Episode summary
Why Venture Capital Is Chasing Trillion-Dollar Companies
How I Invest With David Weisburd
· · 43 min · Hosts: David Weisburd · Guests: Scott Voss
Summary
Scott Voss argues that venture capital is a power-law business where a tiny set of outliers drive almost all returns, so investors have to accept losses as the cost of backing the companies that can become trillion-dollar outcomes. He says the top 10% of companies in a venture portfolio can generate 90% of value, and that the real skill is concentrating capital, diversifying across vintages, and knowing when to stay invested rather than cut winners too early.
A major theme is the rising importance of secondaries and continuation structures. Scott says many venture funds have outlived their original 10-year terms, and that secondary markets let LPs and GPs either take liquidity or keep riding the best assets, especially when a company still has enormous upside. He also explains that HarbourVest uses all three access points—primary funds, direct co-investments, and secondaries—to reach the same short list of important companies.
He emphasizes that good venture underwriting is as much about people as firms. HarbourVest looks at partner-level attribution, references CEOs and other investors, and tries to identify who is actually adding value inside a franchise. Looking ahead, Scott believes venture is becoming more concentrated at the scale end, while private markets continue to expand around founders that want to stay private longer.
Key takeaways
- Scott Voss says the top 10% of venture-backed companies can produce 90% of portfolio value, so losses are part of the model, not a failure of the model.
- Scott says secondaries are now essential because many venture funds have exceeded their 10-year lives and need liquidity tools to avoid forced exits.
- Scott says HarbourVest underwrites firms at the partner level, not just the brand level, because individual rainmakers and laggards can diverge sharply.
- Scott argues investors should stay in venture across many vintages, because the best vintages often follow the worst ones.
- Scott thinks venture will become more concentrated at the scale end, with a smaller number of large firms dominating the market.
Notable quotes
“It's everything. It's the business model”
“of those 15,000 companies one company returned 10% of the entire value 3x portfolio on that 15 billion”
“The best companies always look too expensive”
“What I love is the investment thesis of be short-term contrarian, long-term consensus. That's how you win”
“there's going to continue to be that traditional venture market that we all grew up knowing”
How the episode opens
Today we're joined by one of the world's largest private investor. Harborvest manages over $160 billion. We discuss why venture capital is strictly a powerlaw business, how Harborvest identifies exceptional investments, what they learned from investing into SpaceX, and where they see the next generation of outliers. Without further ado, here's my conversation with Scott. When it comes to the power law in venture capital, how important is it?
It's everything. It's the business model. I have this conversation with investors all the time who look at venture capital the same way they look at their public market portfolio or their private equity portfolio.
They have a hard time getting their head around the losses. But the reality is it's the wins that drive all the performance. And I think as you and I both know, those wins are very concentrated.
It's not the wrong intuition. If you're a private equity investor, private credit investor, you should be thinking about that downside.
That's right. But we use the word shooting the moon. Venture capital is shooting the moon. And you got to play your deck, your hand the right way, right? — I've heard multiple people say that some of the best portfolios actually had significantly more losses than the average portfolio. Is that true?
I think every great portfolio looks like that. I recently created a theoretical portfolio that used both our data and third party data extended it back two decades. I think 15,000 companies 15 billion of cost basis and the reality is of those 15,000 companies one company returned 10% of the entire value 3x portfolio on that 15 billion.
10 companies returned a third of all the value and the top 10% of the companies return 90% of the value. That's the assumption, right?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- venture capital power law
- venture secondaries
- gp lp evaluation
- portfolio construction diversification across vintages
- future of venture investing
Companies and tickers mentioned
- HarbourVest
Watch the episode
Watch “Why Venture Capital Is Chasing Trillion-Dollar Companies” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
