More Shots on Goal in a Power Law World

Here’s a fact that breaks most people’s brains: In venture capital, one startup can be worth more than the other 99 in your portfolio combined.

Not “a little more.” Not “twice as much.” We’re talking 50x, 1,000x, occasionally 10,000x returns. The entire game runs on a handful of wildly improbable winners that shouldn’t exist but do.

This creates an obvious problem. If you’re a venture fund, and your whole business model depends on finding needles that are rarer than needles, how many haystacks should you search?

Most early-stage funds bet on 20 to 40 companies per fund. At Team Ignite, we think that number is way too low. We’re building portfolios of 300 to 500 companies. And we have math to explain why.

The Lottery Ticket Problem

Imagine you’re playing a lottery where one ticket in 10,000 wins $100 million, but most tickets are worthless. How many tickets would you buy?