6 days ago
The Reality of VC Returns: Why Batting Average Beats the Power Law
The Power Law of Venture Capital is the theory that an exceedingly small number – as little as 5-10% of an investor's venture capital investments – will yield the vast majority (90-100%) of returns from venture investing. In a special interview for the Extraordinary Pursuits podcast, BIP Capital CEO Mark Buffington argues that this definition of the Power Law is (at best) extreme.
Buffington explains why venture capital investors and founders should not accept playing a game where 10% of investments generate a 25x, and everything else is basically a write-off.
This episode will give you an insider's knowledge of why Batting Average is a better measure of a VC's ability to generate the best possible outcomes for everyone they serve.
If you're a founder, listen in to understand what questions to ask when considering a long-term VC partner and how much capital to pursue to balance risk with optimal outcomes. If you're an investor, you'll gain more clarity about the risks inherent in chasing a small number of high returns.
Timestamps
- [02:06] The Power Law and how it has shifted over time in Venture Capital
- [03:51] Mark's contrarian perspective on Power Law
- [06:43] The usefulness of a Batting Average approach to outcomes
- [12:33] The role of risk management
- [18:56] The impact of extreme Power Law on VC investors
- [22:48] The balance of skill and luck
- [26:52] AI's influence on Power Law dynamics
Points of Wisdom
- "Too many times people try to fund their way to category leaders, that's earned with the customers that you have, not the amount of capital that comes." [09:06]
- "Founders need to be thoughtful about where they take the money and how much capital they take in based on their level of product fit and market sophistication." [10:04]
- "Getting alignment is important; assessing the risk and gaps is super important." [15:39]
About Mark Buffington
Mark Buffington is the co-founder and CEO of BIP Capital and the Managing Partner of BIP Ventures. Since founding BIP Capital in 2006, he has guided the firm to become one of the most recognized venture capital brands outside Silicon Valley, leading investments in over 80 companies across industries such as healthcare, fintech, and enterprise SaaS. Mark serves on several corporate and nonprofit boards, reflecting his commitment to innovation and community impact. LinkedIn
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