This is what happens when big firms do their own origination, rather than relying on an independent substrate of seed investors. Hire a load of scouts who are incentivised to find fast-moving consensus deals (SF, AI, credentialed founders), and you saturate the market with overheated garbage. It’s a bet that you can capture the “winners” of the cycle before anyone else / that brute-force coverage of obvious categories is desirable. Everything we know about venture capital indicates this is wrong, but then this isn’t really venture capital anymore.

VCs need to understand what drives IPO activity. They talk about a "lost opportunity" for retail investors, when public market index funds have outperformed 95% of the VC market in recent years. They talk about companies "not wanting" to go public, and simultaneously joke about private market accounting practices. The two are related. They talk about delayed exits as a gift to inflated late-stage VC, when it is the inflation of late-stage VC that has delayed exits. It started with NSMIA, not SoX. Bottom line: Every great company eventually goes public to lower their cost of capital. If a company has not yet gone public, then it is not yet great*. Essentially, as a company saturates their initial market opportunity, growth slows and private capital sources become mismatched. So, the company seeks alternative capital. An IPO is a direct trade of transparency for better terms; rewarding quality with a lower cost of capital. Reporting requirements are why the cost of capital is lower. You can not have one without the other. i.e. If you were to relax reporting requirements, then going public would not be as beneficial. If you were to increase reporting requirements, it would be more beneficial, but to a smaller pool of companies. So while reporting is a burden, it is implicitly worth the trade as long as your performance remains solid. If your business falters after IPO, it's harder to obfuscate. Cost of capital has a direct relationship with interest rates. Yes, macro matters. When interest rates are near zero, the cost of capital is low everywhere. Investors are hungry for new opportunities and develop a greater risk appetite. This means two things: 1) Companies can rely on private capital for longer, and continue generating attractive paper performance. 2) Retail money flows into public markets and creates more a more "optimistic" exit environment. The outcome is that low rates will generally suppress the quality of companies that IPO, and (fear of) rising rates will create a spike in activity as investors dump their bags. (You can see this reflected in the charts below, including the "taper tantrum" of 2013 where the Fed implied a rate rise that never emerged.) At the same time, companies that are "highly legible" (aka good at herding capital) are hoarded as opportunities to absorb more capital and generate markups (solving the "VC doesn't scale" problem). If you stretch this out for a decade, real problems begin to emerge. Thus, ZIRP broke venture capital by creating a whole generation of investors who have only seen the irrational markups produced by herd behavior. They are momentum traders, and know no better. In the years since, some investors have returned to the pre-ZIRP agenda of just backing great businesses, but the largest pools of capital can't break old habits. It turns out, if you command enough attention and capital, you can artificially lower the cost of capital. For example, if you have an AI portfolio and want to juice the market, you can fund VCs who also want to invest in AI. You publish letters about how important AI will be in future. Podcast tours, legacy media, Herd-in institutional capital and corporate investment. This manifests as a narrow band of ZIRP-like behavior, compounding scale and momentum in paper gains while the rest of the market atrophies. Instead of "the invisible hand" that drives prosperity in healthy markets, it's the "memetic hand" of agglomerators that drive concentration. This narrow focus sucks oxygen out of the room for the few great businesses, and it's more difficult for them to attract investment (private or public). So, the private markets will become increasingly distended and imbalanced. The public markets will become more fragile. There will be weak IPO activity, and VCs will continue to assign blame elsewhere. If you are enmeshed with the big firm, riding their wake to benefit from the lower cost of capital, you will continue to wait longer periods for a handful of IPOs that might not break your way. The strategy is not designed to benefit you. "If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy." – Warren Buffett (*exceptions here are Stripe and SpaceX, for reasons I've outlined before: Stripe is an absurd money printer, and Elon wants to get to Mars.)

"The idea that large funds can't have great returns is just not true." The counterposition is not that big funds can't outperform, but simply (and demonstrably) that they're less likely to produce impressive multiples. This is especially true as the market concentrates around large funds, pushing up prices substantially and narrowing the focus of investment. "In that fund Databricks has returned 7x the fund, so far. Coinbase has already returned 5x the fund. In that fund we also had GitHub, DigitalOcean, Lyft..." This is open for debate, but I wouldn't characterise these investments as particularly "consensus". Databricks had a notoriously bad initial pitch. Armstrong struggled with fundraising. GitHub and DigitalOcean started out boostrapped. So while a16z Fund III can make the case that exceptional large funds can outperform, it doesn't validate the consensus-chasing beta of large VCs today, or large funds in general.