> This is just one type of company and limiting yourself to just that is limiting and a driver to some of the mind bubble issues in SV.
I think the idea is that since such a high percentage of startups fail or provide low returns you need to find these huge wins to make money in the long run.
And finding one huge win every ~5 years might be easier than finding a bunch of smaller wins every year.
Right, but that is just one way to do it. In the hypothetical scenario that every investor chased only $10B+ potential companies exclusively, $100M-$1B companies would be super cheap and those could be profitable wins.
Maybe, but I'm skeptical that you could make a significant return on a collection of smaller (let's say $100M) companies. Statistically, most of them are going to fail, so the return on each of the successful ones needs to be pretty high in order to come out on top, but I just don't see how that could be the case unless their starting valuations are incredibly low. I can't see that being nearly as profitable as a single $50B unicorn.
You'd be right if the valuations of startups were independent of their eventual market size. In that case, it makes no sense to invest in a smaller company.
But if you're going after a niche market -- a computer vision-based tennis coaching app, for example -- your valuation will necessarily be lower than a company with broad appeal.
So instead of saying, "No, that's a small market" you could invest at a lower valuation and still make the same or higher return as with a unicorn.
I think the idea is that since such a high percentage of startups fail or provide low returns you need to find these huge wins to make money in the long run.
And finding one huge win every ~5 years might be easier than finding a bunch of smaller wins every year.