Thanks to a few notable individuals, the high-stakes, high-reward world of venture capital (VC) has evolved rapidly since the early 2000s. Yuri Milner’s investment in Facebook is one example of how innovations in strategy can create a ripple effect, ultimately influencing future investors’ approaches.
In “The Power Law: Venture Capital and the Making of the New Future,” Sebastian Mallaby explains that VC is about much more than picking winners. It’s about understanding the rules that drive disproportionate returns.
Mallaby traces the roots and rise of VC, examining how Silicon Valley’s top venture capitalists helped shape the tech industry into a global powerhouse.
The Asymmetry of Returns in Venture Capital
One of the most critical forces driving VC is the power law. This principle explains why venture capitalists continue to pour money into startups, even when the odds of success are notoriously slim. Unlike in traditional investing, where gains and losses might be evenly distributed, VC follows a more skewed distribution.
Mallaby illustrates this using real-world examples where a single “unicorn” — a startup valued at over $1 billion — can make or break a fund. The idea is that a small number of home-run investments create such massive returns that they offset all the losses from failed ventures.
In Milner’s case, backing Facebook was that home run. His bold move to value Facebook at $10 billion, outbidding more cautious investors, paid off handsomely when the company skyrocketed to $50 billion within just 18 months.
Milner’s willingness to take calculated risks is a prime example of how venture capitalists can leverage the power law for astronomical gains. His approach quickly caught on in Silicon Valley, influencing other investment strategies.
For example, Andreessen Horowitz (a16z) took cues from Milner’s success with Facebook. The startup-backing venture firm increasingly invested in late-stage growth deals in the tech sector. Marc Andreessen, a16z’s co-founder, later credited the firm’s pivot to the influence of one man: “A lot of this had to do with Yuri Milner.”
A Global Reach
This evolution in VC wasn’t limited to the U.S., either. Globally minded venture capitalists recognized that the power law applied across markets. Mallaby tells the story of how Chase Coleman, the founder of Tiger Global, was eager to place bets in China, “a country he hadn’t visited.”
Coleman had previously worked at legendary investor Julian Robertson’s Tiger Management. He remembered Robertson saying: “Why would I sit [in the U.S.] and try to hit major-league pitching, if I can go to Japan or Korea and hit minor-league pitching?” Mallaby describes this as “the inverse of the traditionally parochial outlook of Silicon Valley investors.”
Another example of this global mindset is Milner’s investment in the Chinese e-commerce company Alibaba. By betting on Alibaba, Milner rode the wave of China’s rapid digitization, resulting in another massive payout.
Similar principles drove other venture capitalists’ investments in companies like Airbnb, Skype, Twitter, and Pinterest. These bets paid off exponentially, reinforcing the idea that a few tech companies can dominate entire industries and create outsized returns for investors.
Yuri Milner: Shaping the Future
Mallaby’s book highlights how venture capitalists play a critical role in accelerating the growth of disruptive technologies. By embracing the power law, these investors accept a level of risk that most traditional investors shy away from. However, when those risks pay off, they help to drive innovation on a massive scale.
Venture capitalists like Milner have been instrumental in shaping today’s global digital landscape. He shares a mindset with other VC visionaries that focuses on backing bold leaps in progress to realize a better tomorrow. To learn more about Milner’s vision for the future, read his book “Eureka Manifesto: The Mission for Our Civilization.”
