“The conventional statistics are that about 200 of the 4,000 venture-fundable companies per year will be funded by a top-tier VC. About 15 of those will someday get to $100MM of revenue, and those 15 will generate something on the order of 97% of all of the returns for the entire category of venture capital in that year.”

He continues:

“Venture capital is such an extreme feast or famine business. You’re either in one of the 15 or you’re not.”

As Marc explains, VCs are looking for extreme outliers, and when they’re evaluating your startup, they’re asking themselves if this business is one of the 15 businesses that year that will get to $100MM in revenue.

One principle Marc believes helps firms invest in outliers is investing in strength rather than lack of weakness.

“The default way to do venture capital is to check boxes: really good founder, really good idea, really good product, really good initial customers. Check, check, check, check. ‘Ok this is reasonable, I’ll put money into it.’ But what you find with those checkbox deals is that they don’t have something that makes them really remarkable and special. They don’t have an extreme strength that makes them an outlier.”

The takeaway for founders here is to make sure they highlight to VCs during the funding process that they have a really extreme strength across an important dimension.

Video source: @ycombinator (2014)