# Power Law

*Startups & Venture Capital — Finicade finance glossary*

The power law is the observation that venture returns concentrate almost entirely in a few investments, with one or two beating all the others combined.

The power law is the observation that venture returns concentrate almost entirely in a few investments — in a typical fund, one or two positions produce more than all the others combined. It explains behaviour that otherwise looks irrational: chasing enormous markets, tolerating high failure rates, and doubling down on winners rather than diversifying away from them.

**Also known as:** power law returns, venture power law

**Related terms:** [Venture Capital](https://finicade.com/glossary/venture-capital), [Exit](https://finicade.com/glossary/exit), [Total Addressable Market](https://finicade.com/glossary/total-addressable-market), [Follow-On Investment](https://finicade.com/glossary/follow-on-investment), [Fat Tails](https://finicade.com/glossary/fat-tails)

Source: https://finicade.com/glossary/power-law