VCs are shifting investment away from traditional SaaS because AI-powered 'cloud code' can easily replicate software features, eroding moats. Capital is now flowing to less replicable, technology-risk businesses like robotics, AI-driven hedge funds, and biotech. This marks a strategic return to underwriting deep technical innovation over predictable financial metrics.

Limited Partners and VCs increasingly believe the SaaS investment thesis has 'run its course' for generating massive returns. This perception is driving capital flow into deep tech, now viewed as the next wave for outsized performance.

Unlike software, hard tech involves long scale-up timelines and high capital costs. Founders must specifically seek the small subset of investors and partners who understand the market context and have the risk appetite for massive, world-changing opportunities, rather than trying to appeal to all VCs.

Contrary to conventional wisdom, deep sector expertise can be a liability in venture capital. VC firm Felicis found that none of its 53 unicorn investments were led by an expert in that specific sector. Experts can be anchored to orthodox thinking, while generalists are better able to recognize and back disruptive, first-principles approaches.

Resist the common trend of chasing popular deals. Instead, invest years in deeply understanding a specific, narrow sector. This specialized expertise allows you to make smarter investment decisions, add unique value to companies, and potentially secure better deal pricing when opportunities eventually arise.

In venture capital, mid-sized generalist funds struggle to compete. They lack the scale and network of large generalists and the deep expertise of small specialists. This 'death of the middle' makes it difficult for them to win the best, most competitive deals against firms that can offer either breadth or depth.

The venture capital landscape is experiencing extreme concentration, with a handful of AI labs like OpenAI and Anthropic raising sums that rival half of the entire annual VC deployment. This capital sink into a few mega-private companies is a new phenomenon, unlike previous tech booms.

The venture capital landscape is bifurcating. Large, multi-stage funds leverage scale and network, while small, boutique funds win with deep domain expertise. Mid-sized generalist funds lack a clear competitive edge and risk getting squeezed out by these two dominant models.

The massive influx of venture capital into AI has created a scarcity of funding for non-AI companies. This concentration of capital means that even strong startups in other sectors will find fundraising more challenging as VCs chase the outsized returns promised by the AI boom.