I met a fellow VC last week and discussion veered around their fund thesis and the cheque sizes that they cut. He mentioned that they do only Series A & B rounds. And in the same vein, he also added that would be around Rs 100-150 cr each investment! Clearly the ‘letter attribution’ in VC funding rounds has lost its significance. Signalling is important but it really doesn’t matter now what you call your round. So, obsessing over these labels is a waste but the alphabets which have truly become significant now are J & K but for a different reason.

Historically, venture capital has followed the J-curve: funds suffered initial losses as they deployed capital, then rebounded when portfolio companies matured. But post-2010, a new reality emerged—one where elite funds pulled ahead while mid-tier and lower-tier funds faltered. U.S. VC funds raised about $75 billion in 2024. While it is the lowest total since 2019, but the fact that only 30 funds secured roughly 75% of that total raise is staggering. Classic case of feast & famine (aka K-Curve) where the buffet is endless for those who’re already at the table. The fats aren’t just getting fatter—they now own the food supply. The laggards, on the other hand, find themselves squeezed out of the market.

Here’s how it plays out:

1. The Upward Sloping Arm of K-curve: The Elite Funds

• The top 10% of VC firms—Sequoia, Accel, A16Z —keep attracting the best founders
• They have strong LP relationships, deep networks, and the ability to write follow-on checks
• Success compounds—winning bets like Google, Facebook, or Apple ensure future dominance

2. The Downward Spiral: The Struggling Funds

• The bottom 50% of VC firms often struggle to raise subsequent funds
• Poor returns lead to LPs pulling out, making it harder to back winners
• Without strong deal flow, they are left funding mediocre startups, accelerating their decline

If the J-curve once defined fund returns, the K-curve now rules the landscape. The privileged ones, armed with capital, networks, and brand power, keep getting bigger. Those at the top rise further, while those at the bottom sink faster. The Future is getting more polarized with much less middle ground. This is not a passing trend—it’s the new reality. This hollowing out in the middle means that venture firms with medium funds and medium teams will have medium returns and will be medium competitive. The industry is going through its own Darwinian selection. For years, the VC game looked predictable- capital was abundant, valuations soared, and most players assumed they had a winning position. But now, the board has been reset. The chessboard has been cleared.

The irony is while the smaller funds struggle to raise more funds, the comprehensive data from various sources clearly indicates that these small VC funds outperform large VC funds across multiple performance metrics, including TVPI and IRR. The flexibility of such specialised funds, their focus on high-growth early-stage investments, and lower operational overheads contribute to their superior returns.

There are good reasons for small, nimble specialised funds to escape the downward trajectory of the K-curve:

1. Specialization Wins – Generalist funds struggle; Having in-house expertise helps to have a better shot at differentiation
2. Smaller, Faster Wins – Micro-funds with quick exits (via secondaries or strategic M&As) proving returns faster
3. Network Arbitrage – Emerging Tier 2/3 markets offer a chance to build an edge where top-tier VCs aren’t dominant yet
4. Focus on the overlooked – Smaller, bootstrapped deep-tech companies, and talent outside traditional networks are now the best asymmetric bets

The DeepSeek moment is heartening for all the Davids vs Goliaths story, for everyone who is rooting for the smaller guy (even if it was a Chinese this time 😀). DeepSeek wasn’t just about AI. It signalled a broader shift across industries, including venture capital, entertainment, sports…where underdogs are now disrupting long-standing power structures. Nvidia, Open AI will stay. Mega Funds will stay. But there will always be space for the fact, nimble, smaller, faster guy. Indians already have shown this capability where we have set world-beating cost-effective precedents in the past e.g. DPI, ISRO etc. If the innovations can be developed with only millions of dollars than billions, they surely can be funded by millions-of-dollars rather than billions.

Barbell effect is in play – Only two extremes shall thrive: high-budget, massive-scale or lean, high-ROI disruptors. The squeezed middle is fading, fast. In this high-stakes environment, survival of the fittest is no longer just a catchphrase; it’s the law of the jungle., startups can build resilient, scalable, and ethically sound businesses that stand the test of time.