Significant Divergence in VC Performance Over the Past 9 Years, 2021 Becomes the Worst Investment Window
Peter Walker noted that in the past 9 vintage years of venture capital, the Power Law continues to dominate the industry, with a huge disparity in returns between the top 10% and top 5% funds.
2021 is emerging as a disastrous year for VC investments, with many funds heavily invested during the high valuation bubble, leading to significantly underperforming results thereafter.
Although top VCs still achieve high returns through rigorous selection and post-investment support, the overall industry is highly concentrated in a few top institutions, and ordinary VC funds that entered in 2021 face significant exit pressure and declining returns.
Source: Public Information
ABAB AI Insight
Peter Walker has been tracking VC data for a long time and has previously analyzed the performance of funds from different vintage years. This commentary continues his focus on the Power Law and cyclical impacts, particularly emphasizing the valuation bubble trap caused by entering at the peak in 2021.
In terms of capital pathways, top VCs achieve differentiated returns through more cautious investment strategies in 2022-2023 and early positioning in new narratives like AI, while funds heavily invested in 2021 are struggling due to subsequent valuation corrections and exit difficulties, with capital continuously concentrating towards a few top Power Law institutions.
This data is similar to the divergence seen after the sharing economy bubble in 2015-2016 and resembles the reshuffling of the VC industry after the internet bubble in 2000. The VC industry is currently transitioning from the aftereffects of the 2021 peak to a new AI-driven cycle.
Essentially, this reflects capital concentration: the strengthening of the Power Law in the VC field further concentrates industry returns towards the top 5% of institutions, as the over-investment in 2021 amplified the disparity in outcomes, with capital migrating from ordinary funds to top VC platforms that have strict discipline and deep networks.
ABAB News · Cognitive Law
The Power Law is unforgiving; the top 5% capture almost all returns, leaving the remaining 95% to share the scraps.
Entering at the peak in 2021 is the most expensive lesson in VC history; the enthusiasm during the bubble period has resulted in a decade of mediocrity.
What truly determines the fate of VCs is not project selection, but choosing the right entry year; timing is more brutal than ability.