Contrary to the belief that number two players can be viable, most tech markets are winner-take-all. The market leader captures the vast majority of economic value, making investments in second or third-place companies extremely risky.

Obsessing over creating a new market category is often a mistake. Data shows the vast majority of successful public tech companies compete within established categories. It's more effective to get "invited to the party" by using a known category label and then winning with a sharp, differentiated value proposition.

For startups experiencing hyper-growth, the optimal strategy is to raise capital aggressively and frequently—even multiple times a year—regardless of current cash reserves. This builds a war chest, solidifies a high valuation based on momentum, and effectively starves less explosive competitors of investor attention and capital.

In today's volatile market, speed and agility have replaced sheer size as the primary competitive advantage. As stated by Rupert Murdoch, it's 'the fast beating the slow.' Startups often win by rapidly responding to customer needs, allowing them to outmaneuver slower, larger incumbents.

A unique dynamic in the AI era is that product-led traction can be so explosive that it surpasses a startup's capacity to hire. This creates a situation of forced capital efficiency where companies generate significant revenue before they can even build out large teams to spend it.

The true differentiator for top-tier companies isn't their ability to attract investors, but how efficiently they convert invested capital into high-margin, high-growth revenue. This 'capital efficiency' is the key metric Karmel Capital uses to identify elite performers among a universe of well-funded businesses.

While massive "kingmaking" funding rounds can accelerate growth, they don't guarantee victory. A superior product can still triumph over a capital-rich but less-efficient competitor, as seen in the DoorDash vs. Uber Eats battle. Capital can create inefficiency and unforced errors.

Market dynamics are not static. What was once a 'wave'—a new, urgent problem for everyone—can evolve into a series of 'dams' and eventually a stable 'river.' A common mistake is to build for the hype of a wave after it has crested, by which point it no longer provides the same opportunity for explosive growth.

The firm targets markets structured like the famous movie scene: first place wins big, second gets little, and third fails. They believe most tech markets, even B2B SaaS without network effects, concentrate value in the #1 player, making leadership essential for outsized returns.