The power law debate: concentration, access, and what changed with AI

The one statistic to start from

Cambridge Associates has found that roughly 90 percent of venture value creation has historically come from the top 10 percent of companies. That figure, cited here through FB Ventures, is the cleanest single expression of the power law and it is not seriously contested. Venture returns are concentrated in a small number of companies, and any portfolio strategy that ignores this is arguing with arithmetic.

What follows from it is contested, and that is the whole of the debate.

The case that concentration has intensified

Commonfund's analysis of exit events since 2023 finds the top 1 percent of companies accounting for 80 percent of total venture exit value, against 34 percent from 2017 to 2022 and 17 percent from 2005 to 2010. Three points across two decades, moving in one direction.

The caveat matters and Commonfund states it: that 80 percent includes SpaceX's $1.77 trillion IPO, and excluding it the figure is 45 percent. Forty-five is still a substantial rise on 34 and a transformation of 17, so the trend survives the adjustment, but a reader who takes 80 as the durable number is taking a single extraordinary event as a structural fact.

Mayfield reaches the same conclusion from the other side of the table, describing the current period as an AI power law era in which liquidity is flowing almost entirely to category leaders, with a bifurcating market where median and average deal sizes have come apart. An allocator and a general partner arriving independently at the same read is worth more than either alone.

The mechanism both describe is intuitive: AI has produced companies that reach enormous scale faster than previous cohorts, which compresses the timeline over which a winner separates from the field and widens the gap once it does.

The genuinely two-sided version

Altos Ventures frames the disagreement about what to do with this better than anyone. On one side, Peter Thiel's rule: the biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. If that is true, the strategy follows directly. Concentrate. Back few companies. Put the money where the conviction is.

On the other side, Union Square Ventures, whose stated practice is to invest across a long tail and whose Fred Wilson has described spending much of his time with the companies that will not move the fund, because those founders gave years to something that did not work and deserve better than being written off. That is an ethical position rather than a portfolio one.

The paradox is in the outcome. Altos reports USV's unicorn hit rate at 8.1 percent against 2.5 percent for other top firms. The firm that spends its attention on the long tail produced the concentrated winners at more than three times the rate of firms following the concentration logic more literally.

The point is not that USV disproved the power law; its returns are a demonstration of it. The point is that accepting the power law as a description of outcomes does not settle what behaviour it implies. You can accept that returns concentrate and still conclude that the way to find the concentrated winner is to be broadly present and genuinely useful across a portfolio you cannot yet rank.

A distinction that gets lost

Cambridge Associates, whose company-level figure opened this page, argues against the concentration story at a different level. It calls the widely repeated claim that 90 percent of venture performance comes from the top 10 firms catchy but unsupported, and warns it leads LPs to miss managers who can deliver substantial value creation. In its data, investments ranked 11 through 100 accounted for an average of around 60 percent of total gains from the top 100 per investment year, out-earning the top 10.

Those two Cambridge findings are not in tension because they are about different populations. Value creation concentrates sharply among companies. It does not concentrate nearly as sharply among firms. Treating an established fact about companies as though it were a fact about managers is the single most common error in this debate, and it is the one that quietly justifies allocating only to a handful of brand-name funds.

The counterweight worth taking seriously

The VC Factory extends the power law to funds themselves, finding in an analysis of 11,350 startups backed by 259 funds between 1986 and 2018 that about half lost money, that 121 companies, roughly 1.1 percent, returned an entire fund on their own, and that 90 percent of funds returning at least 3x had one of them. Outperformance without a fund returner is close to impossible.

Its warning is about what mega-fund scale is actually selling. Because the number of companies producing outlier outcomes is limited and does not increase with the capital chasing them, a very large fund is not positioned to generate power-law returns. What it offers an institutional LP writing hundred-million-dollar cheques is visibility, controlled liquidity, and stable returns, which is a legitimate product and a different one. Power-law language borrowed to justify scale is describing a strategy that scale makes harder rather than easier.

Where this leaves a General Partner

The power law is not in dispute. What it implies for how a specific fund should be built is, and the honest summary is that the evidence supports more than one answer. A concentrated fund and a broad fund can both be coherent responses to the same distribution, and the firms making each argument have the returns to support them.

What the Colibrí Architecture model contributes here is deliberately modest. It has no view on the right level of concentration and does not push a firm toward either pole. What it reads is whether the answer a firm has chosen is carried consistently through the rest of its configuration: whether a concentrated strategy is matched by the ownership and cheque size concentration requires, and whether a broad strategy is matched by the team capacity breadth demands. Both positions are defensible. Declaring one and building the other is the thing worth catching.

Sources

• The power law in VC: why portfolio construction matters in ventureFB VenturesCarries the Cambridge Associates figure on value creation concentrated in the top decile of companies.
• Venture Capital Disrupts Itself: Breaking the Concentration CurseCambridge AssociatesArgues against concentration orthodoxy at the manager level, which is a different question from concentration among companies.
• AI is Steepening the Power Law in Venture CapitalCommonfundThe exit-value concentration series, with and without the SpaceX outlier.
• Q1 2026 VC Outlook: The AI Power Law EraMayfieldReaches the same conclusion from a general partner's vantage rather than an allocator's.
• Paradox of the Power Law in Venture CapitalAltos VenturesSets Thiel's concentration rule against Union Square Ventures' long-tail practice, and the hit rates each produced.
• LPs Beware: The Super Power Law in Venture CapitalThe VC FactoryExtends the power law from companies to funds, and questions what mega-fund scale is actually selling an LP.