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New SaaStr on 20VC: Why VCs Are “Upside Junkies” and AI is “Maiming” Growth Companies
- The latest episode of SaaStr on 20VC featured Rory O’Driscoll of Scale Venture Partners discussing hot takes on the VC model and early-stage investments.
- Benchmark's 10% hit rate on unicorns highlights the challenges faced by other funds, with the mega fund vs. focus fund dilemma reshaping the venture capital ecosystem.
- Venture capital has evolved into a bundled good, with early-stage investments becoming loss-leading products to secure rights for later, more lucrative rounds.
- Mega funds enjoy a structural advantage with substantial capital reserves and platform resources, posing challenges for smaller, stage-specific firms.
- AI's impact on customer service ROI and labor force disruption is significant, potentially replacing half the tech labor force while creating trillions in value.
- Venture capitalists prioritize option value over intrinsic value, leading to the acquisition of growth companies like Census at disappointing valuations.
- The hard math of venture returns reveals that no VC firm has achieved the market share required to make their model work mathematically, driving the chase for outliers like OpenAI and SpaceX.
- The VC world is divided between mega funds with 2% hit rates and focus funds with 10% hit rates, with pre-seed investing becoming crucial for winning Series A and B deals.
- AI is causing 'massive unemployment' in tech, Harvard's potential tax-exempt status loss could impact fundraising for small funds, and VCs are structurally inclined towards upside potential over stable returns.
- The episode explores how AI is 'maiming not killing' growth companies, leading to disappointing exits and a market division between winners and struggling firms.
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