Key Takeaways

  • Harry Stebbings highlighted a software company generating $20 million in annual recurring revenue, growing 600% to 700% profitably, that received zero interest from venture capital firms because it lacked an AI narrative.
  • Jason Lemkin argued that funds managing $5 billion to $10 billion mathematically require billion-dollar ownership positions in businesses reaching $25 billion valuations to return their capital.
  • Rory O'Driscoll pointed out that only 10 to 20 decacorns emerge per decade across the entire tech sector, making fund-wide mandates for massive winners statistically unviable.
  • Seed rounds priced at $50 million to $100 million prevent early investors from making money when multi-stage funds step in and compress small ownership stakes.

The Disagreement

Lemkin argued that mega-funds have no choice but to demand astronomical valuations and enormous checks: “You got to have billion-dollar positions in everything in big boy venture today... it's billion dollar positions or nothing there's no point in investing otherwise with large funds.” For an $8 billion vehicle, writing a $30 million check into a startup that sells for $2 billion yields roughly $200 million after dilution. That return barely registers on the fund's balance sheet. To justify their management fees, mega-funds must chase trillion-dollar categories where a single portfolio company can return multiple billions.

O'Driscoll countered that this strategy mistakes fund ambition for market capacity. Tech does not produce enough massive outcomes to satisfy dozens of giant balance sheets. O'Driscoll stated: “I don't think you can confine yourself to saying I'll only do deals where I can get a billion dollars to work... A $25 billion outcome. I mean, you want some of those, but... not the whole industry is not going to be able to say we're all going to do those and have more than five funds because it's not enough.” If twenty mega-funds each demand ten decacorns to hit their hurdle rate, most will post poor returns.

Stebbings brought the everyday reality of this divide to light: “I think venture is broken today in the way that I'm meeting more and more companies that fit this profile. I just met a company today and I have a company that's 20 million in ARR growing incredibly fast 6 700% profitable brilliant business with a great team crickets VCs do not want it.”

Who's Right (and When They're Wrong)

Lemkin is mathematically correct about the traps of fund size, but O'Driscoll is right about market reality.

When a venture firm manages billions of dollars, its partners cannot justify writing small checks into companies whose natural ceiling is $1 billion. Stebbings captured this dynamic accurately: “It's this power law on steroids requirement where unless you can paint me the trillion dollar market cap, I'm not interested.” If a founder cannot present a credible path to a trillion-dollar category, mega-funds will pass, regardless of how fast the company grows or how healthy its unit economics look.

Yet O'Driscoll identifies the systemic danger. The entire tech economy only creates 10 to 20 decacorns each decade. When dozens of multi-billion-dollar funds adopt the same mandate, they flood speculative sectors with undisciplined cash. That dynamic creates seed rounds priced at $50 million to $100 million where, as Lemkin observed, early investors "can't make money" because multi-stage giants lead later rounds and crush early ownership allocations.

Lemkin's view explains the behavior of institutional checks. O'Driscoll's view explains why the current wave of mega-fund capital will leave limited partners disappointed.

What to Do With This

Stop pitching mega-funds if your company does not target a trillion-dollar market. Pull your target investor spreadsheet today and delete every firm managing more than $1 billion across its active pools. Build a replacement list of sub-$300 million funds whose fund math allows them to celebrate a $50 million payout from a $500 million acquisition.