Signal Hunters
Why New Funds Matter
New funds feed the venture information machine – a machine that serves as the prime driver of our modern, technology-driven economy. In an era of “national capitalism” and consolidating capital markets, we must preserve the messy, edge-driven innovation cycles that agile financiers with novel strategies contribute to – or risk drifting towards a rigid system of top-down capital allocation models that could undermine Western technological advantage.
Why does the world need a new venture capital fund?
On stage in San Francisco, Odd Lots’ Tracy Alloway posed this deceptively simple question to Chemistry co-founder Ethan Kurzweil, who sat for the interview to announce his firm’s $350m debut fund. His response followed a familiar, self-deprecating script:
“The world does not need a new venture capital fund. That's the last thing the world needs.”
Kurzweil’s further explanation – that the oversupply of capital has caused misalignment between LPs, fund managers, and ultimately, founders – draws out a systemic tension in modern venture capital: The world may or may not need more venture capital (debatable), but to maximize the market’s positive impact on productivity growth and economic dynamism it needs more capital flowing to more new, and importantly new types of, venture capital funds.
Individual funds are relatively fungible at their inception, but the continuous emergence of new firms is fundamental to how the industry processes and acts upon information about technological and economic transformation.
This mechanism matters because venture capital, properly understood, functions less as an asset class than as a distributed intelligence network. What appears irrational and inefficient – new funds launching into a saturated marketplace – creates exactly the kind of redundant, resilient coverage that complex adaptive systems require to process rapid change. These constant permutations reveal venture capital's true value: converting disparate signals about techno-economic shifts into beneficial capital flows.
I have written before about my admiration for Benchmark's bottom-up approach to investing, encapsulated in the view that venture is about seeing the present clearly rather than predicting the future. We can debate the merits of this statement at an individual firm level – is there any alpha in such an approach or does seeing the present clearly mean chasing beta?
But at a market level, the system's ability to see the present clearly is a critical health factor.
And the market is healthiest with thousands of “edge allocators” processing local information about founder execution, talent movement, buying behavior, geopolitical shifts, and technological momentum.
Its power lies in its distributed nature. Firms sitting in different and unique information flows, building proprietary networks of overlooked builders, pick up signals impossible to fully process with capital deployment models focused on what Trae Stephens and Markie Wagner referred to as “socially approved technology spaces” – the institutionally safe “what” over the critical and messy “who” and, as we will get to later, new ideas for “how”.
The Edge of Consensus
In an era defined by massive inception-stage financings, it is easy to forget that many of history's greatest technology companies started out looking like toys or in markets completely out of favor with prevailing investment trends.
Uber's 2010 seed round, financed by seed fund pioneers First Round Capital and Founder Collective alongside an emerging class of "superangels" is the canonical example of a company and category that failed to check most of the "institutional TAM test" boxes. It took such non-traditional investors to back physical-world disruption at a time when conventional wisdom heavily favored pure digital businesses.
Defense technology in Europe, headlined by Helsing, provides another clear example. While the company gained initial notoriety in 2021 through a €100m Series A round led by Prima Materia (itself an important model for entrepreneurial capital), its initial fuel was provided by a band of independent angels capable of operating outside of the "Brussels Broadcast System" of centralized European capital allocation – and as a result having the willingness and conviction to cut against a continent-wide belief that national security technology was both unethical and unnecessary.
Through today's lens, it is hard to fully appreciate the active resistance to defense technology in Europe before Russia's 2022 invasion of Ukraine. As I saw as part of Prima Materia, most investors at the time – some of whom now actively seek defense investments – simply refused to engage on the topic. If they did engage, it was solely to denounce the merits of technologists building for warfighters. These reactions weren't merely passive skepticism, but active cultural and institutional blindspots – precisely the kind of opportunity gaps distributed, independent investors are uniquely positioned to take advantage of.
Yuri Milner’s 2009 investment in Facebook as the company recovered from the Global Financial Crisis provides another powerful example of outsiders transforming markets. As recounted by then-Facebook exec Dan Rose, Milner’s DST offered to clear the highest bid by 20% and allow Mark Zuckerberg to vote all of his shares. The move was dismissed by Silicon Valley insiders as "crazy Russian, dumb money."
What these investors missed was that Milner's team operated within an entirely different information flow. They had built a sophisticated analysis of consumer internet business models across 40 countries outside the U.S. – Hungary, Israel, China and beyond – focusing on companies that had to build profitable businesses without the luxury of venture capital. This comparative matrix allowed DST to see Facebook's monetization potential with greater clarity than firms entrenched in Silicon Valley groupthink.
Layered on top of this was DST's novel structural approach. Beyond their higher valuation, Milner uniquely recognized the value of discounted secondary purchases, creating yet another dimension of value that traditional VCs had overlooked.
As Rose concludes in his X thread on the deal, "sometimes it takes an outsider to change the rules of the game.”
Today, toy markets, out-of-favor categories, and underappreciated talent pools are undoubtedly forming beyond (or beneath) the legibility window of centralizing capital allocators, favoring investors embedded within these emerging technological and geographic ecosystems.
This distributed sensing capability embodied by this network of financiers, rather than any individual firm's genius, is what gives the venture ecosystem – particularly in the US – its adaptive advantage. The question is whether this advantage can survive the growing centralization of venture capital – and what lessons this holds for capital allocators seeking to identify and back the next generation of breakthrough investment models that are on the verge of breaking out.
Signal Inversion
In 2024, nearly 30% of venture capital raised in the US went to just three firms while the number of venture firms continued to contract considerably. This points to a fundamental shift in how market information flows.
What was once a bottom-up discovery network is becoming a top-down broadcast system.
Smaller funds increasingly orient their investment theses around “venture bank” proclamations rather than ground-level signals. Instead of processing genuine market information – employee migration, the emergence of new demand pools, technological breakthroughs – they're chasing synthetic versions of these signals manufactured in Sand Hill Road boardrooms.
As Stephens and Wagner argued in the previously mentioned piece on Pirate Wires “hype culture slows the rate of innovation by denying capital to entrepreneurs pursuing genuinely world-changing technologies”.
Over the past decade, hype culture has become cemented in the form of multi-billion dollar consensus machines masquerading as risk capital.
When incentives force less powerful funds to become signal repeaters rather than signal processors, the system's ability to detect truly breakthrough opportunities diminishes.
Europe faces a parallel challenge which I referred to above as the "Brussels Broadcast System" – the continent's version of top-down capital allocation. While the tone has shifted somewhat on what European funds are "allowed" to invest in due to geopolitical fracturing and competition, the underlying mechanism remains unchanged: capital flows according to centrally determined priorities rather than ground-level information.
This system sees Brussels and national capitals pushing investment mandates out to the funds they back, creating a cascade of directed capital that follows political priorities rather than market signals. The result is a European ecosystem oriented toward satisfying institutional requirements rather than identifying and scaling the next generation of transformative companies.
The New Funds We Need
Even without reiterating all the nuances of complex adaptive systems, it is clear that venture capital performs best when new, distributed, specialized financiers detect and capitalize on signals obscured by the rush toward mega-funds.
This isn't mere theory—the data consistently backs it up. Strong evidence shows emerging managers consistently outperform established peers across venture capital, private equity, even hedge funds. Newness is often a structural advantage that translates directly into superior returns thanks to novel strategies, sharper focus, and incentives more aligned with performance rather than asset gathering.
Today, I believe three categories of new fund models – Production Capital, Special Situations, and European Growth – stand out as crucial to maintaining true discovery, shaping a more resilient ecosystem, and unlocking alpha that capital concentration leaves on the table.
Production Capital
As I wrote last year, “transforming legacy industries with physical technology is an execution problem distinct in its difficulty. The skill sets, capital strategies, organizational structures, feedback loops, and cultural orientation required to develop and deploy complex industrial-grade systems represent a fundamental departure from the “shared playbooks” used to build enterprise software and consumer internet companies over the past 20 years.”
Production Capitalists bridge the gap between the worlds of the venture market dreamers and the infrastructure realists through capital, information, and on-the-ground commercialization expertise. They operate at the messy transition from technology development to deployment at scale — precisely the point where centralized capital allocation models which naturally organize into easy to understand silos demonstrate their greatest weakness.
Beyond the typical equity stakes of venture investing, Production Capitalists can earn development revenue and secure meaningful ownership in the projects their portfolio companies create. This approach combats the chronic lack of “moolah in the coolah” — cold, hard DPI, as opposed to fleeting TVPI — that has hindered venture returns (and perception) and contributed to more centralized orientation by capital allocators.
By layering multiple income streams onto a portfolio of real industrial assets, these specialized financiers achieve steadier and more substantial cash distributions, giving them a dual advantage: the upside of venture investing and the tangible returns of infrastructure ownership.
Special Situations
Post-COVID froth and inflated valuations have created a situation where otherwise promising companies are trapped under broken funding narratives and unrealistic growth targets. Where most VCs see failed momentum plays, specialists with an orientation towards active ownership can create significant value by restructuring ownership, revisiting capital needs, and refocusing product strategies.
Such turnarounds hinge on more than financial engineering and a sharp-elbowed PE approach. They demand a hybrid model combining founder-centric partnership with rigorous operational discipline. Venture funds lack the mandate, skillset, and most importantly the right incentives for such opportunities, meaning managers going after this cohort of companies face less competition, can drive favorable terms, and can quickly unlock upside by restoring alignment between cap tables, founders, and market realities.
European Growth
Europe's growth capital gap represents the most significant geography-driven alpha opportunity in global technology markets. The prerequisites are in place – founders that have seen scale, deep pools of technical talent, and existential macro motivations that are clearing much of the bureaucratic mess that has previously disadvantaged ambitious builders.
These experienced entrepreneurs – the "keystone species" as Ian Hogarth calls them in the FT – increasingly demand a native capital ecosystem that matches their ambition. Having built companies before, they understand the value of investors with an intuitive grasp of the European context and committed presence – building in Europe, for Europe and using it as a springboard for global scale.
In an era of fracturing global markets and reprioritized technological sovereignty, Europe-native growth specialists build a unique form of trust with entrepreneurs by positioning themselves as long-term players in local ecosystems. A continuous presence and deeply embedded relationships across the innovation landscape yields insights that can only be captured through repetition – investing in lines rather than dots by following promising companies closely from their early stages and building relationships well before growth rounds materialize. This, in turn, creates resilience for Europe's tech ecosystem – ensuring capital remains available through geopolitical shifts and market cycles, enabling founders to build with confidence regardless of external conditions.
The combination of great builders supported by investors with genuine European commitment creates the foundation for the next generation of continental champions – and returns to match.
Maintaining a Systemic Edge
The challenges facing both American and European venture markets reflect a broader strategic reality: Western technological advantage depends on maintaining vibrant, distributed networks of specialized investors across the entire Atlantic ecosystem.
Each Great Power system possesses distinct strengths and vulnerabilities. Chinese military-civil fusion offers concentrated force. It is fast and scalable but potentially fragile given it lacks on-the-ground feedback loops. The European system is safe, dominated historically by volatility-dampening institutions, at the expense of the spiky outcomes that drive step changes in productivity and power. America’s historic advantage lies in its capacity to process weak signals at the edge and amplify them through successive stages of financing deployment (tapping into the world’s deepest capital markets).
In a world of intensifying strategic competition, rapid detection and resource allocation for critical technologies becomes central to the strength of both nations and the broader Western alliance. As we move into what Russell Napier calls an era of “national capitalism,” the temptation will be to double down on bigger, more centralized funds—on both sides of the Atlantic. Yet this urge, if unchecked, risks stifling the very edge-driven creativity that is hallmark of techno-economic dynamism.
Rather than succumb to centralized capital mandates, both the US and Europe should lean into the messy, decentralizing force of new funds and novel financing models. What appears inefficient from a capital deployment perspective—multiple specialized players making seemingly uncoordinated bets—is precisely what creates the distributed signal detection network essential for resilient innovation. By resisting consolidation, we preserve the market's ability to identify opportunities hidden beneath immediate consensus and nurture them into the transformative companies of tomorrow.
As both Europe and America confront the pull of top-down allocation, it is crucial to remember that the future isn’t predicted from the center – it is discovered at the edges, where the venture information machine processes its most valuable signals.
Preserving this distributed intelligence network isn't merely about fund returns; it's about maintaining the adaptive capacity that drives technological advancement in an increasingly competitive global landscape.