Every Investor Needs To Understand This Concept - David Friedberg

Venture returns are so concentrated that mediocre follow-on investing can wreck overall fund performance. At one LP conference, a large venture firm said 45% of capital across 13 funds went into flat or down rounds, lost money, and that avoiding those investments would have doubled overall IRR.

The return data used to support the argument were themselves challenged as potentially misleading. The hosts noted Carta’s IRRs were paper markups rather than cash distributions, its coverage was limited, and post-2018 vintages remained in the J-curve, making longer-running Cambridge data more useful.

The strongest investing insight was that exceptional companies can create far more value after going public than before. Palantir rose from roughly $16 billion at listing to $436 billion five years later, Uber from $75 billion to $190 billion, while Spotify added about $120 billion after listing.

The difficulty is identifying those “power-law winners” before hindsight makes them obvious. Nvidia once looked mainly like a gaming company with a questionable data-center business, and even an early investor who correctly anticipated GPUs powering AI eventually sold the stock too soon.

Private-market experience can become a public-market advantage when investors retain deep knowledge of companies after IPO. Jason Calacanis said he bought more Uber around $30 and Robinhood around $12 after investing early because years of direct exposure gave him unusual confidence in their management and markets.

Venture is being reshaped because companies stayed private longer while traditional exits stopped returning cash quickly to LPs. Secondary sales, continuation funds and other liquidity structures are pushing firms toward hybrid public-private investing that increasingly resembles private equity rather than classic venture capital.

A great venture fund does not reliably predict another great one, making persistent outperformance exceptionally difficult. One speaker said Cambridge and major fund-of-funds datasets show no correlation between one “killer fund” and the next, arguing that many firms ultimately fall back on gathering assets and earning fees.