Decoding Power Law: Insights for Investors

David Clark, Chief Investment Officer at VenCap, brings more than thirty years of experience investing in over 450 venture funds across the US, Europe, China and India. In conversation with Karthik Reddy, Managing Partner and founder of Blume Ventures, he shared what VenCap's proprietary data says about power law dynamics, the kind of numbers most emerging managers never get to see.

Fund returners are non negotiable. Ninety percent of funds delivering three times net or better had at least one true fund returner. Without an outsized winner, reaching 3x is close to mathematically impossible, and no amount of singles and doubles gets a fund there.

Value concentration is extreme. Companies returning ten times or more generated seventy five percent of total value in successful funds while representing only 12.7 percent of invested capital. Companies returning three to ten times delivered just twenty five to thirty percent.

The bar for a fund returner is brutal. Early stage investments need thirty to fifty times to genuinely qualify, with fifteen to twenty times as an absolute floor. Fewer than one percent of companies ever get there, and even strong funds carry loss ratios approaching fifty percent.

Karthik's own scaling maths, live on stage. Moving from a fund of one to two hundred million dollars to 290 million meant explaining how to return a fund half again larger than everything raised across three previous cycles. His answer was to bet the Indian market had matured enough to produce Swiggy and Zomato scale outcomes, and to treat the fund as a set of fifty to seventy five million dollar sub strategies rather than one undifferentiated pool, which David confirmed is how the largest global firms actually operate.

Early DPI tells you almost nothing. Karthik pressed David on the pressure emerging managers face to show distributions early. David's answer was that DPI at year three or five has very little correlation with where a fund ends up. Had Accel sold its Swiggy position under that pressure, it would have missed one of its best investments outright.

VenCap's manager bar is close to impossible. They do not back first or second funds at all, and Fund III is the earliest they will engage. The filter is whether you have backed a top one percent company before, whether the conditions that produced it still hold, and whether your position was large enough to move the fund. Only thirty to forty firms globally clear it.

What an authentic founder looks like. David quoted Mike Maples of Floodgate on backing founders who are the authentic voice of their community, building because the work is their life's work rather than because they spotted a way to make money.

Succession kills good firms, not competition. The single biggest reason great firms fail, in his experience, is failing to handle succession early and methodically. Team stability is counterintuitively a red flag, and he favours firms whose structures put the onus on the partnership to invite senior partners to stay.

India's exit landscape is genuinely shifting. The IPO market opening to domestic technology names creates real new exit paths, though David flagged the open question of whether it is a durable trend or a window. In Blume's first fund, twenty five percent of companies returned ninety nine percent of capital, with three companies delivering half of that.

• David Clark, Chief Investment Officer, VenCap.
• Karthik Reddy, Managing Partner and Founder, Blume Ventures.

This session was part of the IndianVCs Venture Summit, three days of conversations with more than twenty investors and allocators on LP fundraising, portfolio support, and the tools reshaping how funds operate. The full set of recordings lives on our YouTube channel.

Strip away the specific multiples and one idea does all the work. Venture returns are won or lost on a handful of decisions made under pressure, whether to hold a winner past the point where the optics say sell, and whether a firm can hand itself to the next generation before ego makes that impossible.