Power law (returns)
The pattern where a small number of investments produce most of a portfolio's return, while most individual positions lose money or break even.
Venture returns don't follow a normal, bell-curve distribution — they follow a power law, where a small number of outsized winners produce the overwhelming majority of a fund's or angel portfolio's total return, while a large share of individual positions return less than the capital put in, or nothing at all.
This shape is why portfolio construction — the number of positions, and how much is reserved for doubling down on winners via pro-rata — matters as much as picking ability. A portfolio of five companies has a real chance of containing zero outliers; a portfolio of fifty has much better odds of catching at least one.
Why it matters
The power law is the single most important mental model for judging your own results, whether angel investing or evaluating a fund's track record — one or two zeroes in a small portfolio says very little; the pattern across dozens of positions says a lot. See the visual breakdown on the angel vs. LP comparison page.