The Power Law: Venture Capital and the Making of the New Future

But venture capitalists could see the map and the territory and tell founders how to navigate it.

But the more common error, the more human one, is to invest too timidly: to back obvious ideas that others can copy and from which, consequently, it will be hard to extract profits.

By 2014, an astonishing 70 percent of the publicly traded tech companies in the Valley could trace their lineage to Fairchild.

$700 million the following April. But Khosla, believing in the power law, knew that winners often carry on winning: he took the risk of turning Cisco down and watched Cerent’s revenues take off exponentially. Four months later, in August 1999, Khosla was informed that Cisco had prepared another bid, this time for $7 billion. The news reached him wh

Tandem offered a spectacular demonstration of what became known as Perkins’s law: “market risk is inversely proportional to technical risk,”

Rather than looking at profit margins—that is, the share of revenues remaining after costs are deducted—he looked at incremental margins, meaning the share of revenue growth that falls to the bottom line as profits. Any amateur could see that the three Chinese portals all had negative margins; put simply, they were losing money. But a pro would kno

Today, if VCs are to finance capital-intensive projects, they need to recall their past. They can supply large sums of capital if they are allowed to own a large share of the resulting company.

adding that it is the “second derivative”—the changes in the rate of growth of a company’s sales—that really tell a venture investor whether to back it.

Recently, he had read an investment bible by the Fidelity fund manager Peter Lynch that described how to identify potential 10x bets. “Stalking the Tenbagger,” Lynch called this process.[18] The way Lynch explained things, if you liked a stock but other professional investors did not own it, this was a good sign; when the others woke up, their enth