Table of Contents
Stage-specific venture firms like Benchmark consistently outperform mega funds like a16z—here’s why focus, not scale, is the ultimate competitive edge.
Key Takeaways
- Benchmark’s 10% hit rate from 63 Series A deals over 15 years dwarfs a16z’s 2% from 454 deals.
- Mega funds win on absolute numbers but suffer in efficiency and per-deal returns due to over-diversification.
- Early-stage focus enables better judgment, tighter founder relationships, and higher conviction bets.
- Multi-stage funds dominate capital supply but face growing scrutiny on long-term return sustainability.
- AI-induced labor disruption may compress venture timelines and widen gaps between execution-focused and platform-driven funds.
- The massive bundling by mega funds—from pre-seed to Series D—is eroding value differentiation.
- Founders favor cash-rich, high-valuation bidders, even if stage-specific VCs provide more personalized support.
- Data from Rottman’s analysis highlights that only a few funds can scale and still maintain performance discipline.
- Long-term, capital may consolidate back into leaner, sharper strategies unless mega funds show enduring, above-market returns.
Focus vs. Firehose: The Hit Rate Divide
- Benchmark’s disciplined model shows strength in high-conviction, lower-volume investing. With only 63 Series A deals and a 10% hit rate, it reflects exceptional deal selection.
- In contrast, Andreessen Horowitz pursued a spray-and-pray approach, backing 454 Series A rounds to produce a lower 2% success rate.
- Benchmark achieved six $5B+ exits in this timeframe, while a16z reached ten. But per-capita efficiency firmly favored the smaller firm.
- Rory noted that "hit rate matters more to LPs than absolute numbers when evaluating fund efficiency."
- These numbers illustrate a core trade-off: volume increases surface area but dilutes conviction, often reducing average returns.
The Bundled Fund Paradox
- Mega funds increasingly operate like supermarkets—offering a complete menu from seed to IPO support, bundling services and follow-on capital.
- The tradeoff? Specialization and intimacy are replaced with scale and generalization.
- One speaker likened pre-seed checks to "grocery store milk" — enticing with low cost, hoping to upsell Series C strawberries later.
- This bundling appeals to time-pressed founders but challenges portfolio differentiation and stage-specific expertise.
- In the long term, investors question whether bundling yields real returns or simply distributes capital more thinly.
Why Bigger Isn’t Always Better
- While founders often pursue marquee firms for perceived credibility, those same firms may lack bandwidth or domain intimacy.
- Jason observed that many founders want a VC who does "2-3 deals a year," not "30," because they want mindshare, not just money.
- Benchmark’s lean strategy (fewer deals, deeper support) contrasts starkly with multi-stage funds optimizing for exposure.
- The focus model avoids distractions, better aligns with founders, and reduces noise in partner decision-making.
- Rory emphasized that volume may boost brand visibility, but precision wins returns.
Valuation, Hype, and Option Mispricing
- The resurgence of 2021-style pricing, especially in AI, shows how quickly venture swings from austerity to exuberance.
- Companies with $15M ARR are being priced at $1.5B valuations, triggering concerns about unsustainable multiples.
- Rory explained, "We are upside junkies. Intrinsic value doesn’t sell in venture."
- Investors fantasize about the next 10xer, even if the actual risk-adjusted odds remain low.
- These bets often rely on flawed assumptions: continuous hypergrowth, limitless market expansion, and minimal churn.
AI’s Impact on Labor and Venture Strategy
- AI isn't just changing products—it's gutting org charts. Jason detailed how five roles were eliminated in 90 days thanks to AI.
- He emphasized: "It’s not just cost-cutting. The AI actually performs better."
- Rory challenged the idea of a fast macro shift, noting historical productivity gains rarely exceed 2% annually.
- Still, everyone agreed: tech companies are early adopters, and venture must prioritize AI-native teams.
- Jason added, "We don’t need mediocre marketers or support reps. AI already outperforms them."
- This raises existential questions about what roles justify six-figure salaries in lean, AI-first startups.
Harvard, Endowments, and LP Shifts
- Political scrutiny over elite university endowments threatens early-stage venture funding.
- Harvard’s potential loss of tax-exempt status could signal broader pressure on endowments.
- Rory warned: "If endowments pull back, it’ll hit small funds hardest."
- Large funds now source capital from sovereign wealth entities, further concentrating power.
- This trend risks marginalizing emerging managers, shrinking diversity in strategies and networks.
The Future: Outliers, M&A, and Consolidation
- Not all unicorns are built to last. Census, once a VC darling, exited quietly to Fiverr.
- Lacework, a perceived peer to Whiz in security, sold for pennies after burning through capital.
- Jason voiced LP frustrations: "We were supposed to get 20x. Instead, we got eight shares in a decacorn."
- Gurley’s 10x land essay remains gospel: let your winners run and don’t pull out too early.
- In this environment, quality exits matter more than headline valuations.
- Venture is shifting from check volume to exit discipline—from high-burn narratives to capital-efficient execution.
The Trillion-Dollar Question
- Could mega funds survive on a few $1T exits? Panelists debated.
- If only two mega-winners exist, scale may not be enough. But if 10+ such exits emerge, big bets could work.
- Rory grounded expectations: "U.S. GDP is $30T, and the stock market is 2x that. There’s a limit to trillion-dollar outcomes."
- Still, AI’s acceleration means we may find those unicorns faster than ever before.
- In the meantime, funds must navigate hype, labor disruption, and macro constraints.
Stage-focused firms are the quiet killers. Mega funds may rule the headlines, but the sharpest returns still favor precision over sprawl.
