Why We Invest in a Lot of Companies

Key Takeaways

• 150‑company fund lifts 5x success chance from 21% to 58%.
• Median MOIC jumps from ~2.8x to ~5.5x with more positions.
• Portfolio variance shrinks, giving LPs more predictable returns.
• High‑volume strategy needs a scalable deal‑flow network like YC.
• Single large fund can match fund‑of‑fund exposure without double fees.

Pulse Analysis

Venture capital returns follow an extreme power‑law distribution, meaning a handful of outliers generate the bulk of value. When a seed fund spreads its capital across many bets, it statistically increases the odds of capturing those rare unicorns while dampening the downside of a flat portfolio. Recent research from Correlation Ventures and Horsley Bridge quantifies this effect, showing that expanding a fund’s position count from 30 to 150 can more than double the median multiple on invested capital and lift the probability of a 5× exit from one‑fifth to over half of all simulations. This insight reshapes how limited partners evaluate fund structures, favoring models that prioritize volume over concentration.

The practical challenge of scaling a portfolio lies in sourcing high‑quality deals at scale. The author’s firm leverages Y Combinator’s 800‑plus annual batch pipeline, combined with a network of scouts, co‑investors, and operational support, to maintain deal quality while increasing shot volume. By turning each investment into a referral engine—founders become scouts, portfolio companies become customers, and podcast listeners become brand ambassadors—the marginal cost of adding another position drops dramatically. This network effect turns volume from a “spray‑and‑pray” tactic into a defensible strategic advantage that can rival the exposure of a traditional fund‑of‑funds without the double layer of fees.

For LPs, the implications are clear: a single, well‑networked fund can achieve exposure comparable to a multi‑manager vehicle while delivering tighter return distributions and lower fee drag. The interactive simulation tool released by the author allows investors to adjust assumptions about deal flow, picker skill, and reserve deployment, providing a transparent way to stress‑test the volume thesis. As the venture ecosystem continues to mature, funds that can efficiently scale their deal pipeline and apply rigorous probabilistic modeling are likely to become the preferred choice for capital allocators seeking predictable, high‑conviction returns.