Has the venture capital industry shifted from a boutique, personal-relationship model to a commoditized, industrialized one?

Avichal Garg · Apr 11, 2022

Venture firms ranked roughly 15th to 1,000th should be seriously worried, because capital is becoming a commodity and they now compete globally with on-chain investors who may generate better returns

LPs are rational and money finds better returns; venture used to be a local and regional monopoly where founders had to come to Silicon Valley, and that gatekeeping is disappearing

Scope: specifically firms outside the top decile of returns

21:24 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital

Harry Stebbings · Mar 17, 2023

Venture has moved from a cottage industry into a low-margin, high-velocity business, whether investors like it or not

Commoditized data platforms track headcount, revenue and web rankings, so every fund sees and pings the same companies at the same time

25:33 20VC: Why Growth Investors Ruined the Venture Market, Why Marketing in Venture Has No Substance, Why Follow-On Investing Can Damage Returns and The Mistakes VCs Made in the Last 18 Months with Ophelia Brown, Founder @ Blossom Capital

Phin Barnes · Oct 2, 2023

Venture began as a cottage industry built on one-to-one relationships between domain-expert investors and technologists, and that arbitrage was competed away as capital flooded in, forcing firms to differentiate on more than capital and expertise

Like any financial arbitrage, high returns attracted entrants and eroded the edge, which drove the 'industrial revolution' of platform teams

17:17 20VC: The Services Model of Venture Capital is Broken, The Best Founders Do Need Help, The Most Important Signals to Assess When Meeting Founders & Why Kids Bring Less Happiness and More Joy with Phin Barnes @ TheGP

Harry Stebbings · Feb 5, 2024

Venture has transitioned from a boutique high-margin business into a transactional low-margin industry because of the scale of cash firms have accumulated, and this does reach seed as firms like Andreessen invest more there.

The sheer scale of capital accumulated by large firms changes the nature of the business.

Scope: credits the boutique-to-transactional framing to Doug Leone

18:12 20VC: The Biggest Misconceptions & Hardest Truths About Seed Investing Today; Why The Best Founders Don't Need You, Why Uncapped SAFEs Are Good, Why Reserves Are Bad, Why Signalling is BS, Why Price Doesn't Matter with David Tisch & Terrence Rohan

Pat Grady · Jul 8, 2024

Venture has degenerated in recent years from a business of making something happen into a business of order taking

Companies now raise frequently, so investors merely raise their hand when a round comes along, whereas ten-plus years ago companies often generated cash and had no need to raise, so you had to articulate why they'd be better off with you as a shareholder

29:14 20VC: The Sequoia Investment Process | Investing Lessons from Doug Leone, Roelof Botha & Alfred Lin | Sequoia's Framework for Analysing Founders | The True Benefit of Having Sequoia on a Cap Table & Sequoia's Biggest Threat with Pat Grady

Harry Stebbings · Oct 25, 2024

Doug Leone has said that venture has transitioned from a high-margin boutique community into a low-margin commoditized industry

12:34 20VC: The Truth About Multi-Stage Firms; Why Portfolio Services are for VCs not Founders | Why Politics is Rife & Decision-Making is Broken in Large VCs | Why Reserves are Bad for Founders & How Boutique Firms Will Win with Mark Goldberg @ Chemistry

Phin Barnes · Oct 2, 2023

The push to scale has eroded the product of venture and the craft approach; venture should return to the one-to-one relationships that build the best companies

The best companies are built through one-to-one relationships, whether delivered pace-style or by placing a very senior operator with a founder in exchange for equity

Scope: allows multiple models of delivering craft — Pace's and his own

55:26 20VC: The Services Model of Venture Capital is Broken, The Best Founders Do Need Help, The Most Important Signals to Assess When Meeting Founders & Why Kids Bring Less Happiness and More Joy with Phin Barnes @ TheGP

Ed Sim · Jan 10, 2024

Venture is moving from a transaction-driven world to a relationship-driven one, where founders vet who joins their board as carefully as investors vet them

Deals and company-building are taking more time, so founders need to know whether a board member will stick with them through good and bad times

23:07 20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

Nick Chirls · Sep 6, 2024

Over the next decade, the less institutional and banker-like a venture firm appears to founders, the more likely it is to win

Most of venture is deeply focused on becoming institutional because it feels more professional, so avoiding that is the differentiated position

Scope: framed as a view most of his peers disbelieve

53:46 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Mark Goldberg · Oct 25, 2024

Chemistry is a deliberate reversion to boutique venture, rebuilding the fund around personal relationships at the early stage

Personal relationship at the early stage still matters, following the model of funds like Benchmark and USV

Scope: described as a contrarian position right now

14:09 20VC: The Truth About Multi-Stage Firms; Why Portfolio Services are for VCs not Founders | Why Politics is Rife & Decision-Making is Broken in Large VCs | Why Reserves are Bad for Founders & How Boutique Firms Will Win with Mark Goldberg @ Chemistry

Mark Goldberg · Oct 25, 2024

A new venture firm should have at most a very small junior team (two people) and must avoid recreating the hierarchy and bureaucracy of a large institution

He initially argued a GP-only group would be an ecosystem advantage through streamlining, but the partnership agreed a small junior team adds value while all three were aligned on not rebuilding institutional bureaucracy

Scope: landed at two junior hires; he entered the debate favoring GP-only

33:31 20VC: The Truth About Multi-Stage Firms; Why Portfolio Services are for VCs not Founders | Why Politics is Rife & Decision-Making is Broken in Large VCs | Why Reserves are Bad for Founders & How Boutique Firms Will Win with Mark Goldberg @ Chemistry

Harry Stebbings · Oct 11, 2021

Venture capital today is less collaborative and more transactional than it has ever been

Scope: allows that climate may be a friendlier ecosystem

58:14 20VC: Chris Sacca on Coming Out of Retirement To Unf**k The Planet with Lowercarbon, How Chris Evaluates His Relationship To Money Today, Why We Have Bred a Generation of Ass**** Kids, Do VCs Provide Any Real Value and The True Unfiltered Opinion on Faceb

Will Quist · Sep 12, 2022

We are now in a different era: for the first time there is genuinely zero-sum behavior among firms able to absorb LP dollars at mass scale

Scope: acknowledges he made Harry's same point for a long time

24:14 20VC: Why 95% of Venture Capital is Not Really "Venture Capital" | The Five Core Levers Needed To Assess Risk and Price a Startup | The Future of Venture; Who Wins, Who Loses, What Happens to the Crossover Funds with Will Quist, Partner @ Slow Ventures

Nick Chirls · Sep 6, 2024

Most of the venture market is playing a short-term game to maximize profit, and Silicon Valley has become zero-sum in a way that resembles banker thinking at Lehman Brothers in 2007

There is far more money in venture now and winning has become all about the money, so every interaction becomes someone wins and someone loses

Scope: he excludes himself, saying he plays a decades-long game

30:54 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Avichal Garg · Apr 11, 2022

Crypto venture is barbelling the same way general venture has: small capital-constrained teams at one end and a small number of billion-dollar-plus platforms with differentiated services at the other

LPs value the ability to deploy scaled capital and the relationships that come with it, and founders value the differentiated services large firms can offer, both of which lend themselves to scale

Scope: the top tier is currently a small number of firms; expects this to continue

7:20 20VC: Why Crypto is Software Eating Money, Why Crypto Firms Will Outcompete Traditional Venture Firms, How To Price Tokens and When To Have Them, DAOs: How Are They Structured and What Makes One Successful with Avichal Garg, Co-Founder @ Electric Capital

Roger Ehrenberg · Feb 19, 2024

Venture capital has not become a commoditized, low-margin business; venture will never be commoditized

The industry is barbelling: giant multistage platforms on one end and boutique early-stage firms that help form companies on the other, so you can't paint the whole industry with one brush

Scope: mid and late stage venture may come to look more like institutional asset management; incubation, pre-seed and seed will always occupy a different place

6:56 20VC: Why VC Returns Will Get Worse, Why LP Incentive Structures are so Broken, What is the Answer to Liquidity with No M&A or IPOs, When to Sell vs Hold Your Winners & Turning $5M into $250M with The Trade Desk | Roger Ehrenberg, Eberg Capital

Kevin Ryan · Apr 10, 2024

Venture has not become commoditized as a whole: late-stage $50M-check investing is effectively private equity competing on price and adding little value, while early-stage first-check investing remains non-commodity with huge return dispersion.

At late stage the board is already established and you compete on price; at early stage you get huge wins and many losses, and as a Yale Endowment board member he saw the enormous gap between returns at firms like Benchmark and Greylock and the other 90% of the industry.

43:56 Late stage investing is commoditized private equity like while early stage first checks remain non commodity

Nick Chirls · Sep 6, 2024

The big venture firms have become the equivalent of investment banks — highly transactional, all about money, and private-equity-like in dressing companies up to hand off to the next buyer.

By 2021 the same kind of people he worked with at Lehman had shown up in startups, and the creativity and non-financial ethos he fell in love with after the financial crisis was gone; firms now have gigantic AUMs

4:57 Big firms have become transactional investment bank like dressing companies for sale

Harry Stebbings · Sep 6, 2024

Commoditization is the prevailing wind in venture, but it isn't black and white — true artisans of the craft will still thrive within that ecosystem.

Firms like Benchmark and USV remain artisans of their craft despite industry-wide commoditization

12:05 Commoditization is dominant but artisan firms remain exceptions

Rick Zullo · Aug 23, 2023

Venture will professionalize into an asset management business, with large firms splintering into dedicated sub-strategies with their own teams, over the next couple of years

It mirrors how Bridgewater and Carlyle evolved from core funds into strategies, and firms like Andreessen already do it; dedicated strategy teams force more rational math about what it takes to return that specific fund

7:16 Large firms splinter into dedicated sub strategy teams like asset managers

Avichal Garg · Apr 11, 2022

Software destroys local and regional monopolies and turns them into global markets, which concentrates value in a small head, unlocks a long tail, and makes the middle disappear

This is the pattern software produced in media, information businesses and ecommerce; competing at global scale produces power-law concentration

22:57 Software driven globalization concentrates value into a small head and eliminates the middle

Avichal Garg · Apr 11, 2022 · hedged

Crypto venture will consolidate into a few dominant players with scale and network effects, especially firms that scale through software leverage rather than through headcount

The internet's information businesses are the guide — every time you apply software leverage you get power-law dynamics

23:41 Crypto venture consolidates into few dominant players via software leverage not headcount

Will Quist · Sep 12, 2022

All capital businesses — investment banking, mutual funds, hedge funds, private equity, and now venture — follow the same lifecycle curve: subscale, volatile and collaborative early on, then zero-sum and consensus-driven once scale and a shared formula arrive

Before a consensus way to make money exists and before there is enough scale, no single firm can raise enough money so collaboration dominates; once there is consensus and scale, zero-sum behavior is warranted

10:18 All capital businesses follow the same subscale collaborative to zero sum consensus lifecycle as they scale

Will Quist · Sep 12, 2022

'New venture' is less collaborative than ever and its incentive structure pushes toward even less collaboration

Once you have all the money, products, strategies and sectors, you have no need to offload risk to another partnership and you don't run out of money, so there is no incentive to collaborate

26:33 New venture mega platforms face decreasing incentive to collaborate with other firms as they become self sufficient

Will Quist · Sep 12, 2022

'Classic venture' is more collaborative than ever

Classic venture deals in lower quantums of money and higher risk pools, so sharing risk is valuable

26:58 Classic venture remains highly collaborative since shared risk pooling is valuable at lower capital quantums

Kyle Harrison · Oct 21, 2022 · hedged

Blackstone's success comes from systematizing the roughly 80% of business-building that is the same everywhere into an 'AWS of raising and deploying capital,' then plugging in people who supply the specialized 20% secret sauce.

Schwarzman's philosophy was that if they find the right person to scale a business in a great asset class, they can apply their strengths, network and resources; the result is a holding company for financial asset classes across PE, real estate, hedge funds and credit.

26:26 Systematize the generic 80 percent of business building like blackstone to scale a venture firm

Guy Podjarny · May 24, 2023

Venture firms would not pass their own investment criteria, because they have no scalable technology or assets and operate like law firms that scale only by hiring more smart people

There's nothing scalable in venture today — no real tech or scalable assets, just smart people relying on hiring additional smart people

53:11 Vc firms are unscalable professional services businesses not scalable tech companies

Chris Sacca · Oct 11, 2021

Climate investing is insanely collaborative because funds have complementary rather than substitutable expertise, so splitting rounds makes everyone's deal more valuable

T. Rowe's granular lithium-market expertise complements Lowercarbon's company-building; Breakthrough Energy is used to gut-check diligence; Fifty Years brings deals because Seth believes the deal is worth more with Lowercarbon in it despite his incentive to maximize ownership

58:31 Climate investing remains highly collaborative due to complementary not substitutable fund expertise

Trae Stephens · Apr 3, 2024

There is truth to the claim that venture has become significantly more competitive and commoditized, but the asset class still has great potential because returns concentrate in a few winners

You don't see high IRRs across every new fund that pops up; returns end up highly concentrated toward the winners

27:25 Venture is more commoditized but return concentration preserves the assets potential

Harry Stebbings · Oct 25, 2024

Sequoia's fund products are actually quite constrained in size relative to their reputation for raising huge amounts

Their seed fund is around $190M and growth around $1B, which is not extreme, even though headlines frame them as raising $8B

13:05 Sequoia fund sizes are more constrained than reputation suggests

Mark Goldberg · Oct 25, 2024

The venture industry has industrialized over the last decade — growing AUM and team sizes have replaced the boutique model where founders knew every partner

At big platforms you know the institution's brand but can't name more than three to five partners even when there are 30 check writers

13:23 Aum and team growth replaced boutique model with institutional brand recognition

Mark Goldberg · Oct 25, 2024

There is a rich vein of frustration in the LP community that the venture funds they backed ten to twenty years ago have become asset managers, making a pure-play venture fund with experience and hustle resonant right now

They hit a market moment where the zeitgeist in the LP community aligned with their pitch

24:25 Lp frustration with asset manager drift makes pure play venture funds resonate now

Mark Goldberg · Oct 25, 2024

LPs increasingly sense that the returns small, focused partnerships produced ten to fifteen years ago will not be repeated by the large multistage legacy institutions those firms have become

The macro backdrop during their fundraise was frustration with how big the legacy multistage funds have grown

25:01 Lps doubt large multistage legacy firms can repeat small partnership era returns

David Tisch · Feb 5, 2024

The most fundamental change in venture is post-COVID accessibility: founders can now spin up meetings, partner meetings and investment decisions with multi-stage firms far faster than in the pre-2019 era of flying to Sand Hill Road.

The shift to online and distributed firms collapsed the logistics that used to make a top-tier VC meeting hard to get.

16:31 Post covid remote access collapsed logistics barriers to top tier vc meetings

David Tisch · Feb 5, 2024

The starter round (sub-$2M first capital) is fundamentally random and cannot be indexed or aggregated into a low-margin product.

Those deals happen fast through built-in networks, friends and angels — many of whom are fund-backed — so they aren't reliably exposed or competitive.

18:35 Starter round is too random to be commoditized or indexed