The last seven years were a terrible time to learn the craft of venture capital. Exogenous shocks, passive flows flooding the public markets, and an absurd terminal-value concept in software all rewarded motion over judgment. That world is over. In category after category, the terminal value we once counted on no longer holds, which means the old game of marking up your book and praying for a rerun of venture beta is a fool's errand. And it’s a terrible way to really support founders.
What our industry needs now is far more economic sophistication. The last generation of venture won on qualitative advice and warm introductions; this one will win on capital. The best edge we can give founders is no longer counsel or connections. It is a better capital stack, engineered for the demands the world now places on their companies.
This is an incredibly exciting moment for investors with an entrepreneurial mindset. There is an opportunity to change the venture industry for the better, building far more sophistication in how we structure capital for founders than we ever had. That will make all of us better, and the whole industry with us.
Right now companies face a volatile geopolitical landscape and compute costs that swing wildly. For an outcome to matter now, founders must build far bigger companies than before, and the power law still delivers fund-returning opportunities even at today's fund sizes. The companies being built are different, too: infrastructure and hardware, not SaaS. To get there, they need to buy companies PE-style, build real infrastructure, and fund sales and marketing far past the antiquated Rule of 40 and the feeble CAC-to-LTV logic our industry clung to. I said triple-triple-double-double was dead, and it is. If you truly want to help your founders, you must solve these problems alongside them.
As productivity shifts from labor to capital, an enormous amount of new value is waiting to be created, and capital becomes the lever that creates it. Allocating it well is the highest-leverage act in the economy. To succeed in this era of ambiguity, investors must re-orient themselves into capital entrepreneurs and become far more financially sophisticated than the industry teaches.
Every day, a key part of your job is to source the capital that gets your companies where they need to go and unleashes what they lack. This will almost certainly not mean just growth equity: it will also be new kinds of capital for sales and marketing, GPUs, energy and power-leasing contracts, advance customer deposits, factories, and public-private partnerships for resilient infrastructure. For the founder, that is everything: less dilution, more control, and the fuel to reach a scale that equity alone could never finance. Innovate the asset class.
Capital entrepreneurs have remade finance before, and you could be the next: start the next great firm and create the next asset class. This is the moment for our own industry to innovate on capital. In the inflationary, capital-starved 1970s and 80s, capital markets gained exactly this kind of economic sophistication. Before the scandals that brought it down, Drexel Burnham Lambert was the most profitable firm on Wall Street, minting a pool of hungry, networked talent: the PayPal mafia of finance. They went on to found Apollo, Ares, and Cerberus, now titans of private capital, while their peers reshaped firms across the Street, from Moelis to the modern Jefferies. Milken's people engineered capital products the world had never seen: the highly confident letter, PIK bonds, and entire new markets in high-yield debt. They used them to finance the upstarts that no bank would touch, challengers that broke open long-distance, cable, and wireless. Their excesses are a cautionary tale, but their creativity is the lesson: their heirs turned non-investment-grade debt and everyday cashflows into financeable assets and built the modern private-credit markets, making a generation of economic activity possible.
Most of our industry still treats equity as free and bank savings-account yields as the cost of capital. We have a long way to go if we really want to help our founders.
A bull market makes everyone look like a great investor. It takes a capital entrepreneur to create value without one. The best companies of the 2010s were forged in a free-money environment where moats were high and product was king. The winners of the next decade will embrace the limitless opportunities of the no-moats era, where the right capital structure, innovated well, becomes the moat itself. Capital entrepreneurship offers the most meaningful seat at the table of our lifetimes.
If this resonates and you have new ideas, email me; we are actively building an ecosystem of capital entrepreneurs at GC.
-ht
