LCD use this “law on power” to determine “massive winners” to invest in

As the founders act, one investor discovered how the LCD is using a historical “law” to identify the best investments.

“The power law in venture capital mainly means that a small amount of investment brings the vast majority of profitability. Thus,, in fact, one or two massive winners exceed all other investments in conjunction,” – said in an interview with Peter Spempt, a general partner at the European VC Creatum company.

He called it “significant in decision -making.”

The law of the authorities Begins with work in late 19^you-Thetaries of Italian economist Wilfred Pareta. He noted that 20% of pea pods produced 80% of peas in their garden and used this observation to economic conditions and inconsistency of wealth.

Spet explained that since VCS often financed ideas that are risky and innovative, they know that some of these startups will not receive. But profit from companies that have succeeded can become “massive winners” who “exceed all other losses or smaller exits,” he said.

“In terms of return, you want to really get into people. We want Spotifys, the revoluts, klarnas,” he said.

“The results from this size, or on this scale, return more capital to investors and founders than $ 1 billion. Exit $ 50 billion is much higher than $ 5 billion.”

Although the path to venture capital in Europe is improving, there is still some way, reports, reports to the state of the European Technical Report atomico 2024.

In fact, the average circle of seeds – the first official round of fundraising – in Europe last year amounted to $ 1.4 million, compared to $ 3 million in the United States, revealed Atomico. At the stage of growth it is even more difficult, and American startups are twice as likely to increase financing rounds of more than $ 15 million.

About 60% of respondents said Atomico in 2024, which is more difficult to take external finances compared to the previous year.

Spet said one of the key ways to convince the LCD that you are building the following Spotify or Revolut, saying that your company has “negative potential”.

“You need to put it why it can become so big as it can become a company that determines the category,” he said.

This includes an explanation for how you decide the market and how the product can expand over time. Early product or pilot with positive reviews can help at the seed stage.

If you do not yet have a product, you need to have evidence that the product fills the space on the market and offers customers a real solution.

VCS is also looking for “exceptionally strong and ambitious founders,” said Spect, adding that he wants to understand their motivation and drive.

“The only thing we obviously … like to see if the founders have a spike in a certain area, or skill, and showed perfection in this,” he said.

This may be related to work, such as the availability of technical capabilities and leadership, or even to success in sports or research.

Given the gap between fundraising in Europe and the USA, Harry StebbingsThe founder 20VC determined the difference in the way the founders.

American founders are usually more daring and ambitious, Stebbings said compared to his colleagues across the Atlantic.

“I don’t think Europeans are such good funds (as Americans). We need to tell the best stories. We need to sell ourselves better. We are too self-esteem,” he said CNBC to do so.

Some founders even “badly” advised to include “weekend slides” in their venues, Stebbings added. “It makes me feel bad as I plan to divorce when I get married.”

While Speh does not agree that the European founder lacks ambitions, he believes that startups in the region can tell the best stories.

“We have people and founders who dream really big and want to build massive companies,” he said. “In the general culture between Europe and the US, I think American founders and Americans are pretty good in the story as well as quite good sellers.”

“There we can focus on being even more daring, having an even more sophisticated and visionary story,” the rush added.