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Follow the money

For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25:29)

Did you hear about the Pareto Law? Economist, Vilfredo Pareto discovered that 80% of land is in possession of 20% of the people. And ever since, people started to notice that this law works in many other areas. It applies to the investment in startups. Disproportion is even higher here. Something like 10% of startups will give 90% of their return on investments to their investors. Investment in new companies is a high risk, which means there is a high probability to lose money. However, if the investment is successful, the return on the investment can be huge. And this is generally the rule that the best investors are following. They are looking for startups, that have an opportunity to repay all their money they previously invested in other failed startups. Some of the investors are investing only in high potential startups, that can grow more than 100x.

What does that mean for you? Investing your time in one startup that might not make 10x of your investment of time is very risky. Unlike an investor, you cannot diversify your portfolio. You cannot invest your time in 10 different startups - that would not make any of them successful. You can do differently. Even if you are a genius, maybe it’s better to join a startup that has a very high growth potential. It’s better to get 0.1% of a very successful company, instead of 100% of a failed startup.

Principles to follow

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