In a market with extreme growth outliers, the opportunity cost of supporting a slower-moving company is immense. This pressure causes both investors and founders to quit on ventures much earlier, seeking to redeploy capital and time into potential breakout hits.
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The time for a new company to challenge an incumbent has compressed dramatically. As private market timelines extend, many unicorns that haven't gone public are already being 'eaten away' by the next wave of startups, creating a significant liquidity challenge for their late-stage investors.
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.
New VCs often rush to make deals to prove themselves, but this leads to a portfolio of mediocre companies. These investments consume a disproportionate amount of time and energy, leaving no bandwidth to pursue the truly exceptional, career-making opportunities that may appear later.
With 65% of today's winning companies being less than three years old, VCs are focusing their attention on these newer, high-growth AI startups. Older, non-rocketship portfolio companies are being ignored, a stark shift from previous cycles where investors would try to fix them.
Venture capitalists may value a solid $15M revenue company at zero. Their model is not built on backing good businesses, but on funding 'upside options'—companies with the potential for explosive, outlier growth, even if they are currently unprofitable.
The ideal period for venture investment—after a company is known but before its success becomes obvious—has compressed drastically. VCs are now forced to choose between investing in acute uncertainty or paying massive, near-public valuations.
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.
With efficient discovery from accelerators like YC, the main opportunity for smaller VCs is to invest when a promising company stumbles or its re-acceleration is non-obvious. These "glitches in the matrix," where progress is non-linear, are moments where mega-funds might look away, creating an opening.
The market has shifted beyond a simple AI vs. non-AI debate. The only metric that matters for private companies is extreme growth velocity. Startups demonstrating anything less are considered unfundable, creating a stark divide in the venture landscape.
In fast-moving sectors, the investable options can seem to improve every few days, creating a dilemma for VCs: invest now or wait for a better team? The solution is to assume dozens of teams are working on any rational idea and focus on choosing the best one you can find now, rather than waiting indefinitely.
