Author: Michael Dempsey
Compiled by: Deep Tide TechFlow
Deep Tide Introduction: This public letter uses biting sarcasm to expose the reality of the venture capital world: big funds are descending to the seed round, and their brand and scale are leaving small funds with nowhere to go. For early-stage investors and entrepreneurs, it serves as a warning bell about capital concentration, forcing a re-evaluation of what makes you capable of surviving.
I'm writing this letter to tell you: you should give up. Don't expect to keep playing the game, and don't think you'll collect management fees anymore. It's all over.
Big funds are moving down to the seed round, and they intend to take every deal. A $5 billion fund will now compete with you for a 10% to 15% stake in a two-person company, and they will always win. Founders will choose the known brand, not your boutique fund that might not exist in ten years. Even if the partner in charge of the deal had already announced they were starting a new chapter by the 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, there will obviously be fewer and fewer companies that truly matter. So maybe the big funds won't do every deal, but in any given year, they will take all 8 of the deals that truly matter. In short, if you haven't invested in OpenAI, Anthropic, Anduril, and whichever new lab, you are irrelevant.
In fact, you should tell your existing (most likely zombie) portfolio companies to just find a way to be acquired by those companies, and then stuff as much money as possible in through SPVs. You can even put their logos on your website (which will go down in 5 to 10 years because you forgot to renew the domain).
Once you've done these SPVs, you'll learn a lesson: now you should move to the growth round. Since multi-stage funds are descending to the seed round, you should ascend to the growth round. Instead of spending years anxiously figuring out which data-less startup might succeed, do the much simpler thing. Analyze the companies that are obviously going to succeed based on all the data they now have. Sure, the price you pay seems as high now as the one you complained about at seed, but it will look cheap in a few years when they IPO and trade up into the valuation. Best of all, the skills of seed investing naturally transfer to understanding this incredibly legible world.
And we now understand that the most successful founders are often the easiest to identify. If the founder isn't from an elite institution, hasn't won top math competitions, and isn't spun out of some elite company, that's pure adverse selection. Your only other slim chance in the past 5 years was to hang out with teenagers, and you missed it. You used to be able to bluff with "I can spot the 'prickly' founder," but you were never smart enough to add the adjective "trauma" to that description. Don't beat yourself up; it happens.
It is now law: the best founders get the highest prices. And your sub-$10 billion fund simply cannot compete with things like: a Denis Villeneuve-style podcast shot on a RED camera, a brand-new media company. And a few Super PACs, an FBO membership, 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 for it to exist. Give up.
I will say, if you won'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. This is 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 moving too fast for anyone to consider investing in a software/bio/cybersecurity/tech company? They will be one-shot and completely crushed by Claude Thanos 3.5. You could try pivoting to warfare, but really, if the AI founders don't need your money, the Gundo founders will never 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 one thing time and again: big companies crush newcomers. Innovation comes from those slow-moving but powerful behemoths. Money is the ultimate differentiator. Destiny favors those with similar ideas. So it's clear you'll be better off if you don't try to evolve, compete, or do something slightly different from everyone else, and just give up instead.
Good luck,
A soon-to-be-obsolete fund manager
