1/ Why is too much capital a bad thing for the VC industry? (1) It causes early-stage firms to start doing late-stage deals because they want more AUM.
2/ (2) It causes late-stage firms to do early-stage deals because their stage gets more competitive and they want to buy options.
(3) The result - quite simply and quite obviously - is that many VCs start doing things they are not particularly good at. This hurts returns and hurts founders.
(4) ...and we end up with a decade's worth of zombie firms with no clear strengths and no clear strategy - just a big portfolio of increasingly random positions.
(5) The best firms - the one's with the longest and most consistent track records - are the ones that stay focused on their core and resist strategy/style drift.
(6) The path of the righteous is beset on all sides. ;) "easy AUM" on one side, "easy option-value investing" on the other side.
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