Is It The Hardest Time to Raise Early Stage Venture Capital Dollars?

What is true for everybody is that the bar is really, really high because back to my first point, the market is maturing, right? And so there's almost no strategy out there where you can have B+ execution and get A results. There was a time 15 years ago where within seed stage investing, I think you could absolutely do it. But today I think those, those opportunities are very, very few and far between. You should really be executing at a high level no matter what you're doing.

It's the week of September 28th. Welcome to The Learning Corner, a Precursor Ventures podcast. Welcome to the Learning Corner by Precursor. I'm Nia Farnham, and I'm joined by RGP and managing partner Charles Hudson, where we will be talking about the good reads and articles that caught our team's attention over the past week. We're also lucky enough to have Rob Gough from NextView on the pod this week, whose writing we've featured so many times since podcast inception. So it's super exciting to have you on. Rob, welcome to the podcast.

Thank you so much for having me, and I appreciate you reading and sharing stuff that I write. It's always nice to know that other folks that we admire see some, some similar things in the markets. I appreciate that.

And we're going to dive into so many of those pieces for the next 30 minutes. But Rob, do you mind for the listeners just giving a run-up on yourself, background on NextView, thesis of the fund, all of that good stuff?

Yeah, I'm one of the founders of a fund called NextView. We're a pre-seed and seed-focused venture fund. We started originally on the East Coast, but we have offices now in Boston, New York, and San Francisco, and we invest across the country. And we tend to be application layer investors. You know, the heritage of the firm, we were all operators, entrepreneurs at high-growth internet companies. You know, we kind of take that sensibility into how we invest. And we typically invest in a relatively small number of companies per year. So try to be really engaged and hands-on with everything that we're, we're a part of.

Jumping right into it. Like I mentioned in the intro, we've been featuring stuff that you've written for a while now. Almost over a year ago, you wrote a piece that CVC is facing an existential crisis, not like a normal down cycle, but more of a structural shift. And you named 4 forces behind it: industry maturation, YC, maybe some other accelerators there, the mega funds and the power law becoming consensus and the AI platform shift favoring infrastructure over seed. So sitting here almost at the close of 2026, do you feel a little bit more alarmed or less alarmed since when you wrote it? And which maybe of those forces has proven to be the strongest over time?

I think that all those things are still roaring away as, as true as ever. And, you know, it's no surprise to me that, I don't know, was it last week that NFX is going sort of angel mode, private mode? I mean, that's There's a lot of these trends that we're seeing in the market, right? As folks respond to these different challenges, uh, for seed VC. So I think there are 2 forces in particular that are pretty, pretty pronounced. And I describe it as like the convergence of 2 things that weren't consensus becoming consensus. So first was the power law. And, you know, we rewind the clock like a year ago or 15 years ago when Peter Thiel was doing his like CS lectures and the power law was a secret. And, you know, most people underestimated the, that dynamic within actually all markets, but specifically within venture markets.

Yeah.

And now we've gone like really hard the other way. People are just massively zealots about the power law, and that really is reflected in how they invest. The second is AI. And, you know, there was a time not that long ago when everybody was wondering what's the next, next thing going to be, and they were searching for it. And now everybody, 100 million percent, believe that the next, next thing is AI, and it is going to be unprecedented in so many ways. And so I think it's the convergence of those 2 things that have really propelled us to where we are today.

It's funny, our AGM is in 6 or 7 weeks. I've been thinking about all this and I, to Rob's point, I told someone this weekend, it's hard to be a seed investor when the one unitary megatrend in AI infra happens to be a very difficult thing for your model to accommodate. And I think it's even in some ways, I think it's gotten even harder because it's not just that the initial rounds are so big, it's that the compound rate at which the follow-on rounds happen is really hard to keep up with. So you can have a company that raises at $300 million, like, wow, that's expensive. Then it's a billion, then a quarter later it's $5 billion and you're like, wow, well, if you got in at $300, you're up 20x and all the tranching. And it's just, I think, a very difficult time if your business model, whether you're a seed VC or not, if your business model doesn't accommodate AI infra, I'd argue you have a challenged business model in venture right now until people's attention shifts to some other category, whether that's physical AI or robotics or just a broader acknowledgement that there are other things beyond AI infra that matter.

Well, the compounding piece, Rob, that was like your follow-up to the piece that you had written. It was 2 different worldviews, classic venture versus super compounder, and you can't really sit in the middle. Straddling both is a worse position to be in. Are you still holding that belief pretty tightly heading into the end of the year?

I think that the mistake is to like not know what game you're playing. Yeah. To just kind of meander your way through the market. Um, I kind of think that there's actually sort of 3 different paths and one is play the super compounder game. Right? So like everybody's looking for the same thing. Let's just go try to do that thing. Certain profiles of founders, certain types of companies, very, very narrow. And you know, that's a reasonable game to play. There are some funds who do that. The second is classic VC, which I would say is go search for diamonds in the rough, right? Other markets, different profiles of founders, things that are out of favor, hopefully invest in rounds that are rational for your model and, and, and get rewarded for that. That's sort of path number 2. Path number 3 is try to do things completely differently. Right. Invest in companies that maybe seed strap will never raise future follow-on funding. Maybe they're shooting for a different style of outcome that, that could work for your model. And I think that I'm seeing, you know, there's some early-stage funds that are doing this. There's some mid and later-stage funds that do some flavor of this, that, that's sort of like a third, a third path. And so, you know, I think you gotta play one of those 3 or, or maybe there's something I haven't thought of, but, uh, they're pretty distinct strategies.

And the super compounding one that feels like not an easy game to play, but an easy one to communicate. To co-investors, to LPs. For the other 2 buckets, the ones seeds dropping or areas that just, it feels like no one's paying as much attention to, do you find it harder to just get the, the drum going as to getting co-investors around the table for some companies that you're, you know, are going to be strong, but not in the areas that they're looking into or the corners that they're spending time? Like, how do you kind of communicate that out also to your founders who you know that you believe in, but funding risk is just something that shifts and changes every day?

I mean, those are some of the realities, right? Like the 2 data points that make this really challenging is, you know, the price of entry is really, really high across the board, actually. Like it's most pronounced in the thing that everybody wants to invest in. But even in the median, the median entry valuation has like doubled, I think, in the last 6 years or so. So that makes it tough. And then to your point, the downstream financing risk is pretty high. You know, I think the median seed to series graduation rate has gone from like just under 50% to something like 23%, I think, at least a 3-year survival rate in the last few years. So that's a, that's a pretty stark reality. So even if you're trying to play the, the classic seed game, you're trying to find diamonds in the rough, entering them at a reasonable price and making sure that those companies get enough momentum and either become consensus companies or have the signs of that so that they can raise follow-on financing. I mean, that's just a really, really significant challenge.

Charles, maybe a question for you. Do you feel like there are some funds who are forced into one bucket or the other? Like, do you actually have control over your own fate about where you want to spend time?

I think you'd certainly have choices. I don't think all of these choices are pleasant. I think it's just like, we've always been a generalist fund. I've had a lot of LPs who've told me like, oh, I have like this specialist fund for healthcare or for education or for some vertical. And when all of the returns feel like they're going to be concentrated in one theme in AI infra, whether that turns out to be the case or not, we will, time will tell. I think the trickier thing is like, what if you have a specific thesis on a vertical that doesn't allow you to invest in AI infra. And I have some friends who've been very hardcore specialist funds. They've built their brands and reputations on being known for expertise in a vertical. Basically throw those playbooks away and just say, well, what's the point of being a specialist in X if the consensus is that the companies that matter are not in my strike zone? And, you know, we, I think we spent a lot of the last 2 years talking about founders being legible to capital. I think funds have to be legible to LPs. And I think the challenge with some of the models that Rob mentioned is they're new and unproven. So if you do the super compounder thing, you end up in the companies that LPs have heard about from the other big funds or that they've read about in the news. And whether you own, you know, 1 basis point in those companies or whatever, you're, you're on the cap table and the things that you're in feel of the moment. If you have lots of other great companies that are maybe doing well on the business metrics, you actually need limited partners who have the energy, time, and focus to go deep to get to understand those companies. And if you're one person responsible for all privates, maybe that's too much to ask of that individual.

There's also, I think, a track record and survivorship bias question, right? Because, you know, let's say you do find an LP and they're, they're bought in. They're like, you know what, we're going to allocate some percentage of our fund to like non-AI infra stuff. You know, what are AI applications or, you know, something, something very different. They would still rather invest in a manager. who historically got into the AI infra stuff and are now pivoting into this other, other area, that is almost like an easier bet to make than somebody who's been focused on this other area the whole time, but didn't get the halo of having had success in the AI infra side of things, right? So like, it's pretty difficult. And there will be folks who have had that, but from pure survivorship bias, who will have that success and will say, okay, now I'm selling this other story. That's actually a lot easier to say yes to.

So there's like a bit of just living long enough to tell the tale that exists.

To some degree. And it's also a numbers game, right? There will be, you know, folks who, even if it wasn't, um, no particular insight of their own, they happened to make a couple investments in these markets that had such huge tailwinds and now they're moving on to something else and like they, they can tell that story.

Moving on to another piece that you wrote, 4 Approaches to Early Stage Venture, which we kind of talked about a couple minutes ago, but it was back in March and argues that classic seed, specialist seed, mega funds, and accelerators can all coexist and that winning is just executing your model very well. Do you still believe that, that all these different models can coexist? Even where we are in the market today, where you feel like the market's headed in the next couple of years?

I mean, I think it's reasonable to think that those different models can exist. I think some do come in and out of favor over time. And, you know, to your point on survivorship, sometimes you just have to get through the period where it's, you know, looks pretty grim for what it is you're doing. You know, there was a long time where infra investors weren't really in favor, right? And, you know, now they're having, they're having their moment. So I feel like those, those areas are going to come and go, but What is true though for everybody is that the bar is really, really high because back to my first point, the market is maturing, right? And so there's almost no strategy out there where you can have, you know, B+ execution and get A results. There was a time 15 years ago where within seed stage investing, I think you could absolutely do that. But today I think those, those opportunities are very, very few and far between. You have to really be executing at a high level no matter what you're doing.

And 15 years ago, was that due to less private capital being in the market? What do you feel like that was due to, the biggest change?

I think there was a lot less capital in the market. And I think that we were in a segment within institutional seed investing that was non-consensus. A lot of folks did not believe that that was a way that you could, you could invest profitably, but there were a lot of trends that led that to show success, invite a lot of, a lot more capital into the industry and erode some of those, uh, those rents.

I just remember when I first joined Uncorked, like seed was not cool. There weren't that many seed funds. And also the big multi-stage funds were like, this is not a corner of venture that we need to be in. So like we Could be in this business, but we don't really need to. Those folks kind of do their own thing. It's a small-scale business, and I think the thing I think about a lot is what typically tends to unlock most finance businesses is somebody figures out how to scale them in ways that weren't. In some ways, ventures living through what many other sectors of finance have done, which is like you have this cottage industry that's a boutique that has well-established playing rules that people kind of understand, and we're like the people who are in it do quite well, and then someone. comes in and says, well, if it's great with a dollar, I bet it'd be amazing with $100. And the infusion of that capital changes the dynamics of that business. And I think that's really what happened. It continues to happen with seed is that people are running these experiments. Well, like, what's a seed? A seed round is whatever the founder says it is. So we now have seed rounds that are bigger than Series C rounds used to be, $100 million, $200 million, multi. And they're seed rounds because the founders say so. As I told someone, there's no vocabulary police in venture. You can call anything what you want. And I think that creates like massive disruption for people who started their businesses at a time with a different set of constraints.

I think that the pressure then for the seed manager is like, you just gotta be flexible. You have to be more creative about how you go about doing your job. 15 years ago, it's, I liken this to, you know, one or a small number of people with like a magnifying glass walking around the field and be like, oh, there's a diamond. I'll take that. That is not going to work anymore. Right. But There probably is something that will work, but you just gotta play a different game.

And we can talk about all these dynamics being insiders within VC, but how do you communicate these larger changes to founders who are in your own portfolio, who you maybe had invested in maybe 2 years ago? They had a round and the goalposts have completely changed. How do you feel like you're having these conversations, folks within your portfolio, and then again, founders that maybe you're just having conversations with now, but you can kind of read the crystal ball and, and see what the future might look like for them?

Yeah, I think it's very, very difficult to escape the reality that in order to raise subsequent rounds of financing, you need to somehow position yourself as having the potential to be one of these anointed supercomputers. And if you cannot do that, there is going to be very, very little capital for you. You know, how do you communicate with founders? I think founders are aware of this. They're definitely paying attention. They read, you know, the same things we all read. And, uh, you know, it's the lifeblood of their company. I think a lot of it for our job is to help founders make the call early while they have some degrees of freedom to maybe take an alternate path, right? So, because I think there is capital out there for different types of companies, but it needs to be very clear that you're on a different path, right? So if the, if the goal after a seed is like, look, we're going to be profitable either with the capital we have or with just a few million bucks more, I think there's capital for that, but it's got to be really clear that that's going to be what you're going to be able to do with a high degree of success. What's not going to work is the company that is like running hot, but isn't going to be able to raise traditional venture round. And I don't know, 3 months before, they're like, oh, we're, we're now gonna take this different path. And you're just like, there's, there's nothing about this business that, that is consistent with, you know, a different way of building a company as opposed to like the traditional high growth kind of venture, typical venture scale.

If I'm a founder listening to the podcast right now, my next question is probably how early are you gonna be able to see that within my business from your perspective?

Yeah, that's a great question. Again, from the seed perspective, when We're investing, it's before there's like significant product market fit, right? And so everyone is sort of on board that the name of the game here is let's find something that has this like explosive potential. And so if you never find that thing, then it's, you know, you just never find that thing. The trap is when you come upon something that is good but not great.

Yeah.

Um, or good, but is not gonna be legible to downstream capital. I actually think that the job of the seed investor is to really help founders understand that early. Because if you've built something that there's product market fit, it's just not going to be, you know, explosive in the way that the market is expecting. There's still a lot of value there, but it's the job of your seed investor to be able to like give you the coaching to be able to make that call like relatively early, hopefully 12 months before you run out of capital. Back to you, Charles. What do you think about it?

Yeah, I think that I've just been thinking on your question. Yeah, I think that 2 things that have become harder are one is I think conversations around bridges and extensions are very different now. It used to be that like, oh, like fundraising is like linear. If you can make some more progress, maybe 2 to 4 more quarters of continued execution will change people's perception of the business. I think now we live in this like TAM-maxing world where people are like, you're either working on a problem that's deemed to be big enough and of scale, or you're not. And if you're not, 2 to 3 more quarters of execution probably doesn't change people's perception of the business. So I find that follow-on conversations are much harder. And second, I think we live and breathe this stuff every day. And even the most plugged-in founders I know are usually 3 to 6 months behind whatever the internal conversation is in venture. And I've had people who are like, all right, we raised this seed round 2 years ago. We needed to get to $1.5 million in ARR by the time we're done. And they show up proudly, we got to $2 million. And I'm like, well, nobody cares. And they're like, what do you mean? I'm like, well, in this environment, 2 years to get to that level of Revenue attainment does not make you an outlier. And if you just say the job is to find the top 1% of companies, bar to be a top 1% of company has never been higher. And I don't think founders always know how quickly that bar is rising because they're busy building and they tend to think about fundraising when it's time to raise money. And we think about fundraising all the time.

And even the dynamics around what works in fundraising have shifted so much. And like we see again from the inside, I just hopped off a call with a founder in our portfolio. First round did very well without a deck, didn't have to raise this round. Like where conversations are heading similar. And he was like, should I create a deck? These are all preemptive conversations. And in maybe a previous world, I would say like, I like when you run a full fundraising process where it's all structured. And I'm like, honestly, if you didn't need one now, you probably don't need one. If conversations are headed where it's going, like maybe have a memo, I don't know. But that option doesn't exist for every type of founder. And I think that's where a lot of founders live in the in-between and in the unknown of what bucket do I fit in and what sort of benefits do I get to leverage in my process that are unknown to me right now. It's just a very shifting game. Last thing I wanna ask about or have a conversation on, back in July, Rob, you posted another piece called Where Do You Live on the Valuation Curve? And it pointed out that funds drift down the valuation curve and, and meaning from a, from a price standpoint in different percentiles of where folks fall, they drift down the curve without meaning to. They're pulled down by check size and by ownership targets rather than strategy. Every investor here is making an implicit bet. Either that their judgment has gotten better than the competition or that this segment is less efficient. Does it feel like buying below the median still works as seed gets more efficient from your perspective?

Funny enough, I think that in a way it probably might be more attractive than it used to be because there's such an extreme concentration into a small number of companies and types of companies. But I think my point in that post was, again, you don't want your strategy to happen to you and You know, when folks were investing, let's say however many years ago, 5 or 6 years ago, and your typical round was like 20 post seed, I don't think anybody doing those deals said to themselves, I am investing in the median price. I think every single one of those investors would say, I'm investing in certainly the top quartile company in terms of, you know, demand. No, nobody's saying this is a diamond in the rough at 20 post, 5 or 6 years ago. If you're still investing anywhere in that that range right now, you're investing in the median company, right? So either you've decided the median company is now where I want to be, or you let the tail wag the dog and you said, well, I'm trying to own X% with this size check size, which means I'm only doing these kinds of deals. And without even knowing it, you're investing in like a fundamentally different type of business. But if you're investing in a different type of business, I think that the way that you think about downstream risk, the way that you think about your own judgment and lens, like Should shift pretty dramatically if you were to do that intentionally. But I don't know if everyone has done that intentionally.

I totally feel everything that Rob just said, because I think that was for us a big tension for the last few years. It's like we had a model that was constructed on a certain set of entry price ranges that worked for a really long time. And then at some point I was like, oh, there are things that are beyond the horizon for us. And the question's always like, well, do you stretch and re-underwrite the model or do you like stick to your guns? And I have some friends who are just like, nope, we're sticking to our guns. We are going to, to Rob's point, we're going to keep the parameters the same and We still believe we can find great stuff. I have other friends who've thrown all parameters out the window and just say we will chase whatever works. And I think the question is, you know, like we've seen some pretty far outlier, multi-billion dollar, tens of billion dollar outcomes. The question is, have outcomes grown as fast as valuations? And that's where I sometimes wonder like, yes, if you can find a Cursor or an OpenRouter, by all means, you should do those companies. I don't know that we knew that those companies were those companies when they got started. Even if you look at the price at which Cursor got done in beginning, it didn't look like a far outlier. So I'm very curious as to whether we as an industry have gotten better at determining which companies ex ante are most likely to be successful and we should therefore pay up versus the ones that are actually diamonds in the rough. I'm not sure that we've gotten better as quickly as we think we have at identifying the ones that are likely to work. I think we've gotten good at identifying the founder characteristics of companies that we want to pay up for, which I think isn't quite the same thing.

There's this interesting data point. I forget who put it out that showed that the probability of a 10x was uncorrelated to entry price.

Yeah.

Do you remember that? Maybe.

Yeah.

Yeah.

Yeah. Yeah. I thought that was actually really fascinating analysis.

Well, we are all out of time today. We could probably talk about these things all day, but thank you, Rob, for jumping in and for all the writing that you've contributed to the podcast also over the past couple of years. We really, really loved it. Thank you, Charles, for jumping in. Thank you to our listeners for hopping in as well. Please like and subscribe and we'll talk with you all next week. Thank you. Bye.

Thanks so much.