Anyone else think we're living in the weirdest venture capital moment? And in the context of the last five years, is really saying a LOT.
Peter Walker, who's been tracking this chaos through Carta's data on 50,000 companies and 3,000 funds over the last four years, joined me to talk about it all last week. Here’s a not-so-short but really good summary of our chat.
Planet AI: Where Consensus = Capital
First up, he confirmed what I've been sensing: VC is split into two totally different planets. Let me paint you a picture of Planet AI. We're talking giant seed rounds, crazy terms, VCs sending term sheets to founders they've literally never spoken to.
It's a world where what Peter calls "legibility" - the right resume, the right schools, the right experience at the right companies - matters more than having an actual product. "If you are Mira Muratti spinning out of OpenAI, you don't have to prove anything. You don't need a product. You can raise $2 billion on your name alone."
(I, for one, think Mira is a badass. But I digress).
Money has always chased traditionally credentialed founders - that’s not new. What IS new is the sheer scale of these vibe rounds. And the more capital that chases the same select few, the more those investors compete away their returns.
Planet Earth: Where there’s still Alpha to be found
Meanwhile, here on regular old Planet Earth (incidentally this is where I spend most of my time), the bar has gotten brutally high for non-consensus founders and non-native AI companies. Where $1 million ARR might have guaranteed a Series A in 2021, you now need $3 million just to get VCs to click on your docsend.
All this to say, VC is far less sexy over here. And I mean that in the best possible way.
Scarcity forces survival of the fittest. The founders raising on this planet have been through it. They’re building businesses with real fundamentals. Their rounds are not overpriced.
In Peter’s words, investors here are compounding alpha, while Planet AI investors compete theirs away.
(PS. I googled Alpha for you so you don’t have to. It’s the “excess return generated beyond what's expected from market movements alone”).
Bonus: Planet Purgatory
This is a tough planet. Remember the Unicorn Class of 2021? This is where a lot of them live. Too expensive for private equity, too small to go public, not growing fast enough for new rounds. Despite how easily unicorns got minted back then, there’s some serious grit among those still going. And a lot of locked-up talent and potential.
Are we in an AI bubble?
Obviously, yes.
When I asked Peter, he didn’t even blink. “Anyone who says we’re not in a bubble has no idea what they’re talking about.” The signs are everywhere - seed-stage secondaries, valuations divorced from performance, triple-layer SPV SAFEs in hot companies. "Those are bubbly things."
What makes this bubble different from Web3 (which I escaped unscathed because I honestly didn’t get the value prop): I actually see the value in most AI companies. I bet you do, too. The problem is I see the same value in ten other companies doing the same thing - sometimes in three or four of the same in a single week.
Barriers to entry have all but disappeared. And that makes it super, duper to pop.
Are emerging managers really an endangered species?
Yes and no.
It’s true that a small number of funds are getting the vast majority of LP dollars. But the money flowing to mega-funds like Sequoia, Andreessen, and Index was never accessible to emerging managers anyway. As Peter put it, "You can't invest $300 million from a sovereign wealth fund into thirty $10 million funds. It just doesn't work like that."
(Side note: There's a heavy operational cost to having a lot of small discrete investments; more K1s, more accounting, more investor updates, etc. As they say, the juice has to be worth the squeeze).
Look, I can't pretend to be objective here - I'm an emerging manager myself. But our corner of the market - closest to founders, taking real early risk - isn’t going away anytime soon. Peter's data tells a more nuanced story than the gloom and doom headlines. Sub-$100 million funds raised about $4 billion last year and are on track for similar numbers this year… not more, but also not less.
The real squeeze is in the middle: Series A/B/C and growth-stage managers competing with mega-funds for deals where founder proximity matters less. That’s a brutal game to play, and I wouldn’t want to go up against the big guys.
So, what’s wrong with venture?
From Peter’s perspective, venture is an opaque market by nature. That means optics drives decisions more than evidence does, leading to herd behavior, overcapitalization, zombie unicorns, and the hard truth: that half of VC funds end up losing money.
From my perspective: I don’t think mega-funds are really venture capital anymore. They’re asset managers indexing private tech companies. Which is valuable, but it’s not venture. But the real work of a venture capitalist is at the earliest stages.
Where I'm placing my bets
The overlooked stuff. The real unsexy markets no one is fighting over. The founders building substantive, defensible businesses without 17 indistinguishable term sheets on day one.
The AI bubble will subside, it’s just a matter of when. The survivors will be the ones quietly building real value while everyone else chases the shiny thing.
Give it a watch and let me know what you think!
What’s on my browser this week.
If you’re not going to grown-up camp, you’re missing out. I’ve done family camp for two years, and the Girl Scouts’ Glamp the year before that. 100% recommend!
I could not love Woz any more. “I am the happiest person ever. Life to me was never about accomplishment, but about Happiness, which is Smiles minus Frowns. I developed these philosophies when I was 18-20 years old and I never sold out.” Scroll down to see his full post.
It’s a bubble. It’s not a bubble. Who cares if it’s a bubble? PS. You know who loves bubbles?
