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.

Mega-funds can justify paying "stupid prices" at the seed stage because they aren't underwriting a seed-stage return. Instead, they are buying an option on the next, much larger round where they'll deploy real capital. This allows them to outbid smaller funds who need to generate returns from the initial investment itself.

Applying Conway's Law to venture, a firm's strategy is dictated by its fund size and team structure. A $7B fund must participate in mega-rounds to deploy capital effectively, while a smaller fund like Benchmark is structured to pursue astronomical money-on-money returns from earlier stages, making mega-deals strategically illogical.

When a private equity firm sells a passive stake of itself (the GP) to a large investor, it's often a negative signal. This ownership change frequently triggers a shift towards asset gathering and strategy proliferation, diluting the focus that generated the initial "great funds."

Large, contrarian investments feel like career risk to partners in a traditional VC firm, leading to bureaucracy and diluted conviction. Founder-led firms with small, centralized decision-making teams can operate with more decisiveness, enabling them to make the bold, potentially firm-defining bets that consensus-driven partnerships would avoid.

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.

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.

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.

AI startups' explosive growth ($1M to $100M ARR in 2 years) will make venture's power law even more extreme. LPs may need a new evaluation model, underwriting VCs across "bundles of three funds" where they expect two modest performers (e.g., 1.5x) and one massive outlier (10x) to drive overall returns.