For years, early-stage venture capital has been the playground of outsized bets, moonshot ideas, and world-changing products (and outcomes). Now, early-stage VC as an asset class is in decline—and not just because of macro factors. For example, compared to public markets (take the Nasdaq-100, which historically delivered an average 10-year return of around 5x, 4.86x to be precise), many VC funds fail to justify their existence. I know, it’s not apples to apples, but still, that’s a reasonable benchmark to me. The problem runs deeper than performance; it’s embedded in the very structure of the game. To remain relevant, venture investors must move away from chasing hot trends and refocus on long-term, transformative ideas that generate enduring value. Similarly, founders shouldn’t care about playing the VC game.
The abundance problem
Thanks to its past success—albeit the success of a few—venture funding has become more democratized and accessible than ever. This abundance has created a flood of funds, startups, and hype, which has diluted focus and discipline. The real problem isn’t just the quantity but the shift in mindset: investors increasingly approach venture capital like a numbers game, prioritizing portfolio diversification and quick deployment over deep conviction. This creates a bias toward ideas that are scalable and trendy rather than bold and risky.
Fund size, while a factor, isn’t inherently the issue—I’ve seen too many small fund managers praising their higher likelihood of success: that’s just false. Large, successful funds have proven that size can amplify impact when paired with sharp strategy and differentiated insight. The problem may lie in "spray-and-pray" mentalities that undermines thoughtful diligence. Small funds aren’t immune at all; many chase the same hype cycles, hoping to ride coattails into relevance—if anything they’re in an even worse position, having a harder time getting into the few must-do deals. Founders, in turn, adapt to this climate by optimizing for what gets funded rather than what solves real problems. The result? A feedback loop where capital supports ideas engineered for short-term viability at the expense of enduring impact. This shift in priorities has fundamentally weakened the venture ecosystem’s capacity for breakthrough innovation.
A safe career path
This shift has had a profound effect on entrepreneurship itself. What was once a high-stakes endeavor rooted in deep conviction has increasingly become a low-risk career move. Starting a company, for many, is no longer an act of rebellion or mission-driven obsession; it’s a résumé item, a stepping stone to prestige.
This change is particularly evident in the way some founders approach their businesses and how they get into the game. In the past, entrepreneurship demanded unwavering commitment—founders were betting it all, and failure often meant financial or reputational ruin. Today, failure is often seen as just another step in a polished LinkedIn narrative. Seed funding has become a safety net, allowing entrepreneurs to test ideas without putting their skin fully in the game. Venture capital has essentially subsidized the idea that starting a company is as much a career choice as going to business school or joining a management consulting firm.
The result? Startups that are designed to raise capital rather than build enduring value. Entrepreneurs pitch more to appease investors than to delight customers. And when the underlying motivations shift from “building the next big thing” to “playing the game,” the results are predictably mediocre.
Of course, not all founders fall into the 'safe career path' mold. There are still those who are deeply mission-driven, betting everything on bold, transformative ideas. Similarly, while the top 1% of funds capture the lion’s share of returns, there are smaller, niche players who carve out meaningful value by specializing in underserved markets or unique verticals. These exceptions, however, highlight how much of the ecosystem has shifted away from risk-taking and innovation.
The inevitable reckoning
As usual, over the next few years, the (few) winners and (too many) losers will become painfully clear. I suspect we’ll see a strong “early-stage venture correction”, where failure rates at the seed stage could climb as high as 99% and beyond. The cause? Distorted risk assessment. Investors, compelled to place bets on broader portfolios and sectors, may have lowered diligence thresholds or adventured into territories that were not meant for them to explore, while founders focus more on securing funding than building generational products. This reckoning will hopefully underscore that value capture in this ecosystem isn’t evenly distributed, nor has it ever been.
The funds that consistently outperform have done so for reasons beyond sheer capital deployment. While they may have unique networks, differentiated deal flow, and an ability to identify the outliers early, their dominance also stems from a shared underlying mindset: long-term thinking, short-term resistance. This is apparent in how many have shifted away from traditional 10-year fund cycles to longer-term, evergreen or multi-stage vehicles, allowing them to stay patient and aligned with founders pursuing bold, enduring visions rather than quick exits: outsized outcomes have been rarely built in 10 years. Winners are not just reactive participants in the ecosystem; they are the architects of it, ensuring they continue to command the largest share of returns.
Funds outside the top 1%—whose returns don’t outperform safer, more liquid asset classes—likely shouldn’t exist for sophisticated investors. Anything with a (realistic) target return lower than ~5x over 10 years cannot justify the “illiquidity price”. Funds that have failed to deliver strong returns in previous cycles are highly unlikely to improve in subsequent ones, as their track records limit access to top-tier deal flow and deter the most promising founders. These funds perpetuate inefficiencies in the market and drain capital that could be better allocated elsewhere. As the market tightens, many of these underperforming funds will inevitably wind down, making room for a leaner, more focused venture ecosystem. Similarly, new funds will appear but they’ll need to show evidence of their ability to beat the market: LPs will demand it and proving it won’t be easy.
What’s next
For venture capital as an asset class, I think we’ll see a return to fundamentals. Either the industry will shrink back to something more sustainable and chasing groundbreaking ideas or a new asset class may arise to fill that gap.
For founders, the next few years will demand higher ambition and directional focus. The ability to raise capital won’t come as easily, which means entrepreneurship may shift back to being more about the mission than the optics. Founders who prioritize progress over investor appeasement will emerge as the real winners, drawing capital back toward meaningful problem-solving.
The days of abundance may be coming to an end, at least as we know them, but in the ashes of this overheated ecosystem, lies a chance for renewal. For those willing to play the long game, the best days might still lie ahead—but it’s going to take a lot of pruning to get there. As we face this inevitable correction, there’s an opportunity to rebuild the ecosystem into something more resilient, thoughtful, and impactful. Founders, investors, and limited partners need to reflect on how their decisions—whether in funding, company-building, or capital allocation—shape the long-term health of the world, not just the industry. By prioritizing enduring innovation over fleeting trends, we can ensure to stay a true engine for progress, rather than a game of short-term optics. The future of this ecosystem depends on choosing to play the long game.
One last note: amidst this shift, the rise of AI is already redefining what qualifies as venture-backable—and it’s doing so at breakneck speed. The implications for both founders and investors are profound, and this transformation deserves a deep dive of its own. I’ll explore this at some point.