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

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

To overcome the risk-aversion identified by decision science, the partners included a “pre-parade” section in each investment memo—a description of how the company would turn out assuming everything went perfectly. By building this exercise into their process, the partners gave themselves permission to voice their excitement about a deal, and to do

would show up at Sequoia at 8:30am for an appointment and see the top partners in conference rooms, meeting with startups. I would swing by Sequoia for coffee at 4pm and see the same partners still there, still meeting with startups.”[8]

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.

First, it showcases the distinct roles of government-backed science and VC-backed entrepreneurs in driving technological progress.