The AI buildout won't be stopped by technological limits or lack of demand. The true barrier will be economics: when the marginal capital provider determines that the diminishing returns from massive investments no longer justify the cost.
For a seed investor, the most critical downside protection isn't a legal term in a document, but the implicit guarantee that the founder will never quit. This psychological commitment is the ultimate, unwritten liquidation preference.
The prime of a venture capitalist's career is a brief, shining moment. It's preceded by a long period of being considered 'too young' and quickly followed by the industry wondering 'when is he going to retire?'
When a credible, external VC leads a follow-on round at what seems like a high price, it provides a strong signal of validation. This should prompt existing investors to overcome their anchoring bias and increase their own investment.
Unlike institutionalized asset managers that can be acquired, traditional venture firms are not sellable because their core asset is the non-transferable talent of a few key partners. If you cash out the partners, you're left with nothing.
VCs face a paradox with LPs. For early funds, LPs complain about the lack of distributions (DPI). For later funds, after the VC has made money, LPs question if they are 'still hungry enough,' creating a no-win situation.
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 explosive growth of prediction markets is driven by regulatory arbitrage. They capture immense value from the highly-regulated sports betting industry by operating under different, less restrictive rules for 'prediction markets,' despite significant product overlap.
Evaluate every check, including follow-on investments, independently from prior commitments. The decision should be based solely on the current risk-adjusted value of that capital, not on past investments, which prevents throwing good money after bad.
A successful seed fund model is to first build a diversified 'farm team' of 20-25 companies with meaningful initial ownership. Then, after identifying the breakout performers, concentrate heavily by deploying up to 75% of the fund's capital into just 3-5 of them.
When founders receive life-altering offers (e.g., billions of dollars), the long-term reputational game of venture capital collapses into a single-turn, "one and done" decision. This game theory shift incentivizes taking the immediate payout, overriding loyalty.