The Coming Venture Capital Reset
The world deserves a better class of capital light focused funds.
The venture capital landscape is headed for a major reset in the years ahead. A combination of factors, from oversaturation of funds to changing founder mindsets, points to a shakeup that will ultimately be healthier for the ecosystem.
Venture funds have proliferated in recent years, resulting in too many firms chasing too few great investment opportunities. With more partners competing internally at the large funds, the realization has set in that bigger isn't always better. While larger fund sizes drive up lucrative management fees, the tradeoff is often lower overall returns (law of big numbers!). I wrote about this more extensively in January and recently, my friend Jamin Ball discussed it recently as well, sparking a renewed conversation about incentives.
On the founder side, especially for those on their second or third company, the challenges and downsides of VC funding are becoming increasingly apparent. The expectations, hurdles, and relentless pressure to grow and continually raise more capital at higher valuations are leading many to rethink - or avoid altogether - the VC path.
The costs of starting a tech company have plummeted thanks to remote work, cloud infrastructure, open-source software, and a larger talent pool with less geographic competition. AI tools are also supercharging founder productivity and operational efficiency. These factors combine to fundamentally change the cost structure and capital needs of startups.
As a result, I’m seeing more founders choose to bootstrap their companies for longer before fundraising, if they raise at all. Their companies are structured from the outset to achieve sustainable profitability in a capital-light approach, with outside capital serving as a buffer and growth accelerant rather than burning cash to find product-market fit through trial and error. Capital becomes a weapon, not a requirement.
This refocus on efficient business models over hyper-growth narratives creates opportunities (and needs) for a new breed of investment fund. With fund and check sizes aligned to capital-light startups, these right-sized funds can invest without the pressures of adding more capital in subsequent rounds. Returns, not assets under management, will be the priority metric for these investors, more closely aligning them with founders and LPs.
This VC reset toward a healthier equilibrium of capital sources and capital needs ultimately benefits the key stakeholders - founders can achieve their visions with less dilution, while LPs see improved returns from a more rational investing environment.
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