E9: David Clark | Investment Director at VenCap on What Every LP Gets Wrong About Power Laws

Key Points

• The power law nature of venture capital means that a very small number of companies drive the bulk of industry returns, emphasizing the need for GPs to consistently identify and back these outliers.
• Persistence in venture capital returns is real, and managers who have backed top-performing companies in the past are more likely to do so again, making historical success a key predictor for future performance.
• Effective capital allocation involves both offensive and defensive strategies, such as recognizing high-potential companies early for follow-on investments while also ensuring sufficient reserves to support portfolio companies through market downturns.