Many sub-$500M venture funds are over-invested and under-reserved. While venture capitalists like Josh Wolfe predict a 50% failure rate for these "minnows," the Limited Partners (LPs) who fund them are even more bearish, believing the involuntary extinction rate will be closer to 90%.
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An analysis of 547 Series B deals reveals two-thirds return less than 2x. This data demonstrates that a "spray and pray" strategy fails at this stage. The cost of misses is too high, and being even slightly worse than average in your picks will result in a failed fund. Discipline and picking are paramount.
For LPs, the primary benefit of pre-fund co-investments with emerging managers isn't just financial returns. It's a critical diligence tool to observe intangible qualities, such as a sponsor's discipline to abandon a flawed deal, which strongly correlates with long-term success.
The private equity market is following the hedge fund industry's maturation curve. Just as hedge funds saw a consolidation around large platforms and niche specialists, a "shakeout" is coming for undifferentiated, mid-market private equity firms that lack a unique edge or sufficient scale.
The leadership change at Sequoia, arguably the world's top venture firm, is a strong indicator of the intense pressure the entire VC industry faces. It reflects a fear of falling behind in the AI race and the brutal reality that even the best are struggling to adapt to the new competitive landscape.
The seed investing landscape isn't just expanding; it's actively replacing its previous generation. Legacy boutique seed firms are being squeezed by large multistage funds and new emerging managers, implying a VC's relevance has a 10-15 year cycle before a new cohort takes over.
Series A is a brutal competition where top-tier firms have an insurmountable advantage. Their brand and network are so powerful that if a smaller fund wins a competitive Series A deal against them, it’s a strong negative signal that the top firms passed for a reason.
An expert reveals two shocking statistics: 80% of new founders fail their first diligence attempt, and 85% of early-stage investors don't perform confirmatory diligence. This highlights a massive, systemic weakness and inefficiency in the startup ecosystem, creating significant risk on both sides of the table.
The increased volatility and shorter defensibility windows in the AI era challenge traditional VC portfolio construction. The logical response to this heightened risk is greater diversification. This implies that early-stage funds may need to be larger to support more investments or write smaller checks into more companies.
The venture capital return model has shifted so dramatically that even some multi-billion-dollar exits are insufficient. This forces VCs to screen for 'immortal' founders capable of building $10B+ companies from inception, making traditionally solid businesses run by 'mortal founders' increasingly uninvestable by top funds.
The majority of venture capital funds fail to return capital, with a 60% loss-making base rate. This highlights that VC is a power-law-driven asset class. The key to success is not picking consistently good funds, but ensuring access to the tiny fraction of funds that generate extraordinary, outlier returns.