Business & Strategy
VC’s Future Lies In Building Winners
21 Jun 2025
Venture Capital firms are about to see a shift brought on by the confluence of giant funds and AI. These two forces are going to break the way the venture model works for most firms.
VCs succeed by seeing lots of early stage companies, identifying the ones that have a high chance of being good, and betting that a few will be great. The biggest, most well-known firms get to see a lot of companies. Every founder wants the name recognition of a top-tier investor. These investors have companies coming to them and don’t need to hunt for deals.
Smaller venture firms thrive by building a niche and efficiently hunting within it. These smaller VCs have a contrarian viewpoint that forms their investment thesis. This unique way of looking at the world provides a lens that helps them see potentially-good companies that others miss. They’re able to pick winners from a pool that no one else is targeting.
This is about to change. The giant mega-funds have enough capital that they can A/B test investment theories. They can deploy cash to find out which contrarian viewpoints lead to high returns. But they haven’t, because of two constraints. They can’t create enough viewpoints and they can’t analyze companies against each thesis. But AI changes that.
With AI, a venture firm can generate unlimited investment theses and analyze massive numbers of companies to find matches. If that firm also has a virtually unlimited treasure chest, they can build a niche discovery machine.
It will get harder for smaller VCs to find and exploit these niches. The smaller firm’s advantage was their creativity. But in this case, that creativity is moot if someone can create all of the things and see what works.
From Picking Winners to Building Them
Instead of thriving based on their ability to see trends no one else does, VCs will need to innovate to find unique models that aren’t based on picking under the radar companies. They’ll need to find something they can do well that lets them pick and even create the winners in ways that AI can’t. They’ll need to find advantages that can’t be replicated by throwing more compute at it.
Y Combinator changed the venture model backing founders instead of companies. Their innovation was to stop looking for hot companies and start funding talented founders. All investors take the team into consideration, but YC takes it to the extreme. They don’t care what the company does. Instead, they only look at who the founders are. They’re creating winning companies by backing and training winning founders.
To thrive in the AI-plus-megafund era, all but the largest or most well-known venture firms will need to make a similar shift. They’ll need to pivot from finding the winners into building the winners.
They’ll have to back companies and help turn them into winners. This doesn’t mean creating the ideas and hiring a team like a venture studio or incubator does. It means identifying flaws and funding a company anyway.They’re still funding founder’s companies, but with a twist. They’ll fund a company because of the flaws, not despite them.
The new investment thesis isn’t about markets. It’s about the kinds of flaws the firm knows how to fix. By focusing on specifics ("go to market in developer tools companies" or "talent acquisition and retention"), they’ll narrow the set of problems they need to solve and increase the speed at which they can solve them.
This operational approach requires venture firms to fundamentally change how they operate. Where they used to compete on deal sourcing and pattern recognition, they’ll now compete on execution and problem-solving. The question becomes: what specific operational challenges can your firm solve better and faster than anyone else?
How to Fix Companies for Profit
Venture funds following this model will invest in existing companies that have operational gaps, then they’ll bring in people to help fix those gaps. Many firms already employ Operating Partners that can help portfolio companies scale. But today, these are value adds. In this new model, the operating partners are intrinsic to the venture firm’s strategy.
In this way, the venture firm is taking a page from the Private Equity playbook, but optimized for high growth and high-risk, high-reward investments. Like their PE cousins, they’ll find a company with interesting assets, but has flaws the investors know how to fix. And they’ll deploy the operating partner to join the company and fix these flaws. Maybe this means taking over sales on an interim basis. Maybe it’s coaching the leader in scaling product processes. The VC will have specific operational expertise and look for companies where they can leverage that expertise to generate outsized returns.
The "building winners" strategy for venture firms could take other forms, like directly funding M&A of their portfolio firms and creating roll-ups of smaller related companies. In this case, the they’ll need an operating partner experienced in M&A.
When Operators Become the Stars
The venture firm’s thesis about what sort of issues they can profit from will be formed by their operating partners. The operating partners know where they have operational knowledge and skills. They’ll know the patterns of various types of problems and which they’re able to solve efficiently.
This means the venture capital operating partners will become the true differentiators of the firms. Where today the partners that source and evaluate deals are the drivers of success, that skill will fade in importance. If you’re not trying to pick a winner, the people doing the picking aren’t as critical.
To win by building winners, venture firms need to build up their operational capabilities. They’ll need to advise companies on a variety of business operations and they’ll need to do it more frequently than the quarterly board meeting.
This is another reason why the timing is right for this shift to an operating partner model. The tech exec flattening of the past few years has led to a lot of available people with operational expertise. There’s a steady supply of experienced operators to satisfy the demand of venture firms building their operating partner teams.
Making the Math Work
But how will VCs make money if they’re deploying expensive operators into every portfolio company? The economics of venture capital don’t work if they’re hiring large teams of operators and spending time working inside each of their investments.
They must avoid drawn out engagements, which means the model must be aimed at diagnosis, making course corrections, and making the company self-sufficient. The successful venture firm won’t parachute generalist operators in to fix whatever problems they find. The operating partner will have a specialized class of problems they address. They’ll be able to help with that problem in a variety of ways.
The Operator Playbook
Some companies and functions will only need a little bit of coaching. The company has functional leadership in place, but would benefit from regular feedback from someone that’s seen their stage before. The operating partner will provide monthly mentorship, connect the team with outside mentors and advisors, and help hire functional coaches.
Sometimes the investor will need to bring in a fractional executive to ride along with the team and help train them. The startup could have a talented, but raw sales leader, so the venture firm brings in a seasoned sales executive to lead the department on an interim or part time basis. That talented sales leader learns the function at the right hand of the fractional executive. After a few quarters, the fractional executive transitions out.
Other times, an outside talent upgrade will be needed. The venture firm’s operating partner could join in the interim, diagnose the issues, and hire a new leader in their place.
In all these cases, the key to maintaining venture economics is to keep the engagements short and focused. The goal is to help the portfolio company run the function on their own within a few months.
The venture firm is able to keep these engagements short because they have a particular set of operational improvements they focus their investments on.
For founders, this shift changes both what gets funded and how the funding relationship works. The bar for getting investment may actually get lower in some ways, but the nature of the partnership becomes more hands-on.
The Founder’s Flaws Might Be Their Fundraising Advantage
Companies that previously found it hard to raise capital will become fundable. A founder that would have faced headwinds from an immature R&D organization will now be able to find a VC firm that specializes in fixing those issues.
The conventional wisdom for raising startup funding is to show traction and solid execution on a good idea. Investors are looking at these signals to predict success.
As they shift to operating partners, VCs will fund less-perfect companies with the idea they can be fixed with hands-on guidance. They’ll stop trying to identify startups that no one else can see. Instead, they’ll start identifying startups that have the sorts of issues that fit their operational playbook.
Changing the bar for investment won’t change the overall investor/founder relationship. In recent years, venture firms have recognized the benefits of founder-led companies. This change to an operating partner model doesn’t mean that founders will be pushed aside.
It used to be commonplace to replace founding teams with experienced executives, but the operating partner model is different. A founder need not be worried. Venture firms will continue to prefer founder-let companies. The operating partner is there to accelerate the founders, not replace them.
The venture firm wants to apply their operational skills to help the startup team stand on their own feet. They don’t want to manage companies.
Venture firms have long marketed that they’re more than just money. That they can help the entrepreneurs in ways that go beyond the funds. Now they’ll be positioned to actually do it.
The Perfect Storm
The emergence of billion dollar megafunds, the analytical power of AI, and the glut of senior operating talent are all converging and could establish a new model for venture firms. One where they deploy operators to create winners.
Building and publishing their operational thesis and the playbook for solving it will let venture firms stake a claim. They’ll build brand and drive deal flow on the strength of how well founders believe they can help. The firms that move first and strongest in the operating partner model will have an advantage.