The Power Law of Mediocrity: Confessions from the Belly of the VC Beast
By Skeeter Wesinger
October 6, 2025
We all read the headlines. They hit our inboxes every week: some fresh-faced kid drops out of Stanford, starts a company in his apartment, lands millions from a “top-tier” VC, and—poof—it’s a billion-dollar exit three years later. We’re force-fed the kombucha, SXSW platitudes, and “Disruptor of the Year” awards.
The public narrative of venture capital is that of a heroic journey: visionary geniuses striking gold, a thrilling testament to the idea that with enough grit, hustle, and a conveniently privileged network, anyone can build a unicorn. It’s the Disney version of capitalism—“anyone can be a chef,” as in Ratatouille—except this kitchen serves valuations, not ratatouille.
And it’s all a delightful, meticulously crafted fabrication by PR mavens, institutional LPs, and valuation alchemists who discovered long ago that perception is liquidity.
The truth is far less cinematic. Venture capital isn’t a visionary’s playground—it’s a casino, and the house always wins. Lawyers, bankers, and VCs take their rake whether the founders strike it rich or flame out in a spectacular implosion. The real magic isn’t in finding winners; it’s in convincing everyone, especially limited partners and the next crop of naive founders, that every single bet is a winner in the making. And in the current AI gold rush, this narrative isn’t just intoxicating—it’s practically a MDMA-induced hallucination set to a soundtrack of buzzwords and TED-ready hyperbole.
Full disclosure: I’ve been on both sides of that table—VC and angel investor, and founder. So consider this less a critique and more a confession, or perhaps karmic cleansing, from someone who has seen the sausage made and lived to regret the recipe.
The Power Law of Mediocrity
The first and most inconvenient truth? Venture capital isn’t about hitting singles and doubles—it’s about swinging for the fences while knowing, with absolute certainty, that you’ll strike out 90 percent of the time.
Academic data puts it plainly: roughly 75 percent of venture-backed startups never return significant cash to their investors. A typical fund might back ten companies—four will fail outright, four will limp to mediocrity, and one or two might generate a real return. Of those, maybe one breaks double-digit multiples.
And yet, the myth persists. Why? Because returns follow a power law, not a bell curve. A single breakout win papers over nine corpses. The median VC fund barely outperforms the S&P 500, but the top decile—those with one or two unicorns—create the illusion of genius. In truth, it’s statistical noise dressed up as foresight.
The Devil in the Cap Table
Not all angels have halos. Some of them carry pitchforks.
I call them “Devil Investors.” They arrive smiling, armed with mentorship talk and a check just large enough to seem life-changing. Then, once the ink dries, they sit you down and explain “how the real world works.” That’s when the charm evaporates. Clauses appear like tripwires—liquidation preferences, ratchets, veto rights. What looked like partnership becomes ownership.
These are the quiet tragedies of the startup world: founders who lose not only their companies but their sense of agency, their belief that vision could trump capital. Venture capital thrives on asymmetry—of information, of power, of options.
So no, I don’t feel bad when VCs get hoodwinked. They’ve built an empire on the backs of the optimistic, the overworked, and the under-represented. When a fund loses money because it failed to do due diligence, that’s not misfortune—that’s karma.
For every VC who shrugs off a loss as “portfolio churn,” there’s a founder who’s lost years, health, and ownership of the very thing they built. The VC walks away with a management fee and another fund to raise. The founder walks away with debt and burnout.
The Great AI Hallucination
If the 2010s were about social apps and scooters, the 2020s are about AI euphoria. Every week, another “AI-powered” startup raises $50 million for a product that doesn’t exist, can’t scale, and often relies entirely on someone else’s model.
It’s déjà vu for anyone who remembers the dot-com bubble—companies worth billions on paper, zero on the balance sheet. But in this era, the illusion has new fuel: the hype multiplier of media and the self-referential feedback loops of venture circles. Valuation becomes validation. Paper gains become gospel.
In private, partners admit the math doesn’t add up. In public, they double down on buzzwords: foundational models, RAG pipelines, synthetic data moats. They don’t have to be right—they just have to be first, loud, and liquid enough to raise Fund IV before Fund III collapses.
The House Always Wins
The cruel beauty of venture capital is that even when the bets go bad, the system pays its insiders. Management fees—usually 2 percent of committed capital—keep the lights on. Carried interest, when a unicorn hits, covers a decade of misses. It’s a model designed to appear risky while transferring the risk onto everyone else.
Founders risk their sanity, employees their weekends, and LPs their patience. The VC? He risks his reputation—which, in this industry, can always be rebranded.
A Confession, Not a Complaint
I say all this not as an outsider looking in but as someone who once believed the myth—that innovation needed gatekeepers, that disruption was noble, that capital was somehow creative. I’ve seen brilliant ideas die not for lack of ingenuity but for lack of political capital in a partner meeting.
Venture capital has produced miracles—no question. But for every transformative success, there are hundreds of broken dreams swept quietly into the footnotes of fund reports.
Pulling Back the Curtain
The next time you read about a wunderkind founder and their dazzling valuation, remember: you’re seeing the show, not the spreadsheet. Behind the curtain lies an industry that’s part casino, part cult, and wholly addicted to the illusion of inevitability.
Because in venture capital, the product isn’t innovation.
It’s a belief—and belief, conveniently, can be marked up every quarter.