❝ Cambridge Associates, an advisor to institutions that invest in venture capital, says that only about 20 firms – or about 3 percent of the universe of venture capital firms – generate 95 percent of the industry’s returns, and the composition of the top 3 percent doesn’t change very much over time. ❞

Wow... really?!?

That sounds about right.

Why does that surprise you?

There's a significant power law. The best firms get the best investments.

Not so much the dynamic, but just the ratios. And another "wow really" about WTF are all these angels doing losing at investing, when they could stuff it in their mattress and be ahead of the game? (it's a rhetorical question)

I'm just curious what all the other VCs tell their LPs.

I never thought of it this way, but I like it "I make those few angel investments because I want to help my best students achieve their goals, and because I like being involved in startups. That’s the ultimate lesson from the fish stories in Silicon Valley. True fishermen cast their lines not because they want the fish, but because they like fishing. It’s fine to be an angel investor – just don’t do it for the money."

Dave, most angels aren't in it for the money. They're in it as a hobby.

David, the other VCs tell their LPs that they're just one home run away from a great ROI. Which is true.

Christina, I agree with you. Angels value the experience more than making money.

It's not like 99% of investors are fighting over 5% of returns.

The actual math is probably something like this:

20 firms = 95% of returns

50% of firms = -40% of returns

49% of firms = 45% of returns

A significant number of venture firms end up delivering negative returns.

When I was in business school, I recognized this trick question--the professor asked, "What % of industry profits does Frito-Lay generate?"

Various people guessed numbers, and were told that they were wrong. I calmly raised my hand and said, "120%."

Market leaders often account for over 100% of industry returns.