Interview, Fireside Chat
Will Quist: Why 95% of Venture Capital is Not Really “Venture Capital” | 20VC #924
- Public and private markets are expected to converge over an indefinite timeframe, creating novel capital needs in secondary and later-stage markets as companies remain private longer.
- The venture capital landscape will bifurcate, with approximately 5% of capital pursuing classic novelty bets while the remaining 95% shifts toward growth, including large rounds like $200 million at $5 billion valuations that lack true venture characteristics.
- Industry structures will organize along axes of zero-sum versus collaborative and generalist versus specialist, forcing organizations to adopt specific strategies rather than competing in a consensus game.
- Large multi-stage funds, excluding entities like Sequoia, view seed investments as low-cost option bets to absorb losses, whereas "classic venture" requires higher collaboration and risk-sharing among firms.
- Limited Partners (LPs) of $6 billion funds anticipate 15-17% net internal rates of return (IRR) on smaller $300 million commitments for tech exposure, rather than the 30-40% net IRRs previously expected.
- Capital efficiency optimization will face a strategic execution lag of roughly six months regarding employee mindset shifts within large organizations, and mental frameworks must transition from "holding" to active buying or selling.
- Reserve usage strategies will face scrutiny, with a forecast favoring accumulating stock in high-quality companies over eight years rather than using reserves for low-cost basis additions if opportunity costs are high.
- The market will experience a shift away from collaborative "elk hunting" toward a "shooting at anything that moves" incentive structure due to cheaper capital, alongside a trend of decreasing collaboration at the upper fund scales.
- Success in the sector will remain cyclical, driven by a flywheel where top firms secure top companies, attracting top entrepreneurs, while firms slow to adapt to consensus and scale dynamics face significant headwinds.
- Specific market predictions include the emergence of digital care platforms bridging the offline world for seniors regarding Medicare plan transitions and the continued strategic branding of top-tier firms like Sequoia, Andreessen, Benchmark, and Founders Fund.
- Tiger is forecasted to retrench to a slightly smaller scale on the private side while maintaining its hypothesis that companies rapidly reach the growth stage.
- Founders are advised to delay launch to validate unfair insights and capitalization paths, while investment firms are expected to apply discounts to market-creation deals lacking historical spend data rather than rejecting them outright.
- Defensibility for new products relies on specific modes such as network effects, intellectual property, or regulatory arms, though all such moats are predicted to eventually erode with no guaranteed protections.
- Loss rates for funds operating one step from consensus will increase, necessitating massive economic wins from few bets or an index-like portfolio structure to mitigate risk.