The New Math of Venture: Why Mega-Winners, Secondaries, and Diversification Now Rule
How trillion-dollar outcomes, delayed liquidity, and the rise of inception funds are reshaping venture capital strategy and returns
TLDR: Venture capital has shifted dramatically over the past two decades: trillion-dollar outcomes are the new 5-minute mile. This amplifies power-law dynamics, forces fund models to adapt, and rewards those with disciplined entry, diversified exposure, and smart liquidity strategies.
The Evolution of Venture Outcomes
Over the last 20 years, venture capital has seen a dramatic expansion in both the frequency and magnitude of successful outcomes. Unicorns (>$1B valuation), decacorns (>$10B), and even hectocorns (>$100B) are no longer unexpected—they are increasingly part of the venture landscape. This exponential growth amplifies power law dynamics and increases the stakes for portfolio construction, fund returns, and liquidity strategies.
Venture firms—especially early-stage and inception investors—are increasingly relying on a combination of ownership strategy, secondaries, and long holding periods to capture value. The market has shifted: partial exits, longer timelines, and mega-winners now define the VC playbook.
The Rise of Unicorns and Decacorns
In 2013, Aileen Lee coined the term "unicorn" for private companies valued over $1B. At the time, only 39 such companies existed. Fast forward to 2023:
Over 1,560 unicorns globally (35x growth from 2012)
50+ decacorns (private companies worth over $10B)
Multiple hectocorns (>$100B), e.g., OpenAI, SpaceX
Table: Growth of Unicorns (2012–2025)
This explosion reflects both macroeconomic trends such as low interest rates, technology globalization, and abundant private capital, as well as a structural shift in the types of businesses being built. Platform economics, software scalability, and increasingly large addressable markets have all contributed to an environment where massive outcomes are no longer anomalies. Importantly, these outsized results often come from companies that began as long-shot bets at the earliest stages.
For greater context, these ‘hectocorn’ private valuations rival or exceed the market caps of many Fortune 50 public companies. Meanwhile, some venture-backed startups that eventually went public have grown into $100B+ and even trillion-dollar titans. For example, Facebook (Meta) hit a ~$100B market cap at its 2012 IPO and is worth $1.74 trillion today; Tesla soared past $100B and is now worth >$1 trillion; and earlier VC-backed pioneers like Apple, Amazon, Google, NVIDIA, and Microsoft are all now between $2-4 trillion in market value.
We’re now talking in trillions.
One thousand unicorns per trillion.
One thousand Power Law outcomes per trillion.
These would have been unthinkable outcomes two decades ago – underscoring how the upper tail of venture outcomes has stretched to unprecedented heights.
The explosion from 44 unicorns in 2012 to over 1,500 in 2025, and the emergence of dozens of decacorns, underscores just how extreme and expanded venture outcomes have become, reinforcing why power law considerations and fund structure now matter more than ever.
Power Law Dynamics in Modern Venture
The Power Law has always governed venture capital. But with outcome sizes ballooning, the skew has intensified:
Top 100 VC investments often represent >70% of value creation in any given year (Cambridge Associates)
Single deals like Benchmark's Uber or Sequoia's WhatsApp can return entire funds 10x or more
Example: Fund Returns from Outliers
This means venture returns are not normally distributed—they’re dominated by a few extreme winners. Even a 1.25% ownership stake that is diluted to .5% in Stripe would yield $500M to an emerging manager lucky enough to squeeze into an early round.
As the distribution grows more extreme, traditional portfolio logic breaks down. Simply being “right more often than wrong” doesn’t move the needle. Instead, winning big—on the right deal, at the right price, and with enough ownership—is what defines top-tier fund performance. This also creates a fundamental asymmetry in the venture model: one $10B winner can be more important than 50 $100M exits.
As Jason Lemkin notes, if you manage a $100M fund, even owning a small 2% stake in a $50 billion decacorn IPO yields $1B – a 10× fund returner – which is why the 2020–2021 surge of decacorn valuations made some fund math briefly look easy. In normal times, however, such gigantic exits are rare, so VCs push for significant ownership to have a shot at those fund-returning payouts.
To achieve meaningful ownership, the vast majority of funds are increasingly looking to go earlier with under-valued assets, or in the case of larger funds and follow-on funds, they wait for a winner to emerge and they pay a hefty price to participate hoping they’ll catch the mega-winner. This is one of the barbells emerging in VC right now, where seed and inception funds are going earlier to own 10%+ and mega funds are waiting on traction that’ll make your eyes bleed (read: Lovable to $60m ARR in <12 months), paying astronomical prices to own 20% of the right company—the one that really has a shot at $100B+.
Portfolio construction note for founders: many funds aim for 10–20% ownership to ensure one breakout can return the entire fund.
Exit Timelines and Liquidity Evolution
Startups are staying private longer:
Median time to IPO: 10+ years
45% of unicorns are now 9+ years old
Only 7% of unicorns exited by 2023
Shift Toward Secondary Exits
This has shifted the definition of “liquidity” in venture capital. Traditional IPOs have been replaced or augmented by private secondaries, M&A rollups, and later-stage fund rounds. For early-stage investors, this delay means a longer wait for returns and greater dependence on downstream demand. However, it also offers an opportunity for early-stage funds: by selling stakes in Series C or D, these investors who took the risk to come in as early as possible can now de-risk by selling off a portion of their position while still participating in upside with the remaining ownership. The rise of platforms like CartaX signal that secondary liquidity is now a core component of the venture ecosystem.
As investor Hunter Walk has said, the venture mindset of “hold until IPO” is evolving: “buy and hold” is being replaced by “buy and maybe sell” for early-stage VCs. The economics are compelling. Precursor Ventures’ founder Charles Hudson noted that for pre-seed funds like his, 75–80% of the dollars returned to LPs in the next 5 years may come via secondary sales of private stock.
Early-stage funds now routinely use secondaries to return capital before IPOs.
The New Bar for Fund Returns—By Fund Type
Let’s examine the math required to “return the fund” for different types of funds, all assumed to be $150M in size. We account for average initial ownership, dilution from follow-on rounds, estimated reserves, number of portfolio companies, and the statistical likelihood of capturing a power law outlier.
Fund Comparison Table
This table1 shows how inception funds—due to their large portfolios—have considerably higher odds of catching a $10B mega-winner at ~63%, compared to Seed & Series A funds at ~36-39% with fairly standard portfolio construction.
In fact, with the inception fund, it’s better than a coin flip’s chance that a single company will return >2X the entire fund… and still have 199 positions at-work.
Maximizing returns in any of these funds will require managing dilution and having discipline on reserves and pro-rata, but the odds of materially better performance than the rest of the market tilts in the inception fund’s favor.
Some might say that this was the brilliance in founding YC
LP Expectations and Portfolio Design
LPs understand venture is a power law driven game:
Top 5% of funds dramatically outperform others
“Return the fund” logic dominates selection
This favors funds with access to:
Future decacorns
Strong secondary strategies
Early access at low valuations
But, in this market, entry prices on the hottest deals are going up. Some VC’s are waiting to see traction, and if they are, they’re requiring more traction than ever, but they are paying up for it too. While Seed and Series A prices have hovered around $15m and $40m respectively, that hardly depicts the hottest rounds in the valley that are reaching $100m+ on the first or second priced round.
This dynamic has caused fund math to break.
Seed fund managers who once were entering for $10m-$20m on average are now seeing YC companies looking for $30m-$60m valuations at demo day.
Series A managers are telling me how competitive it’s getting at their stage too. Do they come down and take the seed round? Do they wait for winners to emerge and pay higher valuations behind the inflated seed rounds?
Does it mean less companies in the portfolio, further reducing the likelihood of catching an outlier, and further raising the bar for the exit size needed to return the fund?
Some will stay disciplined.
Some will lean into the emotion and promise of a deca- or hectocorn.
My bet is that the durable play is the disciplined play.
Inception-stage investing—if executed with discipline—offers LPs a chance to access value at a lower entry point, with the diversification of Fund of Funds, and more liquidity options over time. Combined with the rise of secondary markets, this creates a compelling case for higher exposure to high-volume, early-entry strategies.
Summary and Implications
Over the past 20 years, venture capital outcomes have transformed in both size and cadence. We’ve gone from an era where a $1B exit was a rarity to an environment with 1,000+ unicorns and routine talk of $10B+ decacorns and even $100B–$3T giants. This amplified Power Law means that now more than ever, a venture portfolio’s returns are likely to be defined by a couple of mega-winners, and as the leading indicator, their fund construction’s odds of capturing one of those mega-winners.
Taken together, the venture capital model has undergone a structural evolution, and as a result, the traditional methods of fund modeling, ownership targets, and exit strategies must evolve to match. Investors who fail to internalize the impact of higher entry prices and amplified power law dynamics risk being left behind. By contrast, those who embrace breadth, discipline, and strategic liquidity stand to benefit enormously in this new paradigm. What it boils down to:
The scale and number of mega-outcomes has transformed the venture landscape
Traditional IPO exits are slower and less frequent
Secondaries and alternative liquidity are now a core part of the playbook
Portfolio math has shifted upward in entry prices (thanks, AI) at Seed and beyond, as well as exit sizes—VCs need larger wins, and LPs demand it
Firms should deeply consider greater diversification and disciplined entry prices
Implications:
Inception-stage investors who secure low entry prices, broad diversification, and smart exit timing are best positioned to capitalize on the new venture normal
At the same time, on the other side of that barbell, funds who spot the mega-winners and retain significant ownership, like the brand-name-mega-fund-now-RIA’s, may also return significant capital by paying for the winners and holding them long into the public markets as companies like NVIDIA reach multi-trillion-dollar outcomes post-IPO (read: Sequoia bought 33% of NVIDIA for $1m in 1992, which would be worth ~$1.16T today if pro rata were maintained and equity never sold)
See you Monday.
This is somewhat unrelated but reading this makes me think that the most successful investors are great at poker. Calculating odds, taking bets, knowing when to fold or go all in to stack chips.