Power Laws, Venture Math, and Changing Your Mind with Abe Othman of AngelList

Abe Othman is a researcher with AngelList. Abe has spent years digging into AngelList’s data to better understand how venture investing actually works, not just how investors say it works. Abe came on to talk about portfolio construction, check sizes, valuations, and the relationship between price and returns. They discuss how much investors should put into each deal, why owning more of a company isn’t always better, and what the data can (and can’t) tell us about building a strong early-stage portfolio.

The episode is now available on Apple Podcasts, Spotify, Amazon, and YouTube Music.

Time Stamps from Power Laws, Venture Math, and Changing Your Mind with Abe Othman of AngelList

• 01:02 — Why valuation matters less at seed than most investors think

• 03:00 — Positive signals are real—but founders capture most of their value

• 06:11 — Adverse selection and why every seed investor needs a niche

• 08:47 — How long a venture investor’s edge actually lasts

• 11:20 — Why being contrarian is unusually difficult in startup investing

• 14:48 — Why “Who else is investing?” may be a rational question

• 16:36 — What check sizes reveal about conviction and consensus

• 17:07 — The surprising reason small checks outperform

• 21:20 — Why a VC’s largest checks do not produce better returns

• 26:02 — What the data has forced Abe to change his mind about

• 29:17 — Seed, Series A, and late stage as different asset classes

• 31:42 — Why bigger portfolios may produce better seed returns

Takeaways from Power Laws, Venture Math, and Changing Your Mind with Abe Othman of AngelList

• Seed valuations may be more efficient than they appear. A company raising at a $75 million valuation is not necessarily a worse opportunity than one raising at $5 million. The more expensive company may simply have a much stronger founder, team, market, or traction profile. Within a reasonably broad range, Abe’s research suggests that price and company quality tend to move together.

• The obvious positive signals are usually already reflected in the price. Repeat founders, prestigious schools, strong traction, and impressive teams are all genuinely useful signals. The problem is that everyone can see them. Founders capture most of the value of those signals by raising at higher valuations, leaving relatively little excess return for investors.

• Adverse selection may matter more than analytical brilliance. The quality of the opportunities an investor receives is heavily influenced by where that investor sits in a founder’s outreach order. Being the fiftieth investor contacted is difficult to overcome, no matter how sophisticated the subsequent analysis may be.

• A seed investor’s edge may have a surprisingly short shelf life. Abe estimates that a sustainable advantage may last only two or three years. Networks change, people move between firms, markets evolve, and investors burn out. Someone who was exceptionally well positioned to invest a decade ago may no longer have the same access today.

• Contrarian investing is harder when companies depend on future financing. A deeply unpopular startup may need to become a consensus opportunity before its next round. If the market still disagrees when the company needs more capital, it may fail regardless of whether the original investor was ultimately right about the technology or market.

• Popularity is not merely social proof; it can affect the underlying outcome. Companies that raise easily today are often more likely to raise easily in the future. Access to capital gives them more time, talent, and strategic flexibility. At seed, investor consensus can therefore become part of the company’s fundamental prospects rather than simply an opinion about them.

• The annoying “Who else is investing?” question may be good diligence. Abe entered AngelList hoping data would expose this behavior as lazy venture investing. Instead, the data persuaded him that understanding who else wants into a round can be one of the most valuable signals available to a seed investor.

• Small checks outperform because the best opportunities are difficult to access. A reduced allocation can carry a powerful consensus signal: other investors also want the deal. This is a rare source of persistent outperformance that does not create an easy arbitrage, because investors cannot simply choose to put more money into the oversubscribed companies.

• The availability of a large allocation may offset the investor’s proprietary insight. A GP’s expertise or conviction can be positive, but the fact that substantial capacity remained available may be negative. If the opportunity were universally viewed as exceptional, another investor might have taken that allocation. The two effects appear to cancel each other out.

• The data has made Abe more respectful of traditional venture behavior. Many practices he once viewed as irrational—following respected investors, chasing competitive rounds, or specializing narrowly—appear surprisingly defensible in the data. One of the recurring themes of his research is that frustrating aspects of venture capital often persist because they are rational responses to the structure of the market.

• Early-stage venture is not one homogeneous asset class. Abe argues that seed, Series A and B, and later-stage investing have meaningfully different return distributions. A successful seed investment can pass through each of these regimes as the company matures, with its risk and return characteristics changing along the way.

• Seed returns follow an unusually extreme power law. In Abe’s model, seed has a power-law alpha below two, producing extraordinarily wild outcomes without a conventionally defined expected value. That mathematical property changes how investors should think about diversification.

• At seed, a larger portfolio may improve returns rather than merely reduce risk. The conventional argument for diversification is that more investments lower variance while leaving expected returns unchanged. Abe’s research suggests something more radical: because of seed’s return distribution, increasing the number of investments may actually increase the portfolio’s average realized return. His conclusion is unusually direct—at seed, bigger portfolios are better.

The content here is for informational purposes only and should not be construed as investment, legal or tax advice. The opinions expressed by guests are their own and do not reflect the views of Seaplane Ventures. Our host, guests and clients may hold investments discussed in this podcast. Please invest responsibly.