The Barbell Venture Market
Why founders are feeling both heat and chill in 2025
Venture has never felt more like a barbell. In an alumni founder group chat this week, someone summed it up perfectly: “If you’re a hot YC company or have had a sweet exit, you’re raising $5–10M pre-seed at $30–100M valuations. If you’re not, you’re probably hearing the same thing over and over—‘We love what you’re doing, let’s keep in touch.’”
The extremes are real: mega-rounds on one side, stalled momentum on the other.
Commoditization & Red Oceans
Every AI use case now seems to have 10+ competing teams. We can also look down the pike and anticipate that any successful product will be easily copied. In vertical markets, this creates classic red-ocean dynamics:
Products are easily replicated (coding agents can spin up SaaS clones in days).
Prices spiral downward as companies undercut one another.
Execution, not IP, becomes the only true differentiator.
I spoke recently with a founder in Europe: plausible AI product, strong local network, a believable path to millions in run rate. But the bigger question remains — can they break out of their geography and become a category winner? This is the pattern everywhere: dozens of capable teams, but no clear reason one will consolidate the market.
Venture Model Misalignment
Here’s the core tension:
VC economics require 100x outcomes. Fund math relies on blockbuster exits, not incremental gains.
AI vertical companies can top out at $10–20M run rate in niche markets.
And here’s the truth founders rarely hear: a $10–20M run rate with strong margins and a lean team can deliver extraordinary personal outcomes. It can mean generational wealth, control, and optionality. But these businesses don’t usually fit the venture model.
This raises a bigger question: should capital itself evolve? Instead of forcing every founder into the same venture funnel, why not invent new models that match the economics of AI-native companies—lean, profitable, but not always winner-take-all? (More on this in a future post.)
Market Structure Implications
What actually differentiates in this environment? Increasingly, it’s:
Brand — capturing mindshare early, becoming the name customers trust.
Go-to-market sophistication — knowing how to navigate procurement, build distribution channels, and sustain credibility in industry networks.
Regulatory credibility — hard to earn, harder to displace.
Some markets naturally resist consolidation, like labor marketplaces where fragmentation is the norm. Growth investors can afford to wait until traction is undeniable. But at pre-seed and seed, investors are betting on teams in the middle of messy market dynamics.
The Founder & Investor Lens
For founders, the choice may be less about whether to raise and more about what sort of capital best fits their goals. Bootstrapping, venture, alternative financing — each comes with a different set of tradeoffs. The right fit depends on whether you’re aiming for a profitable $20M business or chasing the chance to be a category-defining company.
For investors, the question is different: which markets will still show the dynamics that powered venture wins over the past decade? It’s not 2018 anymore. Perhaps many funds are defaulting to consensus bets — picks-and-shovels infrastructure, repeat founders, pedigreed teams — because the pattern recognition feels safer.
And yet, some markets will simply be bad markets. Overcrowded, commoditized, or structurally resistant to consolidation. But even there, the work isn’t done. Our job is still to find the outliers — the companies that defy gravity in places the models overlook.