A look at the state of the VC industry: from over-paying in the face of absurd valuations, to big bets on decentralized “Web 3.0” apps, cybersecurity, and more
Mark Suster / Both Sides of the Table : Tweets: @ediggs , @michaelandma , @eghosao , @ljungman , @trengriffin , and @kevinweil Tweets: Eze Vidra / @ediggs : The changing venture landscape by @msuster - interesting perspective and adaptations to prices in the market, trends, support the startups need, etc https://bothsidesofthetable.com/ ... https://twitter.com/... Michael Ma / @michaelandma : Great article by @msuster on seed venture capital market today. https://bothsidesofthetable.com/ ... He picked the perfect year (2011) as the earlier reference point. I was a founder then and the landscape was very much like he described. Eghosa Omoigui / @eghosao : The Changing Venture Landscape. The world around us is being disrupted... | by @MSuster | Sept 2021 | https://bothsidesofthetable.com/ ... Great observations. The question that remains is how much yield hunting remains if/when we transition economic cycles. A great unwind? Or a modest reset? Mattias Ljungman / @ljungman : Like tech, venture is changing requiring us all to adjust what was pre seed and seed affecting how we are structured as a firm. @msuster does a wonderful job outlining how the industry has changed since 2011. https://twitter.com/... Tren Griffin / @trengriffin : 1/ “Years ago Scott Kupor of a16z was telling me the market would split into bulge bracket VCs and specialized, smaller, early-stage firms and the middle ground would be gutted. By 2018 I sensed he was right and we began focusing on our barbell approach.” https://bothsidesofthetable.com/ ... Kevin Weil / @kevinweil : Many things @msuster writes are must reads, but this one is near the top of the list if you're interested in the startup + venture ecosystem: https://bothsidesofthetable.com/ ...
Context & Ripple Effects
Mark Suster's state-of-the-industry essay lands at the end of a decade-long arc the related coverage has been tracking: US fundraising hit $55B in 2018, matching 1999 levels, yet most of that money flowed into growth rounds that function as private IPOs rather than into early-stage cheques. Meanwhile worldwide early-stage deal counts collapsed from roughly 13.3K in 2014 to under 6K by 2017, hitting mobile app and SaaS founders hardest.
Suster's argument ties those threads together: capital is over-paying against absurd valuations, so differentiation comes from concentrated thematic bets on decentralized Web 3.0 applications and cybersecurity rather than broad index-style seeding. The market he describes is one where big multi-stage funds now compete directly in seed, forcing a structural answer about who should lead early rounds.
First-order effects
- Founders raising early rounds face inflated pricing but fewer total deals, pushing them toward either bulge-bracket multi-stage firms or specialized seed specialists whose support models differ sharply.
- Mid-sized generalist funds are squeezed out of their traditional lane and must pick defensible themes — Suster's own framing points to Web 3.0 apps and cybersecurity as where conviction capital concentrates.
Second-order effects
- As mega-funds move downstage into seed, seed-focused funds respond by differentiating on speed, founder support, and follow-on signaling rather than price — the pros-and-cons calculus founders weigh when choosing a lead shifts accordingly.
- Growth-stage capital absorbing most new fund dollars keeps late valuations bid up, which feeds back into the early-stage overpayment Suster flags since entry prices anchor to exit expectations.
Third-order effects
- If the pattern holds, the industry consolidates into a barbell: very large firms running private-IPO-scale growth portfolios at one end, small specialized early-stage firms at the other, with the undifferentiated middle hollowed out.
- Concentrated thematic bets like decentralized applications make venture returns more correlated to a few technology cycles, raising the stakes when any single theme corrects.
The trend: Venture capital is bifurcating into mega-funds writing private-IPO-scale growth cheques and specialized early-stage specialists competing on theme and support, leaving generalist mid-sized funds without a durable position.