Positively Skewed but Constantly Evolving
Venture Capital returns are positively skewed. But what does that mean? It means that instead of following a beautiful bell curve (a normal distribution), returns mostly cluster at the low end, with a few outlier investments delivering huge, outsized wins (hopefully enough to compensate for all those poor returns). This phenomenon is often referred to as a power-law—or heavy-tailed—distribution. Venture capital has always behaved this way, and it will probably stay that way. Why? Because, depending on who you ask, close to 90% of all startups fail. Those failures show up in the overall return distribution of the asset class.
This positive skew also appears when you look at VC-industry returns. A very small fraction of deals drives almost all value creation. In fact, over half of early-stage investments fail to return any capital, and the top 10% of investments return roughly 85–90% of all the cash proceeds₁. In other words, power-law isn’t just about individual startups—it manifests across the ecosystem: from company outcomes to firm-level performance to the asset class as a whole.
But this isn’t inherently bad. It’s just different from more traditional asset classes. And while the positive skew isn’t going anywhere, that doesn’t mean the space can’t evolve.
Prior to the great financial crisis of 2008, the VC industry looked a lot like it does today: a lot of smaller players scrambling to find the next “diamond in the rough,” while a handful of prestige firms leaned on their reputations as powerful business flywheels. Back then, most VC firms were basically balance sheets for portfolio companies—they wrote checks, took board seats, and didn’t do much else (little to no support beyond capital). But post-crash, Marc Andreessen and Ben Horowitz decided to challenge the industry.
In 2009, they chose to play VC with a very different playbook—what we now call a “platform” model. Their idea was that, as venture capitalists, they could actually enhance the success rate of their portfolio companies by supporting them beyond just writing checks. So they assembled a “full-service” platform: marketing, brand/PR, recruiting, biz-dev, policy/government affairs, legal, technical due diligence, community programming, and so on. By hiring internal teams of experts, they let founders offload operational tasks they didn’t want to handle themselves. Through thought leadership, brand amplification, and high-quality content, marketing and platform services became the “new normal” playbook for a rising VC firm.
Okay, cool story—but why does this matter?
Because it looks like we’re undergoing another transformation right now. The new wave seems to be driven by well-connected individuals or groups—dare I say, influencers (by which I mean individual angels with huge social-media followings or celebrities whose reputations help open doors for portfolio companies). The bigger the network, the wider the reach, the stronger the deal flow, and, ultimately, the greater the returns.
I’ll be frank: I’ve struggled to fully accept this. I’ve often argued that platform support doesn’t move the needle enough on returns, and that “influencer” figures sometimes overpay for equity by jumping into hot deals at inflated valuations. But the more data I see, and the deeper I dig, the more I’ve come around—reluctantly—to the idea that influencers will soon dominate the VC asset class.
The chart below from PitchBook’s Q1 2025 Quantitative Perspectives: All Quiet on the Exit Front₂ really drove it home for me. (I’ll link the full report at the end.) It shows annualized VC returns by lead-investor type—comparing well-connected investors to peripheral investors. PitchBook defines a “well-connected investor” as anyone in the 90th percentile for a score based on involvement in late-stage VC and venture-growth deals over the past three years. To me, that implies a firm is not only following on its own winners but, through its network, bringing other top VCs into deals where it already has skin in the game.
My takeaway?
Network effects really do matter—perhaps more than ever. If that’s the case, we may soon see VCs judged less on traditional track records and more on the size and engagement of their followings. I also worry about the founders without strong networks or flashy ideas that have potential to deliver positive change on the world not getting funded.
https://angelcapitalassociation.org/blog/angel-returns-beat-classes/?utm_source=chatgpt.com
https://pitchbook.com/news/reports/q1-2025-quantitative-perspectives-all-quiet-on-the-exit-front
