and multiple liquidity paths.
Final Thought
The old venture math was about picking. The new math is about structuring—your portfolio, your ownership, and your exit optionality.
As the article puts it:
“The durable play is the disciplined play.”
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Thanks to Jeff Becker for distilling these insights in his post for Monday Morning Meeting. Highly recommend following his work for more sharp takes on the evolving VC playbook.
That’s all for today folks! Thanks for your support and spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”
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