Zero to One: Notes on Startups, or How to Build the Future · chapter 7 · id zero-to-one-c7-05-diversification-is-wrong-for-v
“Diversification is wrong for venture capital because it contradicts power law logic. VCs should concentrate bets on potential winners.”
CONTESTEDconfidence: high⚠ extracted by pipeline, re-audit pending
Receipts
IMD Business School -- Diversification in VC Fundssource alive
Diversified funds have median IRR of 13.5% vs industry-specific healthcare funds at 6.7%. Mixed funds outperform specialist funds empirically.
AngelList -- Power-Law Returns in Venture Capitalsource alive
An indexing strategy of investing in the entire early-stage venture universe will outperform roughly three-quarters of early-stage VC funds. The typical manager fails to pick any outsize winners.
Andreessen Horowitz -- The Babe Ruth Effect in VCsource alive
About 6% of investments (4.5% of dollars) generated approximately 60% of total returns. You need many at-bats to hit the home runs.
This claim is a stable, citable object. If you can falsify a verdict, tell us. Corrections are loud here.