E361: Why Venture Capital is Not an Asset Class

Venture capital functions as manager selection rather than a traditional asset class, as diversification often leads to underperformance due to the industry's power-law distribution. Success requires identifying top-decile managers who can secure access to the few companies driving the majority of returns. The business splits into an "access" model, focused on scaling late-stage investments, and a "craft" model, centered on high-risk, early-stage seed investing. Founders today must possess dual mastery in engineering and sales, as the most successful ventures are built by individuals capable of both technical innovation and market persuasion. AI is transforming the industry by enabling firms to process vast amounts of academic research, allowing investors to identify emerging talent and frontier ideas at an accelerated scale. Ultimately, the most effective venture strategy relies on deep conviction and the ability to build long-term partnerships with exceptional founders.