Author: Michael Dempsey
Compiled by: Deep Tide TechFlow
Deep Tide's Introduction: This open letter uses biting sarcasm to puncture the reality of the VC world: large funds are descending to seed rounds with overwhelming force, their brand and scale leaving small funds with nowhere to go. For early-stage investors and entrepreneurs, this is a wake-up call about capital concentration, forcing you to rethink why you can still survive.
I'm writing this letter to tell you: you should give up. Don't expect to keep playing the game, and don't think about collecting management fees anymore. It's all over.
Big funds are descending into seed rounds, and they intend to take every deal. A $5 billion fund will now compete with you for 10% to 15% of a two-person company, and they will always win. Founders will choose the well-known brand, not your small, boutique fund that might not even exist in ten years. Even if the partner in charge of the deal has already announced a new chapter by Series B. Give up.
Everyone knows the only thing that matters is whether you can invest in the world's best companies. With the explosion of accessible intelligence, it's clear there will be fewer and fewer truly important companies. So big funds might not do every deal, but in any given year, they will take all of those 8 truly important deals. Simply put, if you didn't invest in OpenAI, Anthropic, Anduril, or whichever new lab, then you are irrelevant.
In fact, you should tell your existing (likely zombie) portfolio companies to just find a way to be acquired by those companies, and then stuff as much money as possible into them through SPVs. You can even put their logos on your website (a website that will go down in 5 to 10 years when you forget to renew the domain).
Once you're done with those SPVs, you'll learn a lesson: now you should move to growth rounds. If multi-stage funds are descending to seed, then you should ascend to growth. Instead of spending years anxiously pondering which data-less startup might succeed, do the much simpler thing. Analyze the obviously successful companies based on all the data you now have. Sure, the price you pay now seems as high as what you complained about in seed rounds, but it will look cheap years later when they IPO and trade into valuation. The best part is, seed-stage skills naturally translate to understanding this incredibly legible world.
And by now we understand that the most successful founders are often the easiest to spot. If the founder didn't come from an elite institution, hasn't won top math competitions, and wasn't spun out of some elite company, that's pure adverse selection. Your only other slim chance over the past 5 years was to hang out with teenagers, and you missed that. You used to be able to get by saying "I can spot a 'spiky' founder," but you were never smart enough to add the adjective "traumatized" to that description. Don't be too hard on yourself; it happens.
It's now a law: the best founders get the highest prices. And your sub-$10 billion fund simply cannot compete with these things: a Denis Villeneuve-style podcast shot on a RED camera, a brand new media company. And a few Super PACs, FBO memberships, or whatever else is used to win founder loyalty. So giving up is reasonable.
Venture capital has changed. No stone has been left unturned, and therefore there is no reason to exist. Give up.
I will say, if you don't give up, then make sure to put all your time and money into AI, because if you don't bet the entire fund on it, you are irrelevant. It's like SaaS in 2020, or spiritually like Crypto in 2021. AI will remake every industry, so you should invest in none of them.
Take a look in the mirror. You were right about AGI. It's coming in the next two to three years, so why bother raising a 10-year fund? The world is changing too fast; who can still consider investing in a software/bio/cybersecurity/tech company? They will be instantly snapped and crushed by Claude Thanos 3.5. You could try pivoting to the war domain, but seriously, if AI founders don't need your money, those Gundo founders will definitely not pull you out of the permanent underclass.
Anyway, I don't need to keep repeating what we all know. So I'll leave you with a lesson from our industry, because the best way to look forward is to look back.
The tech industry has taught us the same thing, over and over again: large companies destroy latecomers. Innovation comes from those slow-moving but powerful behemoths. Money is the ultimate differentiator. Fortune favors those who think alike. So it's clear, you'll be better off if you don't try to evolve, compete, or do anything slightly different from everyone else, and just give up.
Good luck,
A Soon-to-Be-Obsolete Fund Manager
