What this teaches
Graham explains power-law returns from the investor side: the best ideas look like bad ideas, YC's returns come from a handful of companies, and even professionals can't reliably pick winners at the time of investment.
Why it matters
Once founders understand the power law, every confusing investor behavior (herding, moonshot bias, pass patterns) makes sense.
Key lessons
- Investor returns are driven by rare outliers, so they optimize for upside, not safety
- Great startups look like bad ideas at first; expect smart people to pass
- Pitch the version of your company that could be enormous
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