Ditching the Moonshots: Mapping the Anti‑Power Law Venture Landscape

Venture Capital is the process of a reckoning; these firms are ahead of the curve

Are you a real venture capital investor or VC- backed founder if you have't read Sebastian Mallaby's Power Law? Mallaby’s core message is deceptively simple: venture capital returns obey a power‑law curve in which a handful of breakout investments drive almost all the gains, so the entire industry is optimised for hunting moonshots and writing off the rest.

Image courtesy X (@scmallaby)

So, why is the venture world so obsessed with the power law? It all comes down to venture math. Two examples come to mind: boils down to the math. The first is one of the examples in Power Law. In 1996, Silicon Valley legend and Khosla partner Vinod Khosla wrote a US$3 million cheque to Juniper Networks, an internet router company. Just three years later, the company went public and Kleiner Perkin reaped US$7 billion from the IPO for a 1,400× return, one of the largest multiples on a VC investment till date. More recently, Google’s acquisition of cybersecurity startup Wiz for US$32 billion in March 2025 earned early backer Cyberstart a 200x return on its US$6.4million investment.

When the power law works, it damn works there is no question about that. The problem is, consistently finding those 1,400x or even 200x winners across multiple funds is incredibly rare. Very few VC firms manage to achieve this. As such, the median VC fund often struggles to deliver standout returns, frequently disappointing LPs compared to less risky investments.

Imagine if every bank offered credit cards with no spending caps to all comers, wouldn’t work, right? In reality, elite cards like the JP Morgan Reserve or Amex Centurion are by invitation and offered to only the ultra wealthy. Yet, it often feels like every single VC fund raises capital pursuing the same high-risk, capital-intensive, outlier-dependent strategy. Little surprise then, that the industry is currently stuck delivering mediocre returns in the past few years. Investors poured billions of dollars into software startups depending on hope as a strategy, instead what we have is thousands of zombies - stuck with no where to go.

Alternative Path to Achieving Venture-Style Returns

So, if banking everything on lottery-ticket odds doesn't reliably work for most funds, what's the alternative? It turns out, not everyone has to play the exact same game. Some investors focus less on hitting that single 200x grand slam and more on improving their 'batting average.' The idea is pretty simple: build a portfolio that generates more consistent, solid wins – think more companies returning 3x, 5x, or even 10x the initial investment, even if the astronomical outliers are less likely.

This might involve backing businesses with clearer paths to profitability or using different kinds of financing that don't demand hyper-growth at all costs. It's a different way to think about portfolio construction and risk, aiming for strong fund returns through a higher frequency of good outcomes, rather than solely relying on outliers.

While the Power Law chase dominates headlines, a growing number of firms and investors have deliberately chosen different routes. They're not just tweaking the model; they're often rethinking core assumptions about growth, funding structures, and even what 'success' looks like. Let’s take a look at how these companies operate

Introducing: the “Anti Power Law” Venture Market Map

Anti Power Law Venture Funding Market Map

Backing Modest Outcomes

Not every fund chases billion-dollar exits. This first strategy focuses on achieving solid, consistent wins – think companies returning 3x to 10x – often by backing sustainable, capital-efficient businesses. Firms playing here, like Calm Company Fund (early stage) or Level Equity (growth stage) listed in the image, prioritize building a portfolio with a higher "batting average." Instead of relying on a single grand slam, the goal is strong fund performance through multiple successful, albeit more modest, exits. This directly counters the Power Law's dependence on rare outliers.

The Rollup Play

Another non-traditional path involves "Rollups." This is a strategy often seen in private equity but adapted here: acquiring multiple smaller, often profitable companies within the same niche and combining them. The goal? Create a larger, more efficient entity that benefits from economies of scale and potentially commands a higher valuation multiple than the individual pieces could. Think of firms like Tiny Capital or SureSwift Capital, known for buying up internet or SaaS businesses. Instead of betting on one startup's breakthrough innovation (the Power Law way), the rollup strategy generates returns through operational improvements, smart integration, and market consolidation. It's an "Anti-Power Law" approach because value creation comes from M&A execution and managing a portfolio of acquired assets, not purely from organic hyper-growth of a single venture.

Finding Value in Distress

The third bucket involves "Distress" or "Special Situations" investing. This strategy dives into scenarios that traditional VCs often run from – startups struggling with slower-than-expected growth, facing cash crunches, or needing significant restructuring. Instead of cutting losses (a common Power Law tactic), these investors see opportunity. They might buy out existing shareholders at a discount, provide critical turnaround capital, or help restructure the business towards a more achievable goal, often profitability over scale. Firms operating in this space, like Resurge Partners or potentially specialists like Bain Capital Special Situations (as shown in the image under Growth), are essentially betting against the Power Law's binary outcome. They find value where the typical venture model gives up, aiming for solid returns by fixing problems and navigating complexity, rather than just riding a wave of hyper-growth.

Transiting from Hyper-growth to Profitability

Whether your startup is facing distress, or you as a founder are simply tired of the relentless pressure for hyper-growth and misalignment with traditional VCs, we can help.

Our focus is on partnering with companies ready to make the crucial transition from a growth-at-all-costs mindset to building a sustainable, profitable business. The path doesn't always have to lead to unicorn status; sometimes, building a strong, enduring, and profitable company is the most rewarding outcome of all. As the venture world continues to evolve, recognizing these alternative paths will be key for both founders and funders looking for a different way to win.

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