All Our VC Friends Are Dead

In 2021, we warned that venture capital was splitting into two distinct worlds (Two Worlds of Venture, Enmeshment in Venture). While many dismissively chalked this up to typical market cycles, we saw a fundamental shift coming: the extinction of focused seed-stage investors. Now, in 2025, that prediction has become painfully obvious: the stage-specialized VCs we started out with are nowhere to be found.

One of the most memorable things about our early investment days was the amount of collaboration that existed with other seed funds. We’d often need to partner up with 3 or 4 other partners to get a $3M round done. Sure, the process could be clunky, but it typically led to very supportive investor groups between seed and Series A. When we revisit the firms we used to work with most frequently, the vast majority are in one of two categories:

  • $100M+ fund sizes, investing minimum checks of $2M+, skewing toward larger checks and rounds

  • No longer investing

Nearly all of our peers – focused, nimble, <$50M funds, materially invested in the success of our underdog portfolio companies – in a sense, are dead.

This market outcome is a symptom of how institutional LPs evaluate and allocate capital. We’ve seen this firsthand. While others chased asset growth, we made the deliberate (and often difficult) choice to stay small and focused. We proved our investment model with just $5M. This proof-of-concept fund allowed us to fine-tune our strategy, focus, value-add, and process, learning how to be an institutional lead investor. We cut our teeth with just 7 portfolio companies (a nailbiter of a portfolio until we hit 1x DPI in year 4), but this measured approach gave us the foundation we needed to be a credible, long-term partner for “day one” founders.

With our next two funds, we raised about $12.5M and $20M, incremental step-ups that allowed us to remain the most aligned partner for both founders and LPs. We focused our portfolio support around the areas that matter most between seed and Series A (sales acceleration, operations, and capital strategy), and we evolved our portfolio construction to consistently capitalize on venture capital’s outsized potential.

Raising our $20M fund between 2020 and 2022 gave us an intimate view of the structural shift in venture. While our core base of industry experts and family offices understood the value proposition of a focused, engaged, upside-oriented strategy, the institutional LP landscape was a different story. All in-person meetings evaporated, and public markets seesawed daily. Even with macro recovery, portfolio resilience, and real returns, we watched large LPs go from freezing deployment to doubling down on existing manager allocations overnight, making it clear that the entry points for new managers, especially small ones, had tightened dramatically.

In tandem with our personal experiences of this dynamic, the data on this bifurcation became increasingly clear, and we realized our experience wasn’t an outlier. Given the venture asset class has exceptionally high dispersion and relies on outliers for outperformance, industry-wide diversification is critical for long-term viability. The opposite trend drives toward stagnation. As we saw the tidal wave of consolidation coming, we tried to fire a warning signal for founders, VCs, and LPs, hoping that this path wasn’t yet irreversible.

Unfortunately, since then, quarter after quarter, industry data has continued to confirm this trend. It’s taken some time, but our warning that market structure is shifting dangerously has now become a consensus view:

While many are talking about the symptoms, few are addressing the root cause: the way institutional LPs evaluate and allocate to venture managers. Consider the bifurcation of “emerging” vs “established” funds. In venture, these concepts are almost universally correlated with fund size. Emerging funds are new and small. It is a foregone conclusion that “established” funds are large. The maturation arc of a successful VC firm is from small/emerging to big/established, in line with large institutions’ incentives of deploying relatively large amounts of capital across a relatively small number of firms and VCs’ incentives of accumulating AUM. As a result, seed investing is treated as a stepping stone rather than a long-term strategy.

LPs tend to fall into two camps: those who believe in persistence of returns and those who bet on emerging managers. Yet there’s scant analysis of what actually drives under- or outperformance beyond mean reversion. The same bad heuristics that skew founder selection (pedigree, proximity, brand) also shape LP allocations: some use “persistence” to justify backing ever-expanding franchises, while others over-index on novelty. What’s missing are tangible, testable frameworks for evaluating the real drivers of returns.

A few thoughtful voices are starting to talk about more than superficial metrics. Sara Zulkosky at Recast Capital recently published an analysis examining what drives returns (albeit still within the “established” vs “emerging” framework). Dan Gray's ongoing data-driven work is pushing our industry to think more rigorously about performance measurement. The team at Verdis has published thoughtful analyses on portfolio construction. Joe Milam and Del Johnson continue to critique industry structure, portfolio construction, and more. Thankfully there is little consensus amidst these voices on what the correct answer is, and all push us toward more rigor.

Over the past decade, our team has pored over the research, analyzed our own mistakes, and questioned what kind of firm we want to be. How do we balance what founders want, what LPs like, and what drives returns? (Maddeningly, these are often 3 different things!) How do we build an enduring venture firm that doesn’t get worse over time?

As our partner Jeffrey and Jenny, Jonathan, and Lak at N47 have recently written, seed investing in particular requires a unique approach. Studying what leads to investment underperformance can provide a framework of mistakes to avoid. We don’t have all the answers, but a decade of investing and research has taught us several critical lessons about what drives seed-stage returns:

  • Entry point matters. It’s easy to hand-wave away valuation and ownership in frothy markets, but in seed investing, discipline is non-negotiable. Especially in times of challenging exit liquidity, built-in optionality significantly supports return potential. More importantly, disciplined fundraising trajectories correlate with stronger ultimate success, suggesting return-oriented investors should avoid the temptation of heat-driven rounds that push founders to scale prematurely. In addition to remaining valuation-sensitive, we’ve also increasingly front-loaded our investment strategy, prioritizing initial ownership over follow-on investments. As James Heath recently published in “Reserves are a Scam”, reserves are exceptionally difficult to allocate effectively in real market conditions, and they hamper upside as they decrease both upfront ownership and diversification. With a focus on disciplined initial investments, we can build much more exciting portfolios.

  • Right-sized checks require right-sized funds. Small, focused funds mathematically have higher outperformance potential; as fund size grows, return potential declines. We’ve kept deliberate, incremental step-ups (from $5M to ~$12.5M to ~$20M) to preserve alignment, maintain seed-stage discipline, and avoid being forced up-market.

  • Optimal specialization requires balance. While LPs often prefer specialized funds for their own portfolio construction, this preference conflicts with GPs’ own return maximization goal. The research on this topic generally skews in favor of generalist fund-level strategies. Further, the most compelling argument in favor of optimizing diversification is a simple logical one: in an outlier-driven industry, with significant unknowable variables, you should avoid any criteria that arbitrarily constrain your investable universe. The sweet spot lies in leveraging deep expertise in select areas while staying open to adjacent opportunities. At Laconia, we have core sector focuses (fintech, retail, healthcare, and proptech), a bias toward capital-efficient business models (b2b vs b2c), and flexibility to pursue other scalable software categories (e.g. a recent agtech investment). This balance, while not terribly flashy, ensures we leverage our deep experience and specialized networks without boxing ourselves out of the next big thing.

  • Portfolio construction has practical limits. Optimal portfolio size in theory is different from optimal portfolio size in reality. In theory, the larger the portfolio size, the better (though with significant diminishing returns). In practice, serious constraints make that suboptimal. For one, strong investor-founder relationships are both objectively and subjectively important, as they are valued by both parties and provide meaningful protection to investors in an otherwise vulnerable position. Furthermore, VCs’ roles as fiduciaries require a level of awareness and supervision, no matter how “founder-friendly” they may be. Under these circumstances, it is hard to square the trade-offs required to build exceptionally large portfolios.

  • Process complements instincts. As much as we might wish decisions could be black and white, seed investing is not entirely reliant on either data or gut feel. Seed requires judgment plus structure. We use consistent evaluation frameworks and technology to reduce noise, improve qualification, and make faster, better decisions, without losing the qualitative, human assessment that early-stage investing demands.

  • Betting on teams doesn’t mean pattern-matching stereotypes. Research has shown that VCs have a tendency to overvalue superficial characteristics, leading to suboptimal decisions. At seed stage, investors have to identify diamonds in the rough. We evaluate founders not based on where they went to school or which investors they already know, but on the expertise they bring, the rigor with which they approach business-building, and the leadership qualities that they demonstrate. Strong networks help with speed and insight, but we don’t mistake brand, proximity, or co-investor lists for edge. We underwrite independently, especially when markets are choppy and social proof is least predictive.

  • Investor competence takes many forms. The industry fetishizes specific pedigrees for investors, whereas performance comes from complementary skills and lived experiences. In building our own team, we intentionally value different paths and avoid over-weighting any single background.

Perhaps our most fundamental lesson learned about seed investing is that it truly doesn’t scale. We know we can’t be the universal seed investor. No firm can. This is why we have always supported others along their investment journey, going so far as to launch a 1,500+ person fellowship program supporting those searching for their own path. But training isn’t enough – we need to change how the industry evaluates and rewards specialized seed investing.

More than ever, founders and investors alike deserve deep focus and true partnership. Our approach is rare, but we know we can’t be alone in our thinking. If you see the opportunity that we see – the evergreen upside of disciplined seed investing, the value of alignment, and the arbitrage of going against the grain of value-destroying industry inertia – we’d love to connect.

Geri Kirilova

Geri Kirilova