The 12-Year Unicorn & The Death of Gut-Driven Sales

The Carry · August 2nd. 5 min 51 sec.

Cold open

The average US unicorn is now twelve years old. Twelve years. Traditional software companies are walking straight into a valuation woodchipper. Unless they can prove massive growth powered directly by AI, they are stuck. Exit paths are stalled. Liquidity is completely stretched out. Meanwhile, the physical infrastructure behind AI is completely warping real estate. Inland Empire industrial rents plummeted forty percent. Silicon Valley shot up forty percent. Same window.

Intro

This is The Carry for August second. I went through the top private equity podcasts this week so you don't have to. Here's what actually mattered for deals, capital, and the market. I'm West. Let's get to work.

Incentive Structures

The gap between getting a deal done and making a deal work has never been wider. Incentive structures are actively destroying long-term deal value across the board. Andrew Morbitzer sits in corporate development at Life three sixty. He sees a massive friction point in middle market deals. Investment bankers hunt for closing fees. That directly opposes a corporate buyer's mandate to actually generate post-close value. Morbitzer points out that bankers are often trying to pull something out of nothing. That incentivizes sellers to hide negative unit economics. Buyers are forced into exhaustive diligence just to find the baseline truth. Think about that. Deal friction is skyrocketing because the broker only cares about the wire hitting at closing. Lauren Hochfelder saw this exact misalignment nearly kill Morgan Stanley Real Assets after the two thousand and eight crisis. They had to completely gut their compensation model. They shifted away from deal-level and regional bonuses to a pooled incentive structure. Here is why that matters to you. If you reward an investment committee for regional volume, you get a regional bias that approves bad deals. Centralizing power and pooling the carry forced her team to survive. Hochfelder noted that virtually everyone senior to her was gone. There were a handful of them left in the foxhole together. They had to rebuild alignment from the ground up. You either build structural alignment with your partners, or you die by a thousand bad committee votes. The incentives dictate the survival of the firm.

The Penalty of Scaling

Scaling past your initial blueprint destroys predictable returns. Aram Verdian over at Accolade Partners points out that a forty million dollar seed fund has a sharp structural advantage. That advantage vanishes the second they raise a larger vehicle. Consistent outperformance in early-stage venture is a winner take all game. A small fund with deep expertise in technical AI founders secures prime deal flow. Expanding the fund size forces that general partner into fatal pitfalls. They end up competing against established mega firms. Their niche intimacy gets completely diluted. Their right to win evaporates overnight. No right to win means no alpha. The same exact breakdown happens inside rapid growth sales organizations. Sam Levy scaled the go to market engine at NetSuite to four billion dollars. He learned firsthand that the skills of a lone wolf sales rep fail entirely in management. Fast revenue growth inherently exposes the cracks. It masks operational decay until the entire system buckles under its own weight. Leaders must force a shift from chaos to a rigid cadence operating rhythm. You have to swap instinct driven hustle for structured delegation and outcome inspection. The structural advantages that got you to your first major milestone will actively sabotage your path to the next one. Scaling requires breaking your old model on purpose before it breaks you. Every single week. You have to rebuild the machine while it's running.

Luis Laboy

Luis Laboy dropped a brutal truth bomb on Capital Allocators this week. He was discussing a blunt performance review that fundamentally changed his approach to portfolio management. The feedback he received was that he was trying to make money, and their job is to make money. That hurts to hear. But it's entirely accurate for asset management. We get so caught up in macro theories and being intellectually validated that we focus on the only mandate that actually matters: cash generation. Paying out distributions to limited partners comes from realized returns. You have to put your ego aside and focus strictly on realized returns.

Michelle Knudsen

Over on Capital Allocators, NYU endowment chief Michelle Knudsen called out the immense pressure within the private market fundraising cycle right now. She admitted that one of the things she worries a lot about is that fear of missing out will propel us to invest in more of it than we should. This is the institutional allocator dilemma in a nutshell. General partners are marketing artificial intelligence multiples and spinning stories about generational disruption. It becomes incredibly difficult for limited partners to hold the line on pacing and allocation limits. Discipline breaks down when everyone else seems to be getting rich off the current trend.

Andrew Morbitzer

Andrew Morbitzer explained the exact reason why corporate buyers and intermediaries constantly butt heads during middle market transactions. He noted that the motivation of the banker is theirs to make money, and they make good money because often they are trying to pull something out of nothing. This gets straight to the heart of the diligence grind. Intermediaries are paid to create a market and close a transaction, regardless of the underlying reality of the asset. Buyers have to assume the initial data package is aggressively optimistic. You have to dig for the true unit economics because the person selling it to you has zero liability once the funds clear.

The bottom line

The structural advantages that got you to your first billion in assets under management will actively sabotage your path to the next five. You cannot scale on gut instinct alone. You cannot build a durable portfolio with misaligned incentive structures. Genuine growth demands rigid operational cadence and absolute alignment from the top down. Remember that this week. That's The Carry. See you next Sunday.