Club Penguin's co-founder warns that accepting VC money creates immense pressure to become a billion-dollar company. This often crushes otherwise successful businesses that could have been profitable at a smaller scale, making founders worse off in the long run.

Raising too much money at a high valuation puts a "bogey on your back." It forces a "shoot the moon" strategy, which can decrease capital efficiency, make future fundraising harder, and limit potential exit opportunities by making the company too expensive for acquirers.

Crypto was unique for allowing retail investors access before Wall Street. Now, the market is dominated by venture capitalists who launch tokens at inflated valuations with long unlocking schedules, effectively using retail buyers as exit liquidity.

The most dangerous venture stage is the "breakout" middle ground ($500M-$2B valuations). This segment is flooded with capital, leading firms to write large checks into companies that may not have durable product-market fit. This creates a high risk of capital loss, as companies are capitalized as if they are already proven winners.

Y Combinator's model pushes companies to raise at high valuations, often bypassing traditional seed rounds. Simultaneously, mega-funds cherry-pick the most proven founders at prices seed funds cannot compete with. This leaves traditional seed funds fighting for a narrowing and less attractive middle ground.

Valuations don't jump dramatically; they 'sneak up on you.' An investor might balk at a $45M cap when they expected $40M. But the fear of missing a potential unicorn is stronger than the desire for a slightly better price, causing a gradual, batch-over-batch inflation of valuation norms.

Startup valuation calculators are systematically biased towards optimism. Their datasets are built on companies that successfully secured funding, excluding the vast majority that did not. This means the resulting valuations reflect only the "winners," creating an inflated perception of worth.

Botha argues venture capital isn't a scalable asset class. Despite massive capital inflows (~$250B/year), the number of significant ($1B+) exits hasn't increased from ~20 per year. The math for industry-wide returns doesn't work, making it a "return-free risk" for many LPs.

Seed funds that primarily act as a supply chain for Series A investors—optimizing for quick markups rather than fundamental value—are failing. This 'factory model' pushes them into the hyper-competitive 'white hot center' of the market, where deals are priced to perfection and outlier returns are rare.