Dear VCs,
I’m writing to inform you that you should just give up. Do not pass go. Do not collect management fees. It is over.
The big funds are coming down to seed and they are going to do every deal. A $5B fund is now going to fight you for 10-15% of a two-person company and they will always win. Founders will take the known brand over your boutique that might not exist in ten years, even if the partner on their deal is announcing their next chapter by the Series B. Just give up.
Everyone knows the only thing that matters is if you can get into the best companies in the world. As we have an explosion of accessible intelligence, there are obviously going to be fewer and fewer companies that matter. So maybe the big funds won’t do every deal, but they will do all 8 that matter in any given year. Simplistically, if you’re not in OpenAI, Anthropic, Anduril, and insert neolab here then you are inconsequential.
In fact, you should be telling your existing (probably zombie) portfolio to just try to get acquired by those companies and then shove as much money in via SPVs. You can even put their logos on your site (which will be deactivated in 5-10 years when you forget to renew the domain).
Once you do those SPVs, you’ll learn the lesson that growth is where you should be now. The multistage funds came down to seed so you should go up to growth. Why bother with wondering which startup with no data could work (and deal with all the anxiety that comes with that for years) when you can do the far easier thing and analyze the ones that clearly will work based on all of the data you now have. Sure it looks like you are paying the same high prices you complained about at seed, but that will look cheap in a few years when they go public and grow into the valuation. The best part is, the seed stage skillset naturally translates to understanding this maximally legible world.
And we now have learned that the most successful founders are the most legible. If the founder didn’t come from an elite institution, win an elite math competition, or spin out of one of the elite companies, it is entirely adverse selection. Your only other last chance of the past 5 years was to hang out with teenagers and you blew it. You used to be able to get away with just saying that you knew how to spot “spiky” founders, but you were never smart enough to add the adjective of “trauma” to that descriptor. Don’t beat yourself up, these things happen.
It is canon now that the best founders get the highest prices, and your <$10B fund cannot compete with a Denis Villeneuve-style podcast filmed on RED cameras, an entirely new media company, some super PACs, FBO membership, or anything else to win founder allegiance. It makes sense to just give up.
Venture used to involve investing in an unknown universe, but teams of engineers have now solved this. Every GitHub contributor, PhD candidate, second-time founder, and high-school dropout is already attending a sponsored event, has received a VC gift basket, and is sitting in someone’s CRM. The observable universe is known and how in the world are you, with your small team and orders of magnitude fewer management fees, ever going to compete against a small army of investment team members paired with an entire portfolio support team?
Venture has changed and there are no stones left unturned and thus no reason to exist. Just give up.
I would say, if you don’t give up, make sure you spend all of your time and money in AI, because if you don’t put your entire fund into it, you are irrelevant. It’s like SaaS in 2020 or maybe spiritually Crypto in 2021. AI will remake every industry, which is why you should invest in none of those industries.
Look into that mirror. You ARE right about AGI. It’s coming in the next 2-3 years so why bother raising a 10 year fund? The world is changing so fast, who can possibly think about funding a software/bio/cybersecurity/technology company that will be entirely one-shotted and steamrolled by Claude Thanos 3.5. You could try to pivot to war, but let’s be real, if the AI founders don’t need your money, the Gundo ones definitely won’t drag you out of the permanent underclass.
Anyways I don’t need to keep repeating the things we all know, so I’ll leave you with a lesson from our industry because the best way to look forward is to look backwards.
Technology has taught us one thing over and over; that the big incumbents destroy the upstarts. That innovation comes from large tankers that move slowly but with force. That money is the ultimate differentiator. That fortune favors those who think similarly. And so it’s clear that you’d be better off if instead of trying to evolve, compete, or do something slightly different than the rest, you just gave up.
Godspeed,
A soon to be obsolete fund manager
I knew it, it’s hopeless, life is only an index and inflows, there is no free will
This was the last push I needed. Officially throwing in the towel.