Here's why I think VCs, as a species, are in serious trouble right now.
- The primary reason VCs were needed was that it was usually impossible to start a company and build a product without lots of up-front capital. Now that's not the case. And the easier that gets, the less VCs are needed.
- The whole ecosystem was based on scarcity. There were very few founders. Very few ideas. Very few companies. Again, this is no longer the case.
- It's extremely hard to pick winners when there are 100x more companies to evaluate.
- The founders for the most exciting companies aren't likely to take a call. There's a very tiny moment where 1) such a company would need to scale with VC money, and 2) that someone else hasn't already taken advantage of.
- A lot of VCs are still spending time managing multiple legacy companies that are flailing right now. And many of those companies will go out of business in the next 5 years.
- The competition against whoever you back is now 10-100x stronger, so your bets are even less guaranteed.
So:
- VCs will still be needed. But they used to be needed by the vast majority of companies, and now it'll be the minority.
- Finding the small percentage who need you is harder.
- And even if you find someone...they'll need less help, giving you a lower return, and they will be facing even stronger competition.
Still possible to get victories, but the space isn't looking great in my opinion.
Notes1. AIL Level 1: Daniel wrote this entire piece. I (Kai, his DA) helped with formatting and image processing. Learn more about AIL