The Brutal Truth About Growth Equity: Why China Wins, VCs Fail, and Selling is the Job

The venture capital industry is bloated with tourists who wouldn't recognize a real business model if it hit them in the face. We are witnessing a massive shakeout where

, the visionary behind

Lead Edge Capital

, argues that at least 50% to 70% of people currently in the venture business shouldn't be there. They add negative value, push founders to burn cash at all costs, and have forgotten the cardinal rule of investing: you are here to return capital, not just collect marks on a page.

Markets are entering a phase of extreme volatility, but this isn't the end of software. It's the end of the "buy at any price" era. The recent sell-off in

stocks is a combination of Wall Street analysts overestimating growth numbers and a broader market realization that seat-based pricing is under fire. However, the winners aren't disappearing. Companies like

Workday

,

ServiceNow

, and

Salesforce

have the distribution, the data, and the balance sheets to crush newcomers. If you aren't buying these incumbents while they're on sale, you're missing the easiest trade of the decade.

Why China Will Win the AI War

While the Western world patts itself on the back for

, the real innovation is happening in the East.

ByteDance

is the most advanced

AI

company on the planet. Their ability to integrate machine learning into every facet of their product is vastly underappreciated. While US investors obsess over political noise and potential bans, the fundamental earnings power of ByteDance is heading toward $100 billion.

China has structural advantages that the US simply cannot match right now. They can build a nuclear power plant in two years; they have the PhD density, the power resources, and a cultural obsession with science and technology. In the US, local communities in Virginia or Ohio are already pushing back against the massive power consumption and "big ugly buildings" of data centers. China doesn't have that friction. They will out-build, out-power, and out-engineer the West because they are playing a different game. If you count China out of the AI race, you are ignoring the physics of scale.

The Liquidity Crisis: Marks are Opinions, DPI is Math

There is a reckoning coming for the massive funds managed by

and

Thrive Capital

. When you raise $10 billion or $15 billion funds, the math of returning capital becomes nearly impossible. You have to find the next

Google

or

Facebook

every single time just to break even for your LPs. The industry has become obsessed with "kingmaking"—pouring billions into a company like

Anthropic

to force it into a leadership position.

Real investors know that buying is glamorous, but selling is the actual job. Too many fund managers are afraid of the negative signaling that comes with selling winners. This is cowardice. Your job is to return money to your clients. If a liquidity window opens, you take it. Even if you only sell 10% or 20%, you need to show your LPs that you can actually convert paper gains into cold, hard cash. The "living dead" of venture—companies with 60% gross dollar retention that were valued at billions in 2021—will never see those numbers again. The focus must shift back to

(Distributed to Paid-In Capital). If you aren't giving money back, you don't have a business; you have a hobby.

The Metric That Matters: Gross Dollar Retention

In the noise of AI hype and growth hacking, founders and investors have lost sight of the single most important metric in tech:

. Everyone wants to talk about net retention because it hides churn with upsells. That's a trap. Gross retention tells you the truth about whether your product is actually essential.

If you end the year with 90% of the same dollars you started with—no upsells, just the base revenue—you have a good business. If you're at 95%, you have a great one. If you're at 98%, you're world-class. If you're sitting at 70% or 80%, you are effectively on a treadmill where you have to spend every cent of your marketing budget just to stay in the same place. This is why AI won't kill software companies that have deep moats; if the data is essential and the retention is high, those companies will simply use AI to become more productive, driving margins from 5% to 40%.

Conclusion: The Best Time to Invest is Coming

We are headed for a massive downturn within the next ten years, and it will be the greatest buying opportunity of our lives. Markets don't go up forever, and the current casinoization of the stock market—where a single research report can wipe out billions in market cap—is a sign of instability. But for the disciplined investor, this is where the money is made.

The next generation of dominant AI businesses hasn't even been started yet. They will emerge during the wreckage of the next recession. Avoid the "Gen 1" AI companies that are burning through billions with no clear path to profit. Wait for the moment when the tourists flee the market and the valuations return to reality. That is when you strike. Build the solution, identify the real problems, and prepare to ignite the market when the noise finally dies down.