The Power Law Doesn't Reward Consensus

Written by: Ozzy Aldabbagh, MD

The Power Law and Why If You’re Not Investing in Strange Ideas, You’re Indexing for Consensus

Only the top 25% of venture capital funds deliver close to a 3x return. That’s not just a statistic, it’s a hard truth about the nature of the venture game.

(Source: British Business Bank, 2024)

It speaks to the Power Law that governs the VC universe: the vast majority of returns come from a very small handful of outlier investments. The implication being that if you want to be in the top quartile, or anywhere close, you must be willing to bet on things that feel strange, uncomfortable, or contrarian to everyone else. Anything that already feels “obviously good” is probably priced accordingly - and therefore, unlikely to deliver outsized returns.

The most valuable startups rarely look valuable in their infancy. They often feel weird, niche, too early, or too technical for mainstream attention. But that is precisely what gives them room to compound away from the spotlight.

Earlier in my career, I worked at a health tech company focused on healthcare interoperability, a space known for its labyrinthine systems, glacial pace, and extremely high regulatory barriers. It wasn’t sexy. It wasn’t flashy. And to many VCs, it probably seemed like a snoozefest.

But that’s the thing about frontier spaces: they’re boring until they’re not. When you peel back the surface and really engage with these systems, you begin to see the hidden levers of transformation. In our case, we were working on the foundations that would later power scalable digital pathways across UK healthcare and beyond. Quiet work, but essential, and capable of compounding meaningfully in the background.

The Risk of Avoiding Risk

If every deal you back feels intuitive and exciting at first glance, you're probably not investing, you’re indexing.

The most transformative startups often begin life on the edge of consensus:

- Airbnb seemed laughable. Why would anyone let strangers sleep in their home?

- Figma felt late. How could it possibly compete with Adobe?

- Stripe’s founders were building payments APIs at a time when everyone believed “Fintech is done.”

In hindsight, these were obvious winners. But at the time, they were anything but.

Ironically, the greatest risk in venture is avoiding risk altogether. That doesn’t mean being reckless. It means recognising that risk is a feature, not a bug, in early-stage investing. It’s the mechanism by which you earn access to asymmetry - to those rare, exponential outcomes that make the whole fund.

This doesn’t mean every strange idea is a good investment. Plenty are dead ends. But if your portfolio contains zero companies that make people raise their eyebrows or laugh nervously, you’re probably over-optimising for consensus and under-optimising for outliers.

Strange ideas require conviction. They often emerge before the metrics can speak for themselves. As a result, great early-stage investing often involves underwriting belief - in the founders, in the space, in the future that isn’t quite here yet.

When we dismiss startups because they seem too weird, or too early, or too uncertain, we risk missing the next generation of winners. The trick is learning to distinguish the weird that’s foundational from the weird that’s frivolous.

If your investment thesis is shaped entirely by what’s already trending or widely accepted, you’re not playing venture, you’re playing “follow-the-leader”. The uncomfortable truth is that outsized returns come from discomfort. They come from leaning into ideas that feel strange before they feel strong.

In the end, strange ideas aren’t optional in venture capital. They’re the entry ticket to the upside.

To learn more visit londonvcnetwork.com/publications