How the Venture Industry is Changing
By Alan Feld, Mentor in Residence and Founder and Emeritus Managing Partner
On December 31, 2025, I retired after being involved in the technology investment space for 32 years and 23 years after founding Vintage Investment Partners. (LinkedIn)
At my final Vintage annual meeting as Managing Partner, I presented some learnings from my period as a venture investor. I thought it might be helpful to convert that presentation into a series of three blogs: How the Venture Industry is Changing, What I Learned from My Mistakes as an Investor, and Lessons for Building a Venture Firm for the Long Run.
It is No Longer about Home Runs …
Last year, I wrote a blog called The Terawatt Law of Venture Capital. My premise was that in the age of AI, venture capital is shifting towards a new paradigm where only a small number of “Terawatt” companies, built on full-stack, AI-driven platforms, will capture the vast majority of returns. In effect, as I saw it, home runs were no longer enough; VCs needed to see grand slams for funds to generate superior returns.
However, I erred big time in how quickly all this would happen.
On December 31, 2022, the Nasdaq Composite Index closed at 10,466. On December 31, 2025, the Nasdaq Composite stock at 23,241. Despite this 122% increase, the number of (non-SPAC) IPOs on US and European exchanges declined from 110 to 67, a 39% drop. Why?
One could argue that there is more capital chasing deals and there is no need to go public. However, the dry powder in the US venture industry was $281 B at the end of 2022 and we estimate it to be $299 B today, a relatively small increase. So, why the drop in IPOs?
While there are some mega star companies that will certainly be attractive to the public markets, I believe that the drop happened largely because the bar to go public has been rising at a spectacular rate, even since 2021.
I believe that public investors are far more focused on investing in the “game-changers” than ever before. They are managing far more capital and they want to invest in stocks that can be meaningful to their performance and above all, actually trade. Today, if a company goes public at under a $5 billion valuation, large public investors ignore it and that is reflected both in analyst coverage and trading. One only need look at the post-IPO performance of the smaller IPOed companies to see it.
Therefore, in my view, if a company cannot trade at a valuation of at least $5 billion, there is no point in going public.
Stand in Line….
Making this even more challenging is the fact that there are over 160 private US and European venture-backed companies with valuations in excess of $5 billion. The line to go public is long and keeps getting longer.
A company therefore needs to stand out to IPO – in other words, it needs to be a “Terawatt Company”.
What makes a Terawatt Company?
- Market Size: Terawatt Companies are going after a market that WILL BE certainly several tens, but likely hundreds of billions of dollars.
- Management Teams: The management teams are built to scale, and each key executive knows what “very, very big” means and some in key roles will have been involved in getting there in the past.
- Capital Intensity: These companies require a very, very large investment to build the infrastructure and capabilities needed for their platform given the heavy services and marketing and sales component.
- Company Size: These companies need to get to billions, not hundreds of millions, in revenue over time.
- Full-Stack Integrated Platforms: These companies offer comprehensive platforms/solutions, often combining software and human/AI-based services (and maybe even hardware) that make operations as efficient as possible.
- Long-Term Focus: They are built for long-term growth and dominance in their respective markets, e., to be the long-term number 1 player in a gigantic, future market.
What Does this Mean for VCs?
I believe that the venture market is bifurcating into two buckets:
- Full-stack platform funds: Large funds/firms [often multi-sector] with deep capabilities [talent, M&A, operations] that will back winners end-to-end. As competition for Terawatt potential companies will be fierce, venture firms will need to build the in-house expertise, capital, and resources to compete effectively.
- Early-Stage Specialists: Smaller, seed/early-stage funds [sometimes sector-focused] will feed the larger platform players mostly via acquisitions and secondaries.
The funds with the biggest challenges will be the ones in the middle. These are the venture funds that grow simply by scale without evolving operationally or strategically; they will face a “math problem”— too small and without the brand or resources to build Terawatt companies, but too big to generate outsized returns via “classic” M&A. They will pay up to win deals, but not see the returns justify that.
As the slide below shows, the bifurcation is already happening in fundraising: Money is already shifting to fewer, larger firms – mostly with proven track records. Not only did the total amount raised in 2025 in the US decline by 70% from 2022, the capital is increasingly concentrated in far fewer hands. As a result, average fund size is way up, but the number of active funds is shrinking fast…especially in that middle category…
Every venture fund needs to look at its strategy NOW and make a choice: Will my Fund build Terawatts (and raise capital accordingly) or will we sell companies to Terawatts? The “In-betweener Funds” expecting smaller companies to yield big results will face more & more challenges.
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