Underperforming VC firms persist because the 7-10+ year feedback loop for returns allows them to raise multiple funds before performance is clear. Additionally, most LPs struggle to distinguish between a manager's true investment skill and market-driven luck.

A long bull market can produce a generation of venture capitalists who have never experienced a downturn. This lack of cyclical perspective leads to flawed investment heuristics, such as ignoring valuation discipline, which are then painfully corrected when the market inevitably turns.

In venture capital, the greatest danger isn't investing at high valuations during a boom; it's ceasing to invest during a bust. The psychological pressure to stop when markets are negative is immense, but the best VCs maintain a disciplined, mechanical pace of investment to ensure they are active at the bottom.

Beyond a strong thesis, Limited Partners (LPs) critically evaluate how crypto fund managers understand and adapt to crypto's four-year bull/bear cycles. A manager's ability to strategically time the market—knowing when to be aggressive versus when to take profits—is a key filter for LPs allocating capital in the space.

The difficult 2020-21 venture vintages are causing newer, less-committed LPs to exit the market. This shakeout is seen as a positive development by long-term investors, as it reduces market noise and undisciplined capital, which is healthy for the ecosystem.

Entrepreneurs in bull markets often misattribute success to skill alone. A market downturn reveals the true difficulty of business, humbling even the most confident founders and forcing a reassessment of strategies that previously seemed foolproof. True resilience is tested when market conditions change.

Paradoxically, market downturns like the 2008 recession are the best entry points for a venture capital career. This allows investors to "enter low and exit high," capitalizing on lower valuations and the inevitable market recovery.

A rising tide lifts all boats. The true test of a founder partnership emerges during downturns. Diligence should focus on teasing out traits like adaptability, humility, and accountability, which predict how a founder will react when plans inevitably go awry.

The willingness to start a company when capital is scarce and the macro environment is challenging is a powerful filter. It selects for founders with deep, intrinsic motivation ("a fire"), leading to a higher hit rate for investors who back them.