How venture capital could ‘fundamentally change’ over the next decade

Venture capital as we know it today may look quite different in the near future.

“I think venture capital, over the next 5-to-10 years, is going to fundamentally change,” said Greg Gottesman, managing director of Pioneer Square Labs.

Venture capital firms are increasingly providing startups more resources beyond just capital and advice — offering up recruiting, business development, and other ancillary services.

Gottesman believes this trend will accelerate with the proliferation of generative AI.

“It’s not just insights into how you move more quickly or move more inexpensively to get product market fit, but it’s actually doing some of that,” he said, speaking at an Amazon Web Services event in Seattle on Wednesday.

The idea is to help founders spend more resources on parts of their business that differentiates them from competitors — not on accounting or other operational needs.

“That shouldn’t be something you’re focused on,” said Gottesman, a longtime Seattle tech investor who previously worked for Madrona.

It could go beyond back-office tasks. Gottesman said Pioneer Square Labs’ startup studio is writing 60% of code for its incubated companies.

AI is also enabling startups themselves to do less with more. They might not need as much venture capital to build a product and start generating revenue.

At the same time, democratization of early stage investing is broadening the investor pool for startup founders, allowing them to find more specialized backers, said Sheila Gulati, managing director at Seattle-based firm Tola Capital.

“Early stage companies have become more of an asset class,” Gulati said on Wednesday.

Some aspects of today’s venture capital industry are showing shades of private equity, said Chris Picardo, a partner at Seattle-based firm Madrona. Case in point: OpenAI’s $6.5 billion investment announced Wednesday, the largest VC round ever.

Picardo said he’s excited about investors going back to making more “orthogonal, ambitious bets on weird companies.”

“The stories that you hear about people being widely successful is often on companies that almost nobody else wanted to touch,” he said. “And I think the state of venture capital right now, there’s very little of that going on.”

Across the VC industry, there are signs of shifting tides amid higher interest rates and subdued M&A and IPO activity.

It’s no longer the boom times of 2021, when funding to both tech startups and venture firms reached record highs as valuations skyrocketed.

In one potential harbinger, longtime Silicon Valley venture firm CRV is taking the rare step of returning money to its investors due to worsening market conditions, The New York Times reported this week.

Seattle investor Chris DeVore of Founders’ Co-op wrote this week that “the illiquidity of venture just doesn’t pencil for most LPs. The tide will keep going out.”

The New York Times also reported earlier this year on the increasing amount of longtime venture investors who are stepping away from the industry after a 15-year bull run.