Contrary to traditional wisdom, the most challenging part of the venture market is now the crowded and overpriced Series A/B. The speaker argues for a barbell strategy: either take massive ownership (15-20%) at pre-seed or invest in de-risked, late-stage winners, avoiding the squeezed returns of the middle stages.
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Contrary to the 'get in early' mantra, the certainty of a 3-5x return on a category-defining company like Databricks can be a more attractive investment than a high-risk seed deal. The time and risk-adjusted returns for late-stage winners are often superior.
The fundamental risk profile shifts dramatically between venture stages. Early-stage investors bet against business failure, an idiosyncratic risk unique to each company. Late-stage investors are primarily betting on public market multiples and macro sentiment holding up—a systematic risk affecting all late-stage assets simultaneously.
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.
A simple heuristic for VC portfolio construction. For companies with exponential, undeniable traction (the 'absolute winners'), any ownership stake is acceptable to get in the deal. For pre-traction companies that only 'could work,' securing high ownership is critical to justify the risk.
Unlike SaaS, deep tech companies have a unique valuation trajectory: a sharp seed-to-Series A increase, a long plateau during R&D, and then massive step-ups post-production. This requires a bimodal investment strategy focusing on early stage and the final private round before inflection.
Despite headlines about rapid-growth companies, the typical startup journey is slowing dramatically. The median time between Series A and B rounds is now close to 1,000 days (almost 3 years), creating a barbell market where a few companies raise quickly while the majority face a much longer path to their next milestone.
AI companies raise subsequent rounds so quickly that little is de-risked between seed and Series B, yet valuations skyrocket. This dynamic forces large funds, which traditionally wait for traction, to compete at the earliest inception stage to secure a stake before prices become untenable for the risk involved.
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.
With trillion-dollar IPOs likely, the old model where early VCs win by having later-stage VCs "mark up" their deals is obsolete. The new math dictates that significant ownership in a category winner is immensely valuable at any stage, fundamentally changing investment strategy for the entire industry.
True alpha in venture capital is found at the extremes. It's either in being a "market maker" at the earliest stages by shaping a raw idea, or by writing massive, late-stage checks where few can compete. The competitive, crowded middle-stages offer less opportunity for outsized returns.
