The 5% Problem: What Venture Capital’s Power Law Means for Arizona

Op-Ed by Josue Romero, Chief Community Officer, Silicon Oasis

Venture capital has always been understood as a power-law business. But new research puts just how concentrated that performance is into perspective.

Stanford Graduate School of Business professor Ilya Strebulaev and Blake Jackson developed a data-driven methodology for evaluating venture capital firms and individual investors. Their research analyzes more than 230,000 investments by nearly 13,000 venture capitalists over a 30-year period.

Their headline finding is striking: roughly 5% of venture capitalists have generated 90% of the industry's profits.

The researchers evaluate investors using six factors: valuation, dilution, net profit, value add, human-capital decay, and the allocation of investment credit between firms and individual investors. The goal is to move beyond reputation and measure the economic results associated with specific investments.

The data also demonstrates just how unforgiving venture investing can be. Nearly three-quarters of the investments examined returned less capital than investors originally put in. And performance among the firms themselves is extraordinarily concentrated.

For Arizona's startup ecosystem, there is an important lesson here.

More venture capital is not necessarily the same thing as better venture capital.

Building a world-class startup ecosystem requires attracting capital, but it also requires connecting Arizona founders with investors who have demonstrated an ability to identify exceptional companies, support them, and help create outsized outcomes.

It also reinforces the importance of the individual investor.

Founders understandably focus on the name of the venture firm sitting across the table. But a firm's brand and the specific partner joining your board are not necessarily the same thing. The Strebulaev-Jackson methodology intentionally separates firm performance from individual investor performance and attempts to determine who deserves credit for particular investments.

For founders, choosing an investor should therefore involve more than asking:

What companies has this firm invested in?

We should also be asking:

Who made those investments? What has that individual actually helped build? And is that the person who will be working with me?

Arizona's opportunity isn't simply to replicate Silicon Valley by increasing the number of venture firms operating here.

We should be building an ecosystem where exceptional founders and exceptional investors find each other faster.

That means developing stronger relationships with proven investors nationally, cultivating the next generation of great investors locally, creating more opportunities for those investors to interact with Arizona founders, and continuing to improve the quality of companies emerging from our ecosystem.

Venture capital is ultimately a business of extreme outcomes. A relatively small number of companies create an enormous share of the returns, and this research suggests that a relatively small group of investors generate an enormous share of the industry's profits.

For Arizona, the goal shouldn't just be more capital.

It should be better-connected capital, better-informed capital, and capital capable of helping Arizona's best founders build category-defining companies.

That distinction matters if we're serious about building one of the country's leading technology ecosystems.

Source: Ilya A. Strebulaev and Blake Jackson, Human Capital in Venture Capital: Evidence From 100,000 Venture Capitalists, NBER Working Paper No. 35501, July 2026.

Read the NBER working paper

See the Strebulaev-Jackson Venture Ranking methodology and results