Sapphire Ventures

Sapphire Partners

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Outperformance: The Power of Power Laws

Which Investments Generate the Greatest Venture Returns: Enterprise or Consumer?

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We are frequently asked what drives outperformance for a venture fund. We strongly believe venture is a game of power laws – meaning only a small percentage of returns is responsible for a large percentage of overall return value, either for a specific fund or the industry as a whole. It should come as no surprise then that to have an outperforming fund, one must have invested in a power law returning company or companies. With this in mind, are there patterns to be recognized within these power law exits?

Or relatedly, as a venture investor, do your odds of making better returns improve if you only invest in either enterprise or consumer companies?  Or do you need a healthy mix of both to maximize your returns? And how should recent investment and exit trends influence your investing strategy, if at all? 

To help answer these questions, we’ve collected and analyzed decades of venture performance data, and every few years, we reevaluate to spot new trends. What we’ve found is pretty intriguing in its consistency as described throughout this article.

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