Due to the power law distribution of startup outcomes, the "expected value" of the "average" (mean) startup is infinity (assuming there are infinite startups). This means YC's model to invest a modest amount in as many startups as possible is the rational strategy. Even the tiniest percentage of equity in infinite companies yields infinite returns.
This seems as counter-intuitive as saying "superconductors have zero resistance". It makes people think you meant to say "nearly zero resistance" or "approaches zero resistance".
But both cases are true - the power law distribution really does tell us that the expected return is actually infinite and superconductors really do have zero resistance (up to the critical current limit).
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Due to the power law distribution of startup outcomes, the "expected value" of the "average" (mean) startup is infinity (assuming there are infinite startups). This means YC's model to invest a modest amount in as many startups as possible is the rational strategy. Even the tiniest percentage of equity in infinite companies yields infinite returns.
This seems as counter-intuitive as saying "superconductors have zero resistance". It makes people think you meant to say "nearly zero resistance" or "approaches zero resistance".
But both cases are true - the power law distribution really does tell us that the expected return is actually infinite and superconductors really do have zero resistance (up to the critical current limit).