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Diversification doesn't work well in investing because great success follows a power law distribution


Diversification for VC funds

Having a diversified portfolio as a VC fund doesn’t make sense since the companies you invest in don’t follow a normal distribution: a handful of companies will vastly outperform all others. The vast majority of startups fail, some have mediocre success and few take off. Power-law-is-omnipresent-in-human-society

One investment usually equals or outperforms the entire rest of the fund combined. Funds should only invest in companies that have the potential to return the value of the entire fund.

When you invest in 10 startups, they all will have similar trajectory initially. Only after 10 years you will be able to see the dominant investment. It’s easy to miss the power law, since it doesn’t reflect daily experience.

Diversification for everyone else


You shouldn’t necessarily start your own company. Too many people start their own companies. Joining the very best company while it’s growing fast and owning 2% can be much more profitable than owning 100% of your own unsuccessful company. Also, roles between companies are much more important than roles inside companies.


  • Zero to One, Peter Thiel

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Zero to One: Notes on Startups

Aim for 0 to 1 improvements - The dot-com bubble made people cautious of innovation and big thinking - Competition is usually bad for a business - Monopolies exaggerate their...