Why are VCs obsessed with unicorns? - 1/8/26

📆 Upcoming Events

• Jan 20 – Seoul, South Korea – Founder Friends Seoul

Applications for the HF ambassador program are open! Join the events team in your city.

📰 Today's Edition: Why are VCs Obsessed With Unicorns?

You, a founder, walk into a seed funding pitch meeting, crush your presentation, and get everyone excited about your company.

The final question comes from a man in a Patagonia vest (of course the whole room is filled with them): "What's your path to becoming a billion-dollar company?"

You answer, "Well, my company could definitely hit $20 million in revenue..." The room goes cold.

This isn't VCs being greedy (though maybe there’s some of that too). The math of venture capital forces this behavior.

Lets walk through the basic portfolio construction that explains this behavior.

Can a 10x return actually make you money?

Let's say you're running a $1 million fund. You invest $100K in 10 companies each.

Here's what everyone knows: 9 out of 10 startups fail. Your portfolio looks like this:

• Companies 1-9: Total loss ($900K gone)

• Company 10: Your one winner

If Company 10 returns 10x, you get $1 million back. Combined with your 9 zeros, your fund breaks even. Before fees.

"But 10x is incredible for a founder!" Absolutely. But for the fund? You haven't made a penny because you’re just covering your losses.

What about a 20x winner?

Let's say your winner does 20x instead. Now you're getting $2 million back on a $1 million fund.

After management fees, legal fees, and fund administration costs, you might net 1.5x in 7-10 years to the Limited Partners (LP). An LP is an investor who backs a venture fund. 

During that same period, public index funds tend to do 2x over ten years - and you can pull your money out at any point with much lower fees.

So, even a 20x winner in a VC fund doesn't create compelling returns for LPs.

Why do you need 100x returns?

Now let’s say you find a big winner. You invest at $5m post-money valuation and that company sells for $500m. Hurrah! At first glance, it looks like a 100x multiple. 

But there’s a wrinkle. Dilution. Your ownership shrinks as new shares are issued in later rounds of fundraising. In fact, shareholders tend to get diluted roughly 20% every subsequent round. Meaning, if you owned 10% of a company before, after the next round, you may own 8%. And after the following round, 6.4%. Etc. 

So, by exit, early investors could face 50% dilution from entry point to exit.

In this case, your 100x outcome is more like 50x multiple because of all the dilution. And after fees, you're looking at roughly a 4x net fund - which is still considered excellent in venture. 

But, wow we're talking about performance that justifies the risk and why early stage investors are looking for 100x or larger multiples in its winners. 

Three key insights about VC math

Here's what this portfolio construction teaches us:

1. Entry points matter more than exits

VCs have no control over exits, but they can control when they get in.

If you invest at a $10 million post-money valuation and need 100x, you're looking for at least a $1 billion exit. But if you get in at a $3 million post-money valuation, you just need a $300 million exit that delivers the same multiple.

As Hustle Fund's Haley Bryant puts it: "We invest hilariously early, so…we get in early enough at valuations that don't require every company to become a unicorn for us to see a path to 100x outcomes." 

2. The failure rate is irrelevant

Here's what's interesting: the number of failures doesn't actually matter. You can play with the numbers yourself - if you save one or two of those failing companies and those outcomes are modest, versus having one 100x exit, the latter always has the bigger impact. 

This is why VCs focus entirely on finding and backing potential big winners. Having fewer failures doesn't matter if you miss the one company that could return your entire fund.

3. Portfolio size is about probability and deal flow and less about picking ability

Even if you're a great picker, venture is still a probability game and you need a big enough portfolio to capture a “unicorn”.

With only 10 companies and a 10% success rate, it's very tricky to assume you have that winner. You’ll want to have enough companies to make the probability game work in your favor.

There are different schools of thought on how big is a "big enough" portfolio. If you're a new angel investor and you've never invested before, I'd encourage you to invest in more companies than fewer - maybe 50+ companies if possible.

At Hustle Fund, we write smaller checks into more companies. It's basic math: more shots on goal means better odds of hitting a big winner. 

Your downside is capped — the total amount of capital you invest. But your upside is infinite. 

What should this change about your pitch, if you’re a founder?

Understanding this math changes everything:

1. Don't pitch incremental improvements. Show a path to owning a massive market.

2. Don't just show current traction - sell the dream. Show how you could scale to hundreds of millions in revenue.

3. Don't focus only on the product. Focus on how you’ll capture meaningful share of your market.

Should you sell your winners early?

One note to angel investors -- I hear a lot of angels saying they'll sell early and get 2x or 3x multiples of their money in secondaries (selling their shares to other investors before the company exits) on something that's winning. You don't want to do that.

For something that's working, you want to let it ride. You need those things that are working to potentially get you to 100x. Don't cut your winners short.

Why should you care about this math?

If you’re pitching VCs, you’re not selling a product. In fact, you’re not even selling that you’re a good company and you’ll return positive returns. You’re selling a path to return the fund.

It’s all about the 100x multiples. Or more.

Dunky the flying hippocorn from Hustle Fund

🎥 Watch This