The Times They Are A-Changin’ Different Strokes
It feels like there are increasingly two very different games being played in venture capital: mega-funds making enormous bets, and smaller funds like ours. The scale at the top of the market is astounding. Andreessen Horowitz just launched a $1.1 billion fund focused on AI hardware and infrastructure, while TPG’s Rise Climate platform has raised more than $16 billion in climate-focused capital. The consequence is that the size of the fund drives the size of the outcome required. A $1 billion fund writes $50–100 million cheques which requires companies already valued in the hundreds of millions or billions—and ultimately, those companies need exits worth tens or hundreds of billions to generate meaningful returns for the fund (which very few companies have ever achieved). In Q2, mega-rounds (greater than $50M raised) accounted for 81% of all venture capital invested globally.
Our investment strategy doesn’t depend on finding one extraordinarily rare company. We’re hearing some investors say they won’t consider a company unless they believe it can grow from $0 to $100M of revenue in two years. Of course, we would all love to find companies that can do that. AI has produced a small number of remarkable examples. But there are thousands of companies that can become category leaders, build highly valuable businesses and generate exceptional returns without following that trajectory. Said differently, if your entry price is much lower then you can write much smaller cheques and get excellent returns with much smaller exits (which are much more common).
Smaller funds have consistently demonstrated strong performance over long periods. We still believe we can generate excellent returns with disciplined portfolio construction that avoids highly speculative valuations with no traction and offers active support for founders to increase success rates. After all, the fun part of venture investing is identifying and helping build great companies—not buying lottery tickets and hoping for $100 billion-dollar outcomes.
