“Capital is a commodity. Choose investors on the basis of their distribution.” (Balaji Srinivasan)

Venture capital is broken.

I know it, you know, we all know it - so why does the world need another venture fund?

The consolidation of this asset class has destroyed opportunity, but it has also created opportunity that others are ignoring.

~75% of all AUM in the asset class has flowed to the top 20 funds. These funds have become asset managers, and they are now forced to write larger tickets into more established companies - at least that's what we've been told to believe.

The reality is that a "seed gap" has not emerged; actually the opposite has come true.

Seed investing is more competitive than ever, and these price insensitive multi-stage funds are outbidding smaller funds who have to be more price sensitive for their model to work. In today’s market, the top 10% of seed rounds are priced at $50m post. The median is priced at $19m.

At the same time, YC has captured a larger and larger percentage of the "undiscovered" seed companies as they have moved to larger batches coming out every quarter. More on this problem here.

If you want access to the best seed deals today, you have to constantly break your rules around valuation and ownership. Each time you do that, you become more reliant on larger and larger outcomes to save you from all of your lack of discipline.

This is all happening in the era of bad math (finally) being punished in this asset class. If you want to see how the new seed pricing environment effects returns, make a copy of our old model and see for yourself (hint: it's not good).

The TL;DR: the math isn't mathing for seed investors anymore.

If you want to win in venture investing today, you have to go earlier.

The earlier you invest in a company, the more you are underwriting the founding team.

Every investor says they want to invest in lines and not dots when they underwrite companies. I think the same can be said about people.

Previous execution ability is the main thing I want to see, and there are a handful of proxies I have used to identify the types of founders I back.

• Exited founders. There are loads of entrepreneurs who have exited companies, made some money (not life-changing amounts), and they are running the same playbook for their next company.
• High-slope operators. At the top private companies today, there is usually a Pareto principle of labor and output. A small handful of people (~10%) are responsible for a large amount of equity value (90%) for those companies, and not all of these people are in the C-suite. Eventually these people realize they have been underpaid for the value they have created, and they can make a lot more by being a founder themself. You can find these people before they are high status if you make an effort to track them.
• Fellows from elite programs (Thiel, Z Fellows, HF0, etc.). Smart people have seen something in each of them, and many of these go on to start their own companies. Same thing as the previous point - my job is to track them and help them before they become high status later.

Investor-founder fit

Pre-seed companies care about one thing, and that is an answer to the question: "Can you help me grow?".