Heresy and the venture industrial complex
The ocean of sameness; the rise of the industrial venture complex; what it means for emerging venture funds; why heresy is important; where heretics go next.
The venture industry was born out of curiosity. Over time it traded serendipity for playbooks. The result is an increasingly homogenous and ultra-concentrated ecosystem that is routing capital towards consensus ideas instead of funding heretical ones with vast potential. This post is an attempt to contextualise such developments and explore their implications for stakeholders. Towards the end I’m sharing some ideas around the concept of heresy and how it might still be applied in venture going forward.
The ocean of incremental sameness
The venture industry sits at the intersection of technology, politics and culture. Over the last few decades all of those areas have become more homogenous, more compliant, more complacent and more boring. Let’s go through some examples.
Music used to evolve alongside other cultural phenomena in a specific, local context and Zeitgeist. It polarised between old and young. It needed to overcome repression by establishment institutions before it could spread into the world.
From RUN DMC’s Raising Hell Album (1986) by Bob Gendron:
Few albums change the world. Raising Hell did so in the face of bitter resistance and prejudice. (…) Still, nothing and no one could stem the tide unleashed by Raising Hell. Not the regressive Parents Resource Music Center whose co-founder maintained that “angry, disillusioned, unloved kids unite behind heavy metal and rap music, and the music says it’s OK to beat people”; not irresponsible city mayors who threatened to ban Run-DMC concerts; not pundits who sought to preserve the status quo by falling back on the type of ignorant contentions that nearly muted Rock ‘n’ Roll in the late 1950s. Raising Hell disrupted tradition, dared listeners to reconsider what they thought they knew and provided a platform for art, sound and discourse that lent power, strength and identity to marginalised voices.
When was the last time you listed to fundamentally new, radically different music?
Contrast this to the emergence of hyper-popular artists and types of music who master the industry and fan-interactions to an unprecedented level of perfection. Who doesn’t like Taylor Swift?
Furniture and interior design seem to have converged immensely. No matter if you book an AirBNB in Berlin, Cape Town or San Francisco, chances are very high that you find the same plants, design furniture, exposed walls and minimalist art decoration in all of them.
The post–Cold War period saw a notable institutional convergence in political systems. Several countries adopted multi‑party elections, similar constitutions, independent central banks, regulatory agencies, and market‑oriented policies. The European Union pushed for regional integration. China innovated around an authoritarian-capitalist system and more recently the US started to resemble such a system increasingly: both rely on powerful executives - China through plans and directives, the US through executive orders. Both moved from laissez-faire towards state-shaping of strategic sectors. Both are fusing national security with their economies through an interlock. Europe is years behind but started the fusion process as well.
Apparently, technology startups and the venture ecosystem around them are not immune to the trend of convergence as we will explore more in the next section.
Why?
What is driving all this? Complex systems and (single factor) causalities don’t match well. Therefore, I won’t make any bold claims on what the definitive drivers are. Rather I share some speculations on what might be contributing ones.
1/ Incentives: through the internet we learned to track consumer preferences and responsiveness to any kind of content. Music, design, movies, political views. In fact consumer preferences can be predicted and manipulated at scale. This is flipping the script for creators. Instead of taking high conviction bets on creating something from scratch and iterating over it with a local community they can just listen to their audience. In order to boost their reach and distribution they rather create something incremental that is consumed by the masses than something genuine that is consumed by a tiny minority but holds the potential to set a trend. Faster horses instead of cars.
2/ Mimetics: Mimetics studies how ideas, behaviours, and aspirations spread by imitation. People copy what others signal as desirable. In markets, this copying creates clusters of shared beliefs about what “good” looks like. When many chase the same signals of success, competition narrows around a few accepted patterns. Rivalry intensifies and differentiation collapses. There are fewer outliers because deviation carries social and professional risk. Mimetics are massively amplified by social media and global connectivity. While memes have newfound potential to reach a wide audience much faster than in the past, they are also much more short-lived. We get bored faster, or get used to new ideas faster, to phrase it positively.
3/ AI training and governance: AI model training is an increasingly homogenous process where incrementally different LLMs are fed with mostly the same data. The selected input data is subject to selection bias in terms of religious beliefs, political views, cultural norms and legislation amongst others. This type of monopoly control over the mind is amplified by the terms of service applied by the big tech platforms deploying said models. My friend Erik Voorhees had a few things to say about this in his incredible piece The Separation of Mind and State. Here is the introduction:
Hundreds of years ago, through tremendous sacrifice, the institution of religion was incrementally removed from the government’s sphere of authority. Today, religious or not, we recognize the importance of that separation of church and state.The original cypherpunks sought to separate language from state through encryption—for a while declared a “munition,” where certain types of math were banned from export. Their descendants, the early Bitcoin pioneers, sought to similarly separate money and state.But if monopoly control over god or language or money should be granted to no one, then at the dawn of powerful machine intelligence, we should ask ourselves, what of monopoly control over mind?
This is not something AI researchers aren’t aware of, so we see people working on custom data sets, expert-curation, and alternative data types in order to make models spikier, or even just have more common sense.
What happens when the venture ecosystem loses its diversity and becomes one with the vast ocean of incremental sameness?
The rise of consensus capital and the venture industrial complex
The characteristics of venture capital changed profoundly over the last few decades:
1/ Fund sizes ballooned, capital concentrated: In the early days, fund sizes used to be around $100M with return expectations of 5x and more for the top performing ones. Small funds took a high number of absurdly ambitious moon shot bets with extreme variance in outcomes. Today, large, multi stage funds are dominating while emerging managers struggle to survive. In 2024, a16z raised $7.2 billion—over 11% of all US VC. The top 30 firms captured 75% of the venture market. With large fund sizes come different expectations of return predictability and certainty. Venture became inherently risk averse.
2/ State-economy fusion: with billion dollar fund sizes the game changed. Instead of funding high risk, high reward experiments, the venture industry started to merge with the state by getting increasingly involved in lobbying. This might have started with a16z’s initiatives around operation choke point, a coordinated attempt of the US government to shut down the crypto industry without legislation by leveraging de-banking and de-platforming practices. It is ironic that venture’s push back against executive over-reach to protect an inherently libertarian industry spilled over into a full blown fusion of private venture with government.
In “Honey, We Need To Talk About Venture Capital“ Sinéad O’Sullivan captures the essence of the above developments with more nuance and countless examples. Her conclusion for the role of what she describes as little venture is the following:
If you’re a venture fund that isn’t doing any of this (no policy alignment, no industrial positioning, no narrative or regulatory leverage), then you are not in the same business as Big Venture. You’re in venture capital, the original game of chasing founders, markets, and luck. Said another way, you’re in the nostalgia business. While Big Venture manufactures outcomes, you’re literally just buying lottery tickets, and getting paid 2% a year to do that. (…) Big Venture shapes the game and collects steady wins. Venture capital thinks it’s finding alpha, but really it’s just getting played.
In a similar vain my friend and colleague Lawrence Lundy-Bryan wrote in his piece Consensus Capital:
Being right in isolation, insofar as it ever was actually true, is a dead strategy. If you have an insight but cannot coordinate follow-on capital, you lose. If the state floods your sector with subsidies favouring different players, you lose. If megafunds deploy $500 million rounds and dilute your position to irrelevance, you lose. The era of the lone wolf VC who finds the overlooked founder and waits for the world to catch up has largely passed. (…) The best VC today is not the one who sees the future first. Or writes the best blog. It is the one who convenes the consortium that funds it. The future that is, not the blog.
The dark side of consensus investing
I share many of the observations made in the above articles but I disagree with the conclusions for several reasons. Consensus investing is unlikely to be the dominant, alpha-generating strategy in venture over extended time horizons.
1/ Central planning has a history of failure: despite a massive deployment of resources, centrally planned technologies historically rarely worked. In Why Greatness cannot be planned by Kenneth O. Stanley and Joel Lehman there are countless examples explaining why the world’s most significant discoveries and innovations arose from serendipity, exploration and open ended searches, rather than from pursuing pre-defined goals. E.g. novelty search in robotics: Agents learn to move or “walk” better when optimized for behavioral novelty rather than a direct “walk farther/faster” objective. By rewarding new, interesting behaviours, they accumulate the prerequisites to walk. Top down objectives can be a false compass.
2/ Financial Bubbles: When large funds must deploy vast sums, they herd into consensus categories and companies. Prices are pushed above fundamentals. Escalating valuations driven by cross over funding rounds look like guaranteed demand. They are not. Public-market discipline eventually re-prices growth stories at some point. Looking at Palantir’s 600x PE ratio that might not be tomorrow though. Extreme concentration isn’t limited to private markets as late cycle dynamics favour big techs structurally.
3/ Policy capture is brittle: Aligning with procurement and subsidies can raise certainty but it also concentrates political risk and single buyer exposure. Trump Jr.’s Vulcan Elements and associated 1789 fund portfolio companies won several $600M+ government contracts. This looks like an unfair advantage (in the literal sense, looking up the definition of “corruption”). However, things can change through election reversals, program cancellations, government shut downs and shifting security doctrines. Long term capture in frontier tech seems easier said than done long term.
4/ Founder incentives: As soon as you can put a label on it the alpha is gone. With labels and established categories comes fierce competition. Talent wars break out. Margins collapse. Such an environment is not an ideal place for breakthrough innovation. As my colleague David Peterson was writing in Startup Stagnation:
The advantage of an overcrowded consensus is simple: the field is wide open for things that are actually different. As consensus ideas soak up attention and capital, the founders building in weird markets have zero competition. They have time to be illegible, to iterate without the spotlight and to build credible monopolies. The cover bands will keep playing the hits. But somewhere, quietly, the new music is being written.
This anecdotal wisdom is supported by some data. A recent piece of MIT Research found that Disagreement Predicts Startup Success: Evidence from Venture Competitions. The paper finds that higher dispersion in judges’ scores strongly correlates with better outcomes—more funding, higher revenues, and greater exit likelihood. The mechanism is that unique and hard-to-evaluate ideas naturally spark disagreement; common opinions rarely confer advantage. The big caveat of this research is a selection bias as the underlying data has been gathered only between 2011-2020. I would love to see someone continue this research over extended time periods and throughout the era of consensus capital.
Where the heretics go
If vast parts of the market are soaked up by consensus capital - where do heretics go?
Now is a good time to define what I mean by heretics in this context. I would describe them as people who prioritise first-principles over playbooks, accept delayed validation and higher variance to unlock non-obvious breakthroughs.
1/ Scarcity bottlenecks: The consensus herd typically looks at a problem and backs obvious solutions. AI training and inference needs more compute, so they back data centers and accompanying infrastructure. Heretics think 2, 3 steps ahead by anticipating shifts in future scarcity bottlenecks.
In an interview with The Generalist Floodgate Founder Mike Maples put it this way:
(…) maybe genuine heresy requires all three. You need the perceptual difference to notice something meaningful, the relevant experience to know when that perception matters, and the courage to act on it. Which might explain why heresy is so rare. (…) Every major technology shift creates a new scarcity, and that scarcity is never the enabling technology itself. When computation got cheap, software became scarce, because it was the layer that made computers useful. When communication got cheap, organizing layers that connected people to content, commerce and community became scarce. Now AI is making cognition abundant.
What might be the next scarcity bottlenecks?
In high stakes, high friction fields (nuclear reactor design; drug molecule design; autonomous robotics) cheap cognition amplifies the risk of failure. We need to be able to verify and trust the results put out by machines. Provenance and auditability (logs, reproducibility) will play important roles in those areas and very few people are working on it. Our portfolios Fabric and Flashbots are some of them.
AI’s next frontier is energy. Physical delivery energy markets are the achilles heel of AI scalability going forward. They are opaque, inefficient and unreliable. Fixing them is a vast, structural challenge some heretics are working on already.
2/ unregulated domains: Regulatory capture is only feasible in areas where legislation is in place. Heretics go where there is no regulation in place that could be captured by the venture industrial complex. The space domain comes to mind. Space security services as provided by our portfolio Lodestar or stratospheric satellites for remote sensing, connectivity and imagery built by our portfolio Radical come to mind. Ocean autonomy, deep sea mining or geo engineering fall into the same category. Network states might be an alternative to over-regulation and create a space for innovation.
3/ short consensus: bold heretics might consider to short consensus narratives and ventures. Are we really expecting vibe coding startups to build sustainable moats against established dev tooling and infra companies? Do we really believe that Perplexity can win against Google’s full stack infrastructure moats and integrated services landscape? Do we really think that AI native marketing and customer care products can win against Salesforce’s agent platform? Besides buying some deep out of the money put options on some trends, heretics might consider to use prediction markets as a tool of choice to short private market consensus in some areas. This is an area we started exploring outside of our venture funds.
4/ other weirdness: we still believe there will be undiscovered talent (e.g., consensus today is 20-something “based” drop-out with fierce velocity, but who would back a biology high-school teacher?) and that there will be ideas that don’t work with incentive structures of big venture firms. Which venture fund would back a company in an industry that historically distributes a large chunk of their earnings as dividends? Common beliefs need to be questioned but people are usually not promoted if they bring in 19 strange ideas underpinned by non-common beliefs. Studies on peer review and grants in the scientific community show that the truly novel, orthogonal ideas (like mRNA therapies) rarely make it to publication or receive awards. We need more improbable bets with a high variance in outcomes. Some of them will be massive.
At Inflection, we continue to back companies at the heretic frontier. If you’re in our camp and build something weird - reach out.