Venture Capital and the Logic of Asymmetric Returns

Venture capital finances companies before the evidence is in. An investor buys a minority stake in a business that may have no revenue, an unfinished product, and a market that has not yet formed. Most such companies fail. The asset class survives because the maximum loss on any investment is the amount invested, while the gain on a rare success can be fifty, a hundred, or a thousand times that amount. Venture is the business of owning enough of those rare successes to pay for everything else.