How the giga VCs achieved titanic scale<\/p>\n
The multibillion-dollar fundraises that the G-Flats have pulled together over the past few years threaten to upend a lot of the assumptions about how founders should engage with outside investors.<\/p>\n
\u201cBefore the last two quarters of the dot-com boom, outside of NEA, I\u2019m not sure there\u2019s anybody who would have been thought of as a first-class Silicon Valley investor who was over $1 billion,\u201d says Costanoa\u2019s Sands. (One indication of how hyperscale has shifted expectations in the VC world? Sands describes his firm\u2014which counts recognizable brands such as Vannevar, Quizlet, and Lively<\/a> among its portfolio\u2014as aiming to be \u201cthe world\u2019s best enterprise boutique.\u201d)<\/p>\n He and Padval both attribute this supersizing to two main factors: the tremendous capital it takes to build AI<\/a> software and the fact that many companies are staying private for longer than they used to<\/a>, eschewing IPOs for continued private investment.<\/p>\n Case in point: SpaceX, which just underwent a record-breaking IPO<\/a>, remained private for 24 years. (Four of the six G-Flats had investments in the company<\/a>.) The data analysis giant Databricks<\/a> and the payments processor Stripe, both of which have secured valuations well over $150 billion, remain private, avoiding the scrutiny that comes with an IPO. Andreessen recently cited both companies as examples of \u201cgrowth-stage venture\u201d assets<\/a>, or companies that can maintain startup-like growth\u2014and thus justify startup-like venture investment\u2014deep into their life cycles, well beyond when VCs would\u2019ve historically started looking for an exit.<\/p>\n \u201cIt all comes down to how businesses are growing differently than they were pre-AI,\u201d says Olivia Moore, a partner on Andreessen\u2019s consumer investing team. \u201cAs we saw so many companies growing so quickly and being able to deploy large amounts of capital, we knew we both wanted to lead more rounds and lead larger rounds, because the race to become a generational company is more intense than ever.\u201d<\/p>\n Moore believes that AI software will offer unprecedented investment returns, thus warranting these massive outlays of capital: \u201cI\u2019m thinking of many companies in our portfolio that have gone from zero to $100 million in ARR, and we\u2019re only, what, 3.5 years into generative AI?\u201d (I wrote about annual recurring revenue\u2014and how it\u2019s been abused in the age of AI<\/a>\u2014earlier this spring.)<\/p>\n The concentration of VC capital parallels a similar dynamic among startups themselves, with recent Crunchbase data<\/a> suggesting that around 5 percent of venture-backed startups claimed about 70 percent of American VC funding, leaving the rest of the market to fight for the remaining third. Crunchbase deemed 2025 \u201cthe year of the most U.S. venture capital concentration on record.\u201d<\/p>\n When massive investment creates massive pressure<\/p>\n This enormous scale of fundraising distorts the VC landscape in ways that have meaningful ramifications for founders looking to grow sustainably. That\u2019s partly just a numbers game: The more money on the line, the bigger the upside needs to be to justify it.<\/p>\n \u201cFor any venture firm, the question is, \u2018What\u2019s the likelihood that this can return an entire fund?\u2019\u201d says Costanoa\u2019s Sands. \u201cIf the fund is $10 billion and you\u2019re going to own 20 percent<\/a> of the company, then mathematically it can\u2019t return the fund unless it\u2019s a $50 billion company.\u201d<\/p>\n This is a recurring criticism among investors with less capital to throw around than the G-Flats. \u201cOnce funds reach tens of billions of dollars, they start operating very differently from traditional venture capital,\u201d says a Tel Aviv-based VC with more than $500 million in assets under management. \u201cA $20 billion fund needs enormous outcomes just to generate the kind of returns VC firms are expected to deliver.\u201d<\/p>\n That skews the kinds of companies VCs are attracted to, but also how investors engage with their portfolio companies. The Tel Aviv-based investor says that billion-dollar funds create pressure on founders to scale rapidly in order to validate all the money being pumped into them.<\/p>\n The critique that VCs push companies to grow faster than is healthy\u2014prioritizing short-term returns over long-term sustainability\u2014is certainly not exclusive to the G-Flats. But bigger investments demand bigger returns, so it\u2019s not hard to see how the scale of the giga VCs could exacerbate those pressures.<\/p>\n Blake Hall, founder of the $2 billion identity verification giant<\/a> ID.me, says he\u2019s spoken with investors at one of the G-Flats consistently while building his company, and is glad he opted to take on a mix of early backers that includes military academy graduates, angel investors, and smaller-scale investment funds.<\/p>\n \u201cMoving more deliberately and validating product-market fit instead of being pressured to grow at all costs worked for us,\u201d Hall explains.<\/p>\n In part because VC-backed companies are now waiting longer to go public, investors are also investing later in the life cycles of companies\u2014so late that some critics have said the investment risk is largely gone, with the speculative function of venture replaced by a more private equity-style role helping established companies grow ever-larger.<\/p>\n \u201cA $10 billion fund isn\u2019t really a venture fund anymore,\u201d says Ghazwa Khalatbari, vice president at the early-stage investor Creandum, which has backed companies including Spotify and Klarna and is currently investing out of a roughly $600 million fund. \u201cThe math forces you to underwrite so much\u2014you need to be so much more sure.\u201d<\/p>\n Founders Fund, Sequoia, and General Catalyst did not respond to a request for comment on how their multibillion-dollar fundraises have changed the calculus for founders. Thrive shared a recent interview in which its founder and managing partner Josh Kushner said: \u201cThe companies that we were partnered with needed to raise meaningful capital, and in order to be the best possible partner to them, we needed to do whatever we needed to do to support them in that capacity.\u201d<\/p>\n A16z\u2019s Moore says venture capital is \u201ca power law game,\u201d referring to the idea that a small subset of highly lucrative VC investments drive an outsize percentage of investors\u2019 returns, offsetting the less impressive gains that the bulk of assets bring in. \u201cIf I were a founder, I think I\u2019d like to have all of the resources that I can.\u201d<\/p>\n The power of the giga VCs\u2019 professional networks<\/p>\n Cash isn\u2019t the only tool the giga VCs have at their disposal. These superfunds also stand out from their peers in more abstract, harder-to-quantify ways: brand reputation, professional connections, and clout.<\/p>\n \u201cAnyone can give you money,\u201d says Steve Sonnenberg, co-founder and chief executive of the workplace software company Awardco. \u201cIt\u2019s the talent and the connection and the resources.\u201d<\/p>\n Indeed, when Sonnenberg took on funding from General Catalyst\u2014which counts Anthropic<\/a>, Anduril, Ro, and Stripe among its portfolio companies\u2014he saw the partnership as a means of transforming Awardco from a \u201cyoung, scrappy, do whatever it takes to win\u201d startup to a more mature company that could set its sights on top-tier talent and expand into global markets.<\/p>\n It worked. After General Catalyst backed Awardco in 2021 for its $65 million Series A<\/a>, the investment giant returned last year to support the Inc. 5000 honoree\u2019s<\/a> $165 million Series B<\/a>. That second investment secured Awardco\u2019s unicorn status with a more than $1 billion valuation. Sonnenberg credits his main point of contact at General Catalyst, managing director Paul Kwan, with connecting him to chief human resources officers at major companies as well as Olympic athletes who could serve as brand ambassadors.<\/p>\n Lots of venture funds can throw money around, so it\u2019s the more abstract value-adds that really set an aspiring investor apart, agrees Steijn Pelle, co-founder and chief executive of the business management platform Lassie.<\/p>\n Earlier this month, news broke that a16z was leading Lassie\u2019s $35 million Series A; Pelle knew folks there from his time working at Robinhood and Coinbase, both of which have taken money from the investing powerhouse. (Andreessen has also invested in Facebook, Airbnb, Lyft, Instacart, Pinterest, and a long list of other software giants.)<\/p>\n \u201cIf you scale a business like this, especially these AI agent<\/a> companies [which] scale really fast, you look for expertise,\u201d Pelle says. \u201cThey have a really good network of people that can help pull in engineering talents, help with sales recruiting, help with building up functions of a company.\u201d<\/p>\n His investors feel similarly. Moore, the a16z partner, characterizes her value-add to Lassie and other portcos as a whole platform of support, from access to a16z\u2019s \u201cnetwork of networks\u201d to advice on interviewing a new C-suite hire or marketing<\/a> a product launch. Even potential customers pay attention to these sorts of things, she adds.<\/p>\n \u201cIf you\u2019re a candidate or if you\u2019re a potential customer \u2026 how are you going to choose amongst the wash of options of startups to work with, or work for, or buy a product from?\u201d Moore asks. \u201cOur goal is to have the Andreessen brand not just known but also respected and connected in a way that unlocks things for our founders.\u201d<\/p>\n The giga VCs\u2019 marketing firepower<\/p>\n Reputation isn\u2019t just a matter of having an impressive name on your cap table. Some of the giga VCs have built powerful marketing apparatuses, allowing them to back their investments not just financially but also with sophisticated media operations.<\/p>\n The power of a Big Six brand is top of mind for Josh Machiz, Lightspeed\u2019s chief marketing officer: He just launched an in-house podcast for the firm<\/a>, co-hosted by Lightspeed partner Claire Zau, which he sees as part and parcel with Lightspeed\u2019s value-add to startups.<\/p>\n \u201cWe almost approach it a little bit like a consulting arm,\u201d Machiz says. \u201cFor portfolio companies and for non-portfolio companies, being able to get your news out, especially with Claire\u2019s 300,000 followers and Lightspeed\u2019s 60,000 YouTube subscribers and growing, we\u2019re gonna be able to play a meaningful role in helping them get the exposure that we think they deserve.\u201d<\/p>\n Other giga VCs have thrown similar resources into building in-house media arms that can offer portfolio companies visibility, branding, and PR help. Last week, a16z celebrated the one-year anniversary<\/a> of its \u201cNew Media\u201d arm, which helps the firm\u2019s partners produce original video and editorial content that can then be distributed through the firm\u2019s own social media channels.<\/p>\n