Startup growth and venture returns

Hello friends, and welcome to The Unsophisticated Investor! Brought to you by Scott & Rob, the founders of Shuttle!

In our private launch we helped almost 100 investors co-invest alongside 6 well known US and European VCs. If you want access to some of the most exclusive private market investment opportunities, join our limited waitlist now.

Now, let’s get into it 👇

Welcome back folks! I trust you all had a nice break and are excited to kick off 2025. This week we’re talking about startup growth and its effects on your overall returns. The mechanics of venture capital (VC) investing, especially in early-stage startups, can sometimes seem confusing. A study undertaken by AngelList offers a good perspective on how startups grow and how investment returns evolve over time. The findings challenge what would be considered conventional VC practices and highlight some important considerations for investors.

This will come as no surprise but startups grow fastest in their early years, and this rapid growth is critical for generating big returns. The data in the study reveals that successful early-stage investments (mostly at the pre-seed/seed stage) grow at compounding rates that far outweigh those of later-stage investments (Series B+). This growth then slows significantly as startups mature, a phenomenon referred to as “time contraction”. For example, the fifth year of a startup’s life might only contribute as much compounding growth as its first six months.

This time-dependent growth highlights why early-stage investments are so distinct: they have longer durations to compound at high rates, delivering disproportionately large returns compared to later investments. The obvious point here though is that it’s a lot easier to pick winners at the later stages compared to the early stages.

The study’s most important insight is that, at the pre-seed/seed stage, investors maximise their returns by investing broadly across as many credible opportunities as possible. Credible being a very important word here. Throwing shit at a wall to see what sticks isn’t a smart strategy. There’s still a large amount of due diligence required to find the startups that are actually credible. This indexing strategy is rooted in the nature of returns at this stage: they follow a power-law distribution, meaning that a small number of investments will generate extreme returns, while most deliver modest or negative outcomes. We discussed the power-law in a previous post, which you can find here. 

Critically, the regret of missing a single high-performing investment at the early stage can be immense. Just look at all these VCs who turned down Airbnb at their seed stage. Ouch! The potential returns from a single winner could theoretically be infinite (another topic we discussed in a previous post here), making any attempt to selectively pick investments suboptimal. Instead, the study suggests that investing in every credible early stage deal ensures exposure to the outliers that drive overall returns. I feel like I’m beating a drum now but here’s a post illustrating the math behind diversification in VC.

Another key insight from the study is that startups are now staying private for longer due to the abundance of private capital available and how that is reshaping wealth creation. Historically, most of a company’s value creation occurred after the IPO, which was accessible to public investors. Now, an increasing share of wealth is being generated while companies remain private, largely benefiting venture capitalists and institutional investors.

The returns from early-stage private investments often draw from distributions with “unbounded means”, meaning that over time they can create immense wealth, even from small initial investments. Historically, however, retail investors have generally been excluded from accessing these private-market opportunities, but companies like Shuttle, and others, are changing that!

What we’ve been working on at Shuttle

• Planning out the product roadmap for 2025 🗓️

• Working on a new referral system, launch very soon 🗣️

• Taking stock of our private launch to find inefficiencies and improve 📝

• Already have eyes on some very interesting opportunities for our next launch 👀

• Lots of bugs to be addressed before the next launch in February 🐛

The Unsophisticated Investor is brought to you by Scott & Rob, the founders of Shuttle. We’re both sick of private markets being a playground exclusive to the ultra-wealthy so we started a company to challenge the status-quo. Shuttle’s singular focus is to unlock private markets for busy tech professionals and help them build wealth through the highest performing private market investment opportunities.

Scott & Rob
Shuttle Co-Founders