The Survival of Early Stage Funds Matters to the Whole Venture Ecosystem

Channeling Capital to Early Stage Investors is a Strategic Challenge to all Stages

We still talk about venture capital as though it were one thing.

It isn’t.

I have long thought of venture capital as having become three distinct asset approaches: broadly seed, venture, and growth. Kyle Harrison suggests four, and I think he is directionally right.

In “Venture Capital Doesn’t Exist”, he argues that what we keep calling “venture capital” is really a conflation of four different things: seed stage investing, traditional venture, supercharged growth investing, and what used to be small-cap growth tech stocks. That feels right to me. I would add a fifth: the emergence of secondary buying being packaged for retail investors as something like public venture capital.

The changing nature of venture capital is the most important unifying theme in the recent run of excellent essays on venture. All are worth reading:

• Kyle Harrison’s “Venture Capital Doesn’t Exist” ( Kyle Harrison )

• Dan Gray at Credistick’s “Diseconomies of Scale”

• Jeff Becker’s “Why You Should Never Go Into VC” ( Jeff Becker )

• Nicolai Rasmussen’s “The Math on Venture Capital Is Broken” ( Nicolai Rasmussen )

• And, in a slightly different but highly relevant direction for early-stage investing, Dan Gray’s “The Reformation Will Be Funded”

While venture capital does not exist in the singular, concentration very much does. And that concentration is symbolic of the changes. It is happening at all stages, but perhaps most surprisingly at the earliest stages.

Concentration At Seed And Series A

That is what the numbers show.

The cleanest lens is the top 5 investors, measured by SignalRank’s Seed and Series A investor scores.

On that basis, both Seed and Series A are concentrating into fewer hands.

At Seed, the top 5 firms by the latest Seed Rank accounted for 3.11% of all seed dollars in 2020. In 2025, they accounted for 14.35%. In 2026 year-to-date, they are at 16.43%. These numbers represent the amount raised int he rounds, not the amount each firm contributed. If two of the top five invested the amount raised will still be accurate.

At Series A, the top 5 firms accounted for 10.83% of all dollars in 2020. In 2024, they were at 14.74%. In 2026 year-to-date, they are at 15.16%.

That alone should change the conversation.

Here is the simplest picture of what is happening.

The thing that jumps out is not just that Series A starts more concentrated than Seed. It is that Seed is catching up fast. Five investors are approaching 20% of all early-stage investment dollars, out of more than 7,000 active seed investors and more than 10,000 Series A investors.

That matters because it intersects with another argument that has become harder to ignore: the underlying math of venture looks increasingly broken.

Nicolai Rasmussen makes that case in “The Math on Venture Capital Is Broken”. If the required return for venture is in the low 20s, but many funds are delivering something materially below that after years of lock-up and illiquidity, then the asset class has a structural problem.

His conclusion is sharp:

“The funds that will win the next cycle are the ones willing to concentrate, get their hands dirty, and earn their returns through involvement, not just capital deployment.”

Concentration as strategy is clearly happening.

And if the biggest five firms absorb the best startups by writing the largest checks, then, ipso facto, the other 10,000 firms will struggle to deliver strong returns of any kind.

One response is the Rasmussen response: larger ownership, fewer bets, deeper involvement, more control, more work. In other words, stop pretending that passive capital deployment is enough and move closer to a model where you can actually influence outcomes. That may be right, but it also projects the death of many realistic early-stage venture business models.

This is really about market power. A small number of firms can become better at winning access, winning allocation, and winning distribution even if the asset class itself is not becoming more attractive. Megafunds may not deliver outsized power-law returns, but they will still contain the winners. Gross multiples may be lower, but deployed at great scale. And LPs will continue to fund that strategy.

For years, the central critique of venture has been scale. In “Diseconomies of Scale”, Dan Gray says it plainly: “venture capital does not scale.” I think that is basically right. Big funds are not naturally designed to maximize venture-style outcomes.

But a business can fail to scale economically and still scale institutionally.

That is what the current market looks like.

At Seed, the top 5 firms touched just 1.01% of rounds in 2020 but captured 3.11% of dollars. In 2025, they touched 1.56% of rounds and captured 14.35% of dollars. In 2026 year-to-date, they are at 1.73% of rounds and 16.43% of dollars.

That is not a story about doing a lot more deals. It is a story about controlling a larger share of the important ones.

This is the Seed view.

The Seed top 5 are:

• Andreessen Horowitz

• SV Angel

• Sequoia Capital

• Lightspeed Venture Partners

• Menlo Ventures

That list has a logic to it. It is about brand, access, network density, and founder pull. But what is most striking is the slope. Seed used to look more diffuse. It no longer does.

Series A is a different kind of market.

It was already concentrated in 2020. The top 5 firms accounted for 10.83% of dollars then, compared with Seed’s 3.11%. It dipped, then rebuilt. By 2024 it was 14.74%. By 2026 year-to-date it is 15.16%.

So Seed is an accelerating concentration story. Series A is an entrenched and accelerating concentration story.

This is the Series A view.

The Series A top 5 are:

• Lightspeed Venture Partners

• SV Angel

• Sequoia Capital

• Andreessen Horowitz

• General Catalyst

Again, not random.

This is where the phrase “venture capital doesn’t exist” becomes genuinely useful. It does not just mean there are different stages and styles of investing. It means there are different market structures hiding under the same label.

Seed is still closer to company formation, experimentation, and access creation. Series A is much closer to a gated signaling market. One is becoming more concentrated. The other has been concentrated for a long time. But both only prosper if early-stage funds continue to discover the best founders and the best ideas. Capital concentration at these stages is a bit like a parent eating its children. The future of the entire value chain relies on great Seed and Series A investors.

That is also why the current reformation language resonates. In “Protestant Capital”, Dan Gray describes the alternative model as “arrive first, invest early, let the market catch up.” That is a very different business from running a large multistage platform. It implies conviction, asymmetry, and real differentiation. It is not just a smaller version of the incumbent model.

And that is the real strategic implication of the data.

The market is not simply bifurcating between large and small. It is squeezing the middle. At the same time, it is struggling for liquidity and opening up to secondary exits to retail investors as one possible solution. “Rome is burning” feels more apt than any obviously positive message.

The firms that look safest from the outside are consolidating market share. But if the diseconomies-of-scale argument is right, that does not automatically mean they are restoring the return profile LPs actually need. Meanwhile, the firms that might produce true outlier returns can no longer survive by being generically early-stage. They need a genuine edge. And LPs need to back them.

This is where Jeff Becker’s line in “Why You Should Never Go Into VC” hits hard: “the market is concentrating against you.”

Against whom? Against generic founders raising without elite access. Against generic GPs trying to build generic funds. Against LPs who confuse institutional safety with economic adequacy.

That is the tension at the center of venture right now.

The category is fragmenting. The capital is consolidating.

For founders, that means there is no single fundraising market anymore. There is a hierarchy. If you can access the top firms, the value of that access is rising. If you cannot, you need to be realistic about which market you are in and what kind of syndicate can actually help you.

For LPs, the implication is even sharper. If the market keeps concentrating into a handful of firms, manager selection matters more than ever. But if the same firms winning that concentration battle are doing so in a business whose economics are deteriorating with scale, then the obvious allocation path may not be the right one.

For emerging managers, the message is brutal. There is less and less room for the generic venture fund. You need either genuine structural differentiation or the ability to drive outcomes through access, ownership, and involvement. Probably all three.

This is the broader context across both markets.

So the conclusion is simple. Venture capital does not exist.

What exists are several different capital businesses, each with different economics, different forms of edge, and different market structures.

But across those businesses, one trend is now unmistakable: more of the money is being controlled by fewer firms. And retail investors are being lined up via public secondary vehicles to supply liquidity to those who need it.

That will not solve venture’s return problem. It may, in fact, be one of the clearest signs of it. And retail investors in Robinhood’s $25 a share RVI have already experienced that valuations of later stage secondary assets are potentially flaky and subject to not holding up.

My own focus is to channel capital to early-stage funds by doing pro-rata investments into their best companies. That is SignalRank’s purpose. It channels capital from investors to seed managers and their Series B-stage companies. These companies still have significant future growth and can be attractive to retail investors looking for venture returns. Happy retail investors and happy seed stage managers is a winning combination. The impact of these flows is to counter the concentration impact.

The flywheel of capital channelled into the seed ecosystem, producing greater capital by investing at Series B, can live in that virtuous cycle. I think the health of the early-stage ecosystem, and thereby the whole ecosystem, needs that flywheel.