Couverture de E41: The VC Market Has Split Into Two Different Games (And Most Founders Are Playing The Wrong One)

E41: The VC Market Has Split Into Two Different Games (And Most Founders Are Playing The Wrong One)

E41: The VC Market Has Split Into Two Different Games (And Most Founders Are Playing The Wrong One)

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 The VC market deployed $97 billion in Q3 2025, yet 84% of 2022 seed companies still haven't raised Series A. How both things are true, why the market split into two different games, and what founders should do about it.The paradox that made me investigate:Three years ago I was raising capital, met incredible founders who raised seed/Series AChecked in last week - only handful raised additional rounds since 2021Meanwhile VCs on Twitter celebrating record fundraises, expanding, thrivingHow can founders be struggling while VCs are thriving? Both things true simultaneouslyQ3 2025: The data nobody talks about:VCs deployed $97 billion total in Q3 2025 (looks like record territory)One-third ($32B) went to just 18 companiesAnthropic raised $13B, Elon's xAI raised $5B, Mistral raised $2BThose 18 companies averaged $1.8 billion eachOther 7,500 companies split remaining $65B = average $8.7 million eachThat's a 200x difference between the two groupsThe market has split into Game A vs Game B:Game A (The AI Elite):AI companies, especially LLM and foundational modelsRepeat founders with previous exitsTop-tier accelerator graduates (YC, etc.)Companies fitting current narrativeBased in San FranciscoAI captured 55% of all US funding in Q3 2025Anthropic alone got 35% of all AI fundingGame B (Everyone Else):First-time foundersNon-AI companiesCompanies that raised in 2020-2021Anyone outside SF/NYC/BostonAnyone without previous exitFighting for scraps with terrible oddsThe Series A crisis gets dark:84.6% of companies that raised seed in early 2022 STILL haven't raised Series ANot struggling to raise - haven't raised at all, period, in 3 yearsBack in 2020-2021: 50-60% chance at Series ANow: 15% chance (one in six)Some have $1M ARR (used to be golden ticket) but investors won't return emailsThe VC conversation that explained everything:Spoke with top-50 Silicon Valley VC two weeks ago at pitch competitionHis answer: "I'm just investing in AI. Our firm's thesis has turned to AI""If it's not AI, it's really hard to get partnership approval""We have a mandate from our LPs - they want AI exposure""We cannot physically invest in anything else right now, even when we want to"VCs have bosses (LPs) who are pension funds, foreign investors, Middle Eastern moneyReal founder stories from my network:Friend stuck for 4-5 years since last round, has revenue and customersCan't get down round without getting crushedCan't raise at current (pandemic-level) valuationCan't pivot fast enoughOptions: bridge round with massive dilution, down round that kills you, or shut downWhat you can actually do - if trying to raise VC:Be brutally honest: Are you building AI? Previous exit? $2M+ ARR with 3x growth? In SF?Yes to most = Game A, keep pushingNo to most = Game B, change strategy or accept VC isn't right fit nowCritical runway math:Takes 6-9 months minimum to raise right now (used to be 3 months for seed)If you have less than 12 months runway and no interested VCs yet, you won't make itNeed to pivot to profitability RIGHT NOW, not next quarterOpen Excel today and calculate exactly how many months you have leftThe hardest advice - if you raised in 2020-2021:If it's been 3 years since last round with zero additional funding despite revenue/customers, consider shutting downBar went up 200x, the 15% making it to Series A now are playing different gameNo shame in shutting down - return money to investors, be honest with team, move onDon't spend another 5 years struggling against rigged gameYour time is worth more than thatWhy bootstrap founders have the advantage:Best time in 20 years to be bootstrap founder7,500 companies fighting for $65B will struggle because funding goes to Anthropic/OpenAIBootstrap founders compete for customers and revenue, not VC moneyCustomers don't care if you're VC-backed or AI-powered - just if you solve problemsEven if you want to raise later, stabilize profit/revenue firstYC was right (and I didn't want to believe it):2022: YC told all portfolio companies to survive until 2026I thought it was hyperbolic and ridiculousThey were right - they saw something we didn'tOnly thing they didn't predict: ChatGPT and AI waveChanged math again but only for AI companies - tech winter continues for everyone elseKey insights on the "record VC deployment" headlines:20 companies building AGI got billions each7,500 other companies split what's left84% of seed companies can't raise Series ABar went up 200x for everyone not in Game AThe mistake most founders make:Think they're in Game A when actually in Game BTwo completely different games happening in same marketPartners matter way more than firm namesMust understand which game you're actually allowed to playRed flags you're playing the wrong game: Raised 3+ years ago with no follow-on funding, investors not returning emails despite $1M+ ARR, trying to raise at 2021 valuations, thinking "just one more pivot" will fix it, spending years on something clearly not working.Bottom line: VCs deployed ...
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