CEO & Founder at SignalRank. Previously founding investor at TechCrunch. Publisher of That Was The Week
Palo Alto, CA
Joined May 2007
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Venture Opportunities - Hidden in Plain Sight
This is not a Crisis
open.substack.com/pub/thatwa…
@kwharrison13 @fredwilson @jcal7
Three takeaways from this week’s issue:
1. Venture capital is separating into different businesses—not simply failing. Financing the scale of established AI leaders and discovering companies before consensus require different LPs, funds, checks and skills. Kyle Harrison sees strategy drift; Fred Wilson argues bigger funds can preserve investment discipline.
2. The overlooked opportunity is financing the discoverers. Specialist early-stage managers still find exceptional companies, but large LPs increasingly need somewhere to deploy enormous checks. Silent Ventures illustrates how specialist discovery and separately supplied follow-on capital can work together—not proof that small funds universally outperform. SignalRank's pro-rata as a service to smaller managers is similar.
3. AI’s next business opportunity is making capability usable. The “diffusion gap” and rise of deployment companies point toward integration, workflow redesign and accessible products. Better models alone do not produce paying customers. That creates room for startups beyond the frontier labs. There is opportunity everywhere.
Open models still need infrastructure. Azeem Azhar’s distinction between model and infrastructure revenue adds to our TWTW discussion of funding access.
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From Intelligence to Abundance, by @kteare open.substack.com/pub/thatwa…
Missed TWTW #39? Read the editorial, watch Keith Teare's 4:43 solo video, or listen to its audio. Venture Opportunities - Hidden in Plain Sight:
thatwastheweek.com/p/venture…
Large AI investments can make sense. That doesn't make early-stage discovery obsolete. Different jobs, different investment strategies. Keith Teare's argument in TWTW #39:
thatwastheweek.com/p/venture…
Cheaper intelligence makes more uses practical. Azeem Azhar develops an argument we have been following in TWTW, including through his earlier work.
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Keith Teare still believes in early-stage investing. Bigger checks into fewer AI companies are not the whole story. A 22-second teaser; full solo video and editorial:
thatwastheweek.com/p/venture…
Good thinking. Aligns with my own - thatwastheweek.com/p/venture…
That said I do think exits from concentration will result in flow to the whole of venture from LPs who participate in it.
The ability to concentrate requires a small number of huge winners. That is a once in a blue moon opportunity.
Once past it money will flow to a more normal power law potential.
For a long time, concentration in VC remained fairly stable, as capital inflows were broadly distributed.
This changed in the last five years as exits dried up and the "illiquidity ratchet" kicked in — only the largest and least sensitive LPs have sustained allocation, to the largest firms.
(i.e. Smaller LPs need distributions to recycle into new comittments, and therefore rely on the market acting rationally to produce exits. On the other hand, large firms produce irrational behaviour.)
The HHI (Herfindahl-Hirschman Index) is a standard measure of market concentration. It is the sum of the squared market share of each participant.
A score of >1,800 designates a highly concentrated industry, trending toward oligopoly, which receives extra antitrust scrutiny on M&A.
This must also factor the "relationship-based" of venture capital, where firms are not independent actors operating in competition with each other.
So, it's possible to calculate a "similarity-adjusted" score which considers the level of enmeshment — how frequently the portfolio companies of a particular firm share the same set of investors.
Bu this measure, venture capital has clearly reached a point where concentration is problematic, surpassing the 2023 antitrust threshold and even the higher original threshold from 2010.
As the market becomes more concentrated, this manifests as conesensus investing and increasingly inflated prices for mediocre assets.
The eventual "buyer" is yet more downstream private capital, each getting marked up by the next. There's no bagholder if the bag keeps getting passed around.
It's unclear how this is corrected without some form of intervention.
The size of AI investment cannot settle the bubble question. Azeem Azhar’s discussion of demand is a useful companion to our August TWTW debate.
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AI safety requires engineering. Huang’s discussion of controls sits alongside our TWTW discussion of how technical rules are developed and enforced.
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If automation creates the wealth, who should own the rewards? Keith proposes share ownership for all citizens. Andrew questions practicality. Winning support is part of the job. 🎬 @andrewtkeenon
thatwastheweek.com/p/men-and…
You can say “please” to AI without thinking it is a person. Keith separates courtesy from human rights. Andrew challenges the certainty—and admits he says “thank you” too. 🎬 @andrewtkeenon
thatwastheweek.com/p/men-and…
Your AI still gets instructions wrong. Keith calls that unfinished engineering; Andrew compares it to children. Better controls are a job to do, not a reason to declare victory. 🎬 @andrewtkeenon
thatwastheweek.com/p/men-and…
"Because exits aren’t coming fast enough, the fund structure itself is getting rebuilt with continuation vehicles, NAV loans, tender offers, and GP-led secondaries. Assets passing from one fund to the next."
True, but not for the best funds...
Men and Machines
open.substack.com/pub/thatwa…
1. Being smarter doesn’t give AI the right to decide for you. What matters is what it can access, what it can do and who can stop it. Those controls must be engineered and enforced. A more intelligent model is no substitute for accountable humans.
2. “Find me the best insurance” isn’t permission to buy it. That distinction is the foundation of useful delegation. Your agent needs enough freedom to save you time, with clear boundaries around spending your money, sharing your information and making commitments.
3. Your AI should work for you, not the website selling to you. A shopping agent should help you compare offers and walk away from a bad deal. Businesses can defend against abuse without shutting out your representative. You shouldn’t have to pay a toll to escape the advertising funnel.
4. You can say “thank you” to a machine without making it a person. Human-like conversation doesn’t establish human feelings or rights. Both worshipping AI and treating it as an enemy distract from the people building, deploying and using it. They remain responsible.
5. AI’s democratic promise is more power in your hands. More people could gain the ability to understand complex issues, challenge experts and hold institutions accountable. That won’t happen automatically. It depends on who gets access, whose interests the tools serve and whether the benefits are widely shared.
Are You Afraid of Your Light Bulbs? xitter.cf/i/broadcasts/1YGNrbmAX…
Keith Teare retweeted
Everybody knows pro rata rights are valuable, but it's equally well known that they're basically unenforcable because no VC firm wants to sue a founder.
So, this supposedly professional industry has operated on an opaque "honour system" where pro rata rights are generally respected.
Certainly, there's no question of pro rata allocation if a company is struggling. Founders will take all the money they can get from their existing investors.
However, problems arise when a company catches the attention of an big firm with the brand strength to push other investors around to get more ownership.
Just like the illiquidity ratchet, this structurally punishes early investors by attacking their ability to maintain ownership of their winers or offer pro rata as a coinvestment opportunity for their LPs.
It's time that this changes. Early investors deserve to maintain the rights that they receive in return for investing when others are unwilling.
A few other comments on the importance of pro rata:
"All VC fund managers want to be able to continue to invest in the successful startups they back. The pro rata right that typically comes with investing in a startup can be one of an emerging manager’s most valuable possessions." - @KevinDowd
"''Capturing pro-rata' is sooooo important in early stage venture. You make 20 investments in a fund. One is going to return the entire fund. Two more are going to return it again." - @fredwilson
"The best VCs vigorously defend their pro rata rights. This strategy is crucial for staying in the top quartile of performers. The persistence of returns among top VCs across generations is largely attributed to their steadfast use of pro rata rights." - @alphaptrs
carta.com/data/emerging-mana…
avc.com/2014/07/the-pro-rata…
alphapartners.com/press/alph…
Describing AI as software changes where we look for responsibility. This passage from Jensen Huang connects with a recent TWTW discussion.
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Is Apple protecting your control—or limiting your AI assistant? Keith argues it risks taking the “wrong side of history.” The tension: permission, privacy and delegation. 🎬 @andrewtkeenon
thatwastheweek.com/p/ai-is-b…