When people think about venture capital, they often imagine a world of high-stakes investments, billion-dollar startups, and massive wins.
But behind the glitter of success lies a hard truth: most startups don’t make it.
So how do some investors manage to hit it big?
According to Peter Thiel, it all comes down to one key principle—the power law.
Who Is Peter Thiel and Why Does His Perspective Matter?
Peter Thiel isn’t just another Silicon Valley name.
He’s made a significant mark in the tech world by co-founding PayPal and Palantir Technologies, and he’s been involved early in companies like Facebook, LinkedIn, and Airbnb through his venture firm, Founders Fund.
Beyond investing, Thiel has shaped how people think about entrepreneurship and innovation through his writing and his philanthropic efforts like the Thiel Fellowship.
The Power Law: A Reality Check for Venture Capital
Thiel’s entire investment strategy centers on the power law—a mathematical concept that explains why a tiny percentage of inputs produce the majority of outcomes.
This principle, introduced by economist Vilfredo Pareto, shows up in everything from wealth distribution to technology adoption.
In venture capital, it means only a few companies (often less than 1%) deliver the kind of returns that make an entire fund successful.
Think of companies like Google, Amazon, or Meta.
They didn’t just grow—they exploded in value, overshadowing hundreds of other startups that either failed or just got by.
Thiel believes this isn’t just a pattern—it’s a law of nature for investing in innovation.
The Real Challenge for VCs: Spotting Outliers Early
If only a handful of startups will succeed at that scale, the job of a venture capitalist becomes clear: find those future giants early.
That’s easier said than done.
Thiel argues that investors must be willing to take bold risks on unconventional founders with transformative visions.
These entrepreneurs aren’t building just another app—they’re trying to solve massive problems and reinvent industries.
Instead of wasting energy on trying to fix struggling companies or focusing on safe bets, VCs need to channel their resources into the few with real breakout potential.
As the 10-year life span of a typical VC fund goes on, this becomes even more crucial.
The goal isn’t to avoid failure entirely, but to make sure the wins are big enough to cover the losses.
Betting Big on Facebook: A Case Study
One of Thiel’s most famous investments is Facebook.
Back in 2004, he took a chance on a young Mark Zuckerberg and invested around $500,000 for a little over 10% of the company.
By the time Facebook went public in 2012, that stake was worth billions.
Why did Thiel see something others missed?
It came down to his belief in “network effects”—the idea that a product becomes more valuable as more people use it.
He predicted that Facebook could dominate social networking because of this dynamic, creating a winner-take-all market.
And he was right.
The Value of Thinking Differently: Contrarian Entrepreneurs
Thiel isn’t just hunting for growth—he’s searching for originality.
In his book Zero to One, he stresses the importance of “contrarian thinking”—pursuing ideas that challenge the status quo.
The best founders, in his view, don’t just compete in crowded markets.
They build entirely new ones.
But being contrarian isn’t about being rebellious for the sake of it.
It’s about having a vision others don’t see yet, and the courage to act on it.
These are the people who turn small startups into world-changing businesses.
What This Means for Entrepreneurs and Investors Today
If there’s one lesson from Thiel’s approach, it’s this: chasing average returns and playing it safe won’t lead to success in the venture world.
Instead, both founders and investors must be laser-focused on the rare opportunities that can transform everything.
For investors, that means identifying big ideas early and being ready to double down on them.
For entrepreneurs, it means thinking beyond what’s already being done and daring to build something entirely new.
In a world shaped by the power law, success doesn’t come from being cautious—it comes from betting on bold ideas with the potential to change the game.