Has venture capital lost the plot?

Key takeaways

Smaller funds, like Founder Collective's under $100 million approach, can outperform larger funds by focusing on quality deal sourcing, founder relationships, and capital efficiency.
The median outcome of the largest exits over 25 years remains around $2.7 billion, indicating that building for these big outcomes doesn’t necessarily require enormous fund sizes.
The industry has shifted from a focus on foundational investing tactics to strategy, branding, and media, which can distract from the core goal of selecting and supporting great startups.
The current AI hype has inflated valuations, often pricing in unrealized growth and risk, emphasizing the need for founders and investors to prioritize profitability, durability, and realistic expectations.
Venture capital should focus on betting on the 'who'—the founder—since human factors are critical in building successful, lasting companies.
Market distortions, driven by social media and investor hype, risk creating bubbles and misallocation of capital. Disciplined investing and a focus on fundamentals are vital for sustainable success.

Summary

The Value of Small Funds and Their Outcomes

This section discusses Founder Collective's unique approach of maintaining smaller fund sizes, never exceeding $100 million, despite their success and early investments in major companies like Uber and Coupang. Micah Rosenblum explains that keeping funds modest offers greater flexibility, optionality, and potentially better returns, as indicated by data showing the median outcome of top 500 exits over 25 years is approximately $2.7 billion. The emphasis is on how smaller funds can focus intensively on quality deal sourcing and founder relationships rather than chasing large fund sizes.

The Industry's Focus on Exits and Strategy

Here, Micah criticizes how much of the venture capital industry has shifted towards strategies, media presence, and chasing 'moonshot' outcomes rather than focusing on investing in genuinely promising, well-priced opportunities. He highlights the importance of simplicity—finding great founders early, properly valuing startups, and avoiding distractions like over-differentiating or building complex strategies that divert from core investment principles.

Market Trends and Capital Efficiency in the AI Era

This part covers how the excitement around AI has inflated company valuations, often pricing in massive growth opportunities that may not materialize. Micah notes the risk of over-investing in companies that are not capital-efficient, stressing the importance of profitability and durability of revenue. They discuss how the market's obsession with rapid growth can lead to poor decision-making, and Micah emphasizes the importance of clarity and prudence, especially when valuations are disconnected from actual progress.

Understanding Exit Dynamics and Fund Size Implications

Micah presents data showing that the median value of big exits remains around $2.7 billion, underscoring that building smaller, more focused funds can still produce outsized returns. He argues that larger funds are playing a different game—waiting for later-stage companies to mature and achieve big outcomes—whereas smaller funds aim to identify and support high-potential early-stage companies. The conversation emphasizes that performance, not fund size, determines success.

Lessons Learned and Personal Insights from Micah Rosenblum

Micah reflects on how his early focus on the ‘what’ (the business) over the 'who' (the founder) was a mistake, and he stresses the importance of betting on entrepreneurs—who they are and what drives them—as a key to successful investment. He also cautions against pattern matching based on age or background, advocating for deep human understanding and the importance of building durable, revenue-generating, profitable companies.

The Future of Venture Capital and Market Behavior

This section explores how current market dynamics, driven by social media and a focus on headline-grabbing valuations, may distort investment realities. Micah warns of a cycle where the industry overvalues early-stage companies, inflates expectations, and subsequently faces corrections. He urges caution and a disciplined approach that focuses on fundamentals—building sustainable, profitable companies—rather than following the herd or attempting to catch the next big unicorn at any cost.

Show notes

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.

Welcome back to Venture Unlocked, the podcast that takes you inside the business of venture capital. I’m your host, Samir Kaji.

My guest today is Micah Rosenbloom, Managing Partner at Founder Collective, one of the longest standing and respected seed firms in the industry, with early investments in companies like Uber, The Trade Desk, and Coupang. What makes Founder Collective atypical to most successful firms is their decision to keep fund sizes small. In fact, despite their success, they’ve never raised a fund over 100 million dollars, in a market where nearly every one of their peers has scaled up.

In this conversation, Micah and I dig into why they’ve stayed small, and the data behind it, including a study his team ran on 25 years of venture exits that found the median outcome of the top 500 exits is about 2.7 billion dollars. We also spent time on his post that described why the industry may have lost the plot by obsessing over fund and firm strategy instead of simply focusing on the core of finding unique opportunities that early, priced appropriately, and led by great operators.

Micah is a two time founder himself, a clear thinker, and someone who’s willing to say what a lot of investors only think. I think you’ll get a lot out of this one.

Thanks for listening to another episode of Venture Unlocked. I hope you enjoyed this conversation with Micah. If you’d like to get Venture Unlocked content straight to your inbox, go to ventureunlocked.substack.com and sign up, or head over to Apple Podcasts or Spotify and subscribe. Thanks again for listening.

Micah Rosenbloom is a General Partner at Founder Collective, a seed-stage venture capital firm built by founders for founders. Before becoming an investor, Micah co-founded multiple technology companies, including Brontes Technologies, which was acquired by 3M, giving him firsthand experience building and scaling startups. Today, he invests in early-stage companies across enterprise software, healthcare, and frontier technologies, and has backed successful startups including Verkada, Lovevery, Talos, Plated, and Trusted. Known for his founder-first philosophy, Micah is a respected voice on capital efficiency, venture strategy, and building enduring companies.

Timestamps:

Topics in this conversation include:

* Seed Capital Scarcity in Boston and Birth of Founder Collective (5:18)

* Why Small Funds Create Optionality and Better Multiples (9:02)

* Capital Efficiency vs Growth Treadmill and Founder Psychology (13:08)

* Data on Billion Dollar Exits and 2.7B Median Outcome (18:20)

* Can AI Change the Exit Math or Just Inflate Valuations? (23:59)

* Profitability, Durable Growth, and Non AI Winners (30:28)

* What Founder Collective Refuses to Chase in This Market (34:47)

* Saying No to Great Founders at Misaligned Terms (38:10)

* Has Venture Lost the Plot? Multiple VC Business Models (41:45)

* Biggest Lesson Learned: Betting on Who, Not Just What (46:24)

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