VCs Play a Different Game — Founders Need to Stop Playing Along

I just wrapped up an intense week at Japan Fintech Week, where I spent time with various VCs, from early-stage seed investors to late-stage growth funds. I also got into detailed discussions with CVC & Family Office representatives, LPs representing Pension Funds, and Private Equity Players. The conversation had a strong fintech, blockchain, and AI flavor, but the lessons hold true for the wider VC and Startup ecosystem. The conversations over four days were insightful, entertaining, wee bit frustarating and, at times, brutally honest.

Starting with a confession

Let me begin by saying that the "venture model isn’t entirely broken and far from dying" (as the article's banner suggests), but I am increasingly convinced that it’s misaligned for most founders.

I also want to stress that ventures are cyclical, and cycles cleanse the industry (as we have seen in the past couple of years). In most cases, the ones who survive these cycles are the ones who are willing to evolve, genuinely add value, think independently, and invest with conviction rather than consensus.

Background

The global fintech sector has experienced significant fluctuations in venture capital (VC) investments over the past few years. In 2021, however, multiple factors drove fintech companies to attract a record $229 billion in VC funding.

This momentum slowed considerably in the subsequent years. By 2023, global fintech investment had declined to $46.3 billion, a 67% decrease from the 2021 peak. This downward trend continued last year, with fintech companies worldwide securing a total of $43.5 billion, a 20% drop compared to the $54.2 billion raised in 2023. Fintech deals decreased by 16%, from 7,683 in 2023 to 6,464 in 2024. This decline underscores the shifting dynamics within the VC landscape. Also, the word 'AI 'Has swallowed up all the oxygen in the VC atmosphere. I fear it's leading to the formation of yet another bubble (what's worth noting is that a number of these AI startups will be the 'tech' within the 'fintech' but won't get classified as fintechs). ?

Irrespective of how I present the figures and trends, what's apparent is that the overall contraction in VC funding towards 'fintechs' highlights the need for founders to navigate a more discerning and challenging investment environment. Understanding venture capitalists' evolving priorities and incentives is crucial for entrepreneurs aiming to secure funding and build sustainable businesses in this changing landscape.

The VC Game

While I do not claim to be a VC, I have been fortunate enough to be associated with the sector in several guises over the past 15 years. I am also an active angel investor and have held multiple advisory roles for startups (from early-stage to unicorns).

If you’re a founder reading this article, note that these are my personal views on how the overall venture capital sector is operating today. Yes, there are generalizations, and the writing is stripped of any Twitter-friendly soundbites

This is how I see the VC game unfolding currently:

VCs Want to Bet on Unicorns—You Just Want a Great Business

There’s a fundamental misalignment between General Partners (GPs) and founders, and it’s only worsening.

• Divergent Aspirations: Founders often aspire to build solid, sustainable businesses that provide substantial returns and personal fulfillment. A $300-$500 million exit can be life-changing for a founder, offering financial security and validation of their vision. In contrast, venture capitalists are typically hunting for the next unicorn — a company valued at over $1 billion — that can deliver exponential returns to offset other investments that may not succeed. This disparity means more diminutive and more realistic exits, while significant to a founder, might be considered merely a modest success or even a shortfall in a VC's portfolio strategy.
• Portfolio Dynamics: Venture capital operates on a power-law dynamic, where a small % of investments drive the majority of returns. VCs are incentivized to find and fund companies with the potential for massive scale and market disruption. Consequently, businesses that aim for steady growth and moderate exits may not align with VC expectations, leading to potential conflicts in goals and pressures to pursue hyper-growth strategies that may not suit the company's fundamentals (we saw a lot of this in the past few years and continue to see similar pressures disguised differently)

Takeaway for Founders: This misalignment has seen VCs pushing founders toward aggressive scaling, market expansion, and/or business pivots that align with pursuing unicorn status but may not be in the company's best interest. Founders must be aware of these dynamics and critically assess whether VC funding aligns with their business objectives and growth plans. In some cases, alternative funding sources might just be the right answer.

Valuations Are an Illusion—Liquidity Is the Only Thing That Matters

VCs will cheer you on as you raise at higher and higher valuations. But the truth is:

• Fundraising as a Means, Not an End: Securing funding at high valuations can create an illusion of success and momentum. However, these valuations are often based on projections and expectations rather than realized performance. High valuations can become precarious without a clear path to profitability and sustainable operations, leading to down rounds or challenging negotiations in future funding stages (again, we saw a lot of it recently, and I suspect we will continue to see the same in the future unless founders change their strategies)
• The Liquidity Gap: There is often a significant time gap — sometimes spanning a decade —between raising capital and achieving liquidity events such as acquisitions or an IPO. During this period, market conditions can and will change, competitive tempo will intensify, and initial valuations can become misaligned with the company's actual performance. This gap emphasizes the importance of building a resilient business that can weather market fluctuations and deliver real value over time.
• The Real Metric: Ultimately, a startup's success is measured by its ability to provide returns to its stakeholders, including founders, employees, and investors. This success is realized through profitable operations, strategic exits, or public offerings that convert equity into tangible financial returns. High valuations without corresponding liquidity events can leave stakeholders with paper wealth that may never materialize into real financial gains. Furthermore, it sometimes leads to delayed exits as the valuation is not satisfactory to the VCs and that could prove to be catastrophic (I have personally seen this play out a few times in the GCC itself in the last couple of years)

Takeaway for Founders: Founders should prioritize building sustainable businesses with clear paths to profitability and liquidity. This approach ensures that valuations are grounded in reality and that all stakeholders can realize the financial benefits of their investments and efforts at the right time and a fair value (if there is any such thing as 'fair value' in the world of fintech startups where greed and arrogance still prevails)

Stop Expanding Your TAM because your VC says so — Shrink It Instead

One of the most common mistakes I see is founders pitching massive Total Addressable Markets (TAMs) and/or expanding their TAM as they grow as a business to include adjacent market segments where they have limited 'right to play' and even lesser 'right to win'. This is driven by the thinking that a larger TAM makes them more fundable. It’s simply a TRAP.

• The Fallacy of Large TAMs: While a large TAM can indicate a potential market opportunity, it often leads to diluted focus and resources. Do remember the three basic questions which should all be considered before you arrive at your TAM - Where to Play?, How to Play? And How to Win? Attempting to serve a broad market without capabilities and differentiation will, in most cases, result in generic offerings that fail to resonate with any specific customer segment and lead to a dilution of value - either on the top line, the bottom line, or both lines.
• Lessons from Overexpansion: Expanding into multiple markets or regions prematurely can stretch a company's resources thin and lead to operational challenges. For example, entering markets with diverging regulatory requirements, differing competitive environments, varying scales, and habits with the adequate preparation can result in misaligned product-market fit and increased operational complexities. We are all impressed by the likes of Revolut, which has expanded to 40 countries, but trust me, for every Revolut, there might be 100 others who failed to even expand to one more country, let alone a dozen.

Takeaway for Founders: Achieving Precision in Product-Market Fit (PMF) by focusing on a smaller, well-defined market allows for a deeper understanding of customer needs, enabling the development of tailored solutions. This precision increases the likelihood of achieving PMF, as the company can iterate based on specific feedback. Don't get forced by your VC to expand the TAM so that you can achieve a larger valuation in the next round!

The Venture Industry Is increasingly a Game of Promotions, Not Outcomes

One of the most disheartening realities of venture capital today is that many investors aren’t actually investing in the future — they’re managing their careers.

• Climbing the VC Ladder: At most firms, principals and associates aren’t waiting for your company to exit or generate returns—they’re waiting for their next promotion. Their success isn’t tied to your business thriving; it’s tied to securing a better position at a more prestigious fund.
• The Markup Game: One of the quickest ways to get promoted in VC is through markups—getting a portfolio company to raise at a higher valuation. It looks great on paper and signals to their partners that they backed a "winner." The catch? These markups often have zero correlation with actual business success.
• The "One Month Early" Strategy: Many VCs today don’t need to be visionaries; they just need to figure out which firm one stage after them is about to invest and get in a month earlier. That way, they can show a markup, claim credit for "spotting the opportunity," and move up the ranks.

Takeaway for Founders: Many investors will encourage you to raise more money than you need, grow faster than you should, and prioritize the wrong metrics — all because it benefits their career, not your company.

You Can’t Be a Seed and Growth Investor at the Same Time

The best athletes don’t try to play two professional sports at once. The same should be true for investors.

• Early-Stage Investing Requires a Different Muscle: Early-stage VC is about intuition, founder insight, and high-risk, high-reward bets. There are very few numbers to rely on—just vision, execution, and gut feeling.
• Growth Investing Is About De-Risking: Late-stage investing is analyzing data, assessing revenue scale, and minimizing downside risks. It’s about optimizing returns, not discovering diamonds in the rough.
• Why Many Firms Struggle: Many VC firms try to do both, claiming they’re “full-stack investors.” The reality? Most often, they become mediocre at both. They lack the deep conviction needed for early-stage bets and the operational rigor required for growth investing.

Takeaway for Founders: Know exactly what kind of investor you need. Early-stage investors should bring strategic advice and deep belief, while growth investors should provide stability and access to capital markets. If an investor is trying to play both games, be cautious.

The Best VCs Think Like Founders, Not Bankers

The rise of AI is changing how companies are built—and VCs need to evolve, too.

• The Old Model No Longer Works: The traditional VC playbook was about big teams, long diligence cycles, and incremental decision-making. That doesn’t work in a world where AI allows companies to move 10x faster with 10x fewer employees.
• The Best VCs Are Getting Leaner and Faster: Just as startups are running leaner, the smartest investors are also increasingly operating like small, fast-moving squads — making conviction-based bets instead of waiting for consensus.
• What Founders Actually Need: In 2019, raising capital was a founder’s biggest challenge. In 2025, it’s distribution, partnerships, and product strategy. The best VCs aren’t just check writers; they’re connectors, advisors, and growth accelerators.

Takeaway for Founders: If your investor isn’t actively helping you scale—whether through customers, talent, or partnerships—then all they’re providing is money. In today’s world, money alone is a commodity

Corporate Venture Capital (CVC) Is Playing a Different Game

Traditional VCs aren’t the only players in startup investing anymore—CVCs are reshaping the landscape, and founders need to understand their distinct motivations.

• Strategic Over Financial Returns: Unlike traditional VCs, which seek pure financial upside, CVCs often invest to gain insights, secure partnerships, or integrate technology into their parent company's ecosystem.
• Longer Time Horizons but a double edged sword: CVCs aren’t always bound by the shorter fund lifecycle (like the VCs), which means they may have more patience for companies that need a longer runway to scale. However, if their corporate sponsor loses interest in the sector, they can also pull the plug faster than a traditional VC.
• Potential for Misalignment: A CVC may invest in your startup because it fits their business agenda today, but what happens if their priorities shift? Founders need to assess whether a CVC investor is truly aligned with their long-term vision or just looking for a short-term strategic edge.

Takeaway for Founders: Not all CVC money is good or bad, but it comes with different risks. Founders should consider whether they’re a priority for the corporate parent or just a temporary curiosity

The Quiet Rise of Family Offices in VC

Over the past few years, family offices have become serious players in venture investing. They take a different approach than traditional institutional VCs.

• Less Hype, More Patience: Family offices tend to invest with longer-term horizons and less pressure for quick markups. Unlike traditional funds, which often chase markups for career incentives, family offices are often investing personal wealth and can afford to wait for real value creation.
• More Selective, More Personalized: Many family offices are relationship-driven investors who don’t operate on a spray-and-pray model. They often seek deeper involvement with founders, and their capital is often less volatile during downturns.
• Competing with Traditional VCs: As family offices become more sophisticated, some are now bypassing VC funds entirely and investing directly into startups. This shift means founders can raise from high-net-worth investors who offer less dilution, fewer reporting requirements, and longer-term support.

Takeaway for Founders: For founders looking for more patient, long-term capital, family offices are becoming an increasingly viable alternative to traditional VC funds.

LPs Are No Longer Buying the VC Sales Pitch

Limited Partners (LPs)—the institutions, endowments, and pension funds that back VC firms—are rethinking their allocation to venture capital.

• Diminishing Returns, Rising Skepticism: Over the last decade, venture capital has underperformed relative to other asset classes. Many LPs who blindly increased their allocations to venture during the bull run of 2021 are now re-evaluating their commitment.
• Flight to Quality: LPs aren’t pulling out of venture entirely but becoming far more selective. Many are reducing allocations to mid-tier VC firms instead concentrating capital into top-performing funds with proven track records.
• Demand for Liquidity: With public markets struggling and private markets tightening, many LPs are demanding faster paths to liquidity from VC funds. This puts pressure on VCs to return capital faster, which leads to more pressure on founders to grow unnaturally fast or exit prematurely.

Takeaway for Founders: If VCs are under pressure from LPs, that pressure will eventually trickle down to founders. Founders should be wary of VCs who push for aggressive fundraising timelines or exits that don’t make sense just to satisfy LP liquidity demands.

Conclusion: Wake Up and Smell the Coffee

Venture capital isn’t broken—but it’s deeply misaligned for most founders. I have always held that fear and that is now increasingly turning into reality. Some suggest, and I agree, that the VC sector is undergoing a reset phase (following the euphoria that prevailed until the early 2020s), and that requires founders to also undergo a period of reflection and change. Ultimately, founders build companies, not venture capitalists. The sooner you stop optimizing for their playbook and start focusing on your company’s long-term success, the better off you’ll be.

To recap, if you’re raising money, here’s what you need to remember:

? VCs want unicorns; you might just want a great business. Know the difference.

? Valuations don’t matter. Liquidity does. Don’t fall for paper wealth.

? A massive TAM makes you look fundable, but a precise TAM makes you actually successful.

? Many investors care more about markups than outcomes. Pick your partners wisely.

? Early and growth investing are different sports. Work with specialists, not generalists.

? The best investors think like founders, not bankers. Surround yourself with them.

? CVCs can be valuable but may have shifting strategic priorities.

? Family offices offer an alternative to traditional VC, with longer time horizons and fewer strings attached.

? LPs demanding liquidity means many VCs are feeling the pressure, which could lead to further misaligned incentives for founders.

In my opinion, some VCs are complete gems, understanding what they are doing and knowing how to strike a healthy balance between what they need to achieve and what the startups within their portfolio need most. Still, there are an equal number of VCs who fall short (some might even be successful VCs from a financial perspective, but that doesn't mean they are effectively nurturing the startup ecosystem); its those VCs that the startup founders need to be wary off and not lose sight of the bigger picture because they are standing with their checkbooks. I appreciate its easier said than done.