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What late stage investors got wrong about investing in Startups?
Confusion in the venture scene, especially with late-stage investments.
Some firms raising funds for secondaries in startups, but a twist for LP investors: a cautious approach is needed.
Skepticism about firms claiming expertise in both early and late-stage investments.
Discussion on the industry mix-up and the need to reconsider how we negotiate prices.
Emphasizing the importance of aligning return expectations with industry dynamics.
Concerns about the pricing game not adding up in the long run, even with solid companies.
Exploration of the industry’s potential need for a rethink to optimize returns.
Join the conversation at thestartupproject.io/nataraj/
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https://podcasters.spotify.com/pod/show/startupproject/episodes/67-What-late-stage-investors-got-wrong-about-investing-in-Startups–Insight-e2dp32r
For more unique insights on technology follow Nataraj on Twitter – https://twitter.com/natarajsindam & Instagram – https://www.instagram.com/1nataraj/
Why Rivian will become 2nd Largest EV Player in the U.S?
Exploring the EV market in the US and the competition between Rivian and Tesla.
Rivian stands out with a superior product, a more profitable segment, and a less controversial brand than Tesla.
I predict the future paths of Rivian and Tesla, highlighting the crucial significance of the next three years for their survival and Rivian’s growth.
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https://podcasters.spotify.com/pod/show/startupproject/episodes/66-Why-Rivian-Will-Become-2nd-Largest-EV-Company-in-the-US–Insight-e2dp1m1
Over long term YouTube will win over TikTok, Instagram & other video apps.
Check out the video to see why.
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https://podcasters.spotify.com/pod/show/startupproject/episodes/65-Why-YouTube-is-Unbeatable–Insight-e2dbf79
Venture capital today is no longer a uniform playing field. Instead, it resembles a barbell—heavy at the ends and light in the middle. On one side, early-stage startups, particularly those native to Generative AI, are gaining momentum and capital with relative ease. On the other, late-stage companies that once thrived in an era of easy money are now struggling to scale efficiently under compressed valuations and tighter capital flows.
This bifurcation isn’t just about stage or sector—it reflects deeper shifts in how innovation is funded, how markets respond to disruption, and how value is created in an AI-first world. Drawing on decades of experience and observations across multiple venture cycles, Matt McIlwain of Madrona Venture Group offers a compelling framework for understanding today’s venture environment—and where it’s headed next.
The Barbell Effect in Venture Capital
McIlwain describes the current VC climate as a “tale of two cities”—or more aptly, a “barbell.” On one end are late-stage startups that raised funds during the heady days of 2019–2021. Many of these companies are now struggling to scale in a capital-efficient way. They face compressed valuations, uncertain exits, and reduced investor enthusiasm.
On the other end of the barbell are early-stage startups, especially those built around Gen AI from the ground up. These “AI-native” firms are garnering significant attention and capital due to their alignment with emergent technologies and cost-effective scalability. The difference is stark: late-stage companies are in triage, while early-stage Gen AI startups are in acceleration.
Disconnect Between Public and Private Markets
A key challenge today is the widening disconnect between public and private market valuations. Public markets reprice daily and saw software multiples soar to 15x in 2021 before correcting to around 5x. Private markets, by contrast, adjust only when a new funding round occurs—many of which haven’t happened since 2021.
This valuation lag creates misalignment, confusion, and occasionally, overpricing. McIlwain cautions investors to avoid mistaking “book value” for market reality, particularly in the realm of late-stage investing.
The Strategy Behind AI Partnerships
Big Tech’s strategic alliances with AI model developers—Microsoft with OpenAI, Amazon with Anthropic, Oracle with Cohere—are not merely about access to compute resources. These partnerships serve a dual purpose:
Cloud Infrastructure Leverage: By offering AI models via services like Amazon Bedrock or Azure, cloud giants ensure their platforms remain central to AI development.
Market Shaping: Through co-investment and go-to-market support, these firms influence not just the technology stack, but also the distribution landscape for Gen AI applications.
What’s emerging is a marketplace approach, where multiple models—from OpenAI to Meta’s LLaMA to Stability.AI—coexist on cloud platforms, empowering developers with choice and flexibility.
Seattle’s Edge—and Its Gaps
Seattle, McIlwain argues, remains a wellspring of technical talent, especially in AI. From the early days of AWS and Azure to Madrona’s investment in Turi (later acquired by Apple), the city has been ahead of the curve. However, it remains underfunded at the local level. Most co-investors in promising startups still come from outside the region.
To bolster the ecosystem, there’s a need for more local early-stage capital and smoother transitions for professionals moving from large enterprises like Microsoft or Amazon into startup environments.
Intelligent Applications and the “Mini Model World”
One of the more compelling insights from Madrona’s Intelligent Applications Summit is the idea of a “mini model world.” Rather than relying on a monolithic AI model, startups are building composite “model cocktails” tailored to specific use cases. This ensemble approach enables better performance, customization, and faster time-to-value.
Still, the industry is largely in a prototype phase. Full production deployments of Gen AI remain rare, meaning we’re still early in this innovation cycle.
Advice for Aspiring VCs and Founders
McIlwain leaves us with grounded advice: align with people who inspire and challenge you, pursue what you’re genuinely passionate about, and always assess “founder-market fit” before diving into a startup idea.
For new VCs or founders, understanding the probabilistic nature of startup success is essential. Drawing from Annie Duke’s Thinking in Bets, he emphasizes making informed decisions without perfect data—a theme that resonates deeply in today’s fluid market.
The rules of venture investing are being rewritten, but the fundamentals—disciplined capital allocation, deep technical understanding, and long-term thinking—remain more vital than ever.
Nataraj is a Senior Product Manager at Microsoft Azure and the Author at Startup Project, featuring insights about building the next generation of enterprise technology products & businesses.
Listen to the latest insights from leaders building the next generation products on Spotify, Apple, Substackand YouTube.
In this episode, Nataraj spoke with John Staenberg, a veteran of the tech and venture capital world.
John took Nataraj through his early days growing up in Omaha and attending Stanford University, where he was inspired by the culture of creativity and trying new things.
After graduating, John worked in real estate and then got his MBA, also at Stanford. He became fascinated by the nascent world of venture capital and startups in Silicon Valley.
John landed a job at Microsoft in the late 1980s, when the company was still small and growing fast. He described the exciting “change the world” energy there, where people worked tirelessly to spread personal computers.
After Microsoft, John started his own venture funds focused on bridging Seattle and Silicon Valley. He’s been involved with around 200 startups over his venture career.
John reflected on missing out early on companies like Google and Amazon that became huge wins. But he’s also had some big successes, like Seagate. He emphasized that surprise and timing are always at play in VC investing.
Nataraj and John also discussed how venture capital has matured and become overcrowded, making it hard to generate outsized returns. So John has pulled back on direct startup investing.
Pivoting gears, they talked about John’s passion project – starting a wine business in Argentina 17 years ago. He saw it as a way to pursue his interests and bring people together.
John then explained his latest venture to Nataraj – launching a search fund to invest in other funds that acquire small businesses for entrepreneurs. He believes this model can provide great returns and opportunities.
Throughout his wide-ranging career, John has stayed focused on connecting people and giving back, including through the many events he has hosted.
In this episode of the podcast, we feature Ashmeet Sidana, the founder and Chief Engineer of Engineering Capital. Ashmeet has an extensive background in engineering and venture capital, with experience as the Director of Product Management at VMWare and as a venture capitalist.
During the conversation, Ashmeet discusses various topics, including his experience developing the ESx Server at VMWare and leading seed rounds of companies like Azure Power and Tubi. He also shares insights into why venture capitalists prefer startups to stay private and the importance of investing in technical insights.
Ashmeet also talks about his approach to getting in front of future founders and explains why he chooses not to invest in blockchain. He discusses the significance of large funding rounds in the AI seed stage and the value of investing in open-source companies.
To learn more about Ashmeet Sidana and his perspectives on investing in startups with technical risks, you can listen to the full episode on platforms like YouTube, Spotify & Apple.
Full conversation includes:
– Being Director of PM at VMware & Venture Capitalist
– Developing ESx Server at VMWare
– Leading seed rounds of azure power (public & valued at $2B)
– Leading seed investment at Tubi
– Starting Engineering capital
– Why vcs want startups to stay private
– What it means to invest in technical insights
– Getting infront of future founders
– Not investing in blockchain?
– Large funding rounds in AI seed stage
– Investing in opensource companies
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To stay up to date checkout thestartupproject.io & follow Nataraj on twitter: @natarajsindam and on LinkedIn at https://www.linkedin.com/in/natarajsindam
Join us in this captivating episode as we sit down with Joe Heitzeberg, a multifaceted entrepreneur who has navigated the world of technology and business with remarkable success. From his early days in the tech industry to founding his acclaimed venture Crowd Cow, Joe shares his incredible journey and valuable insights on various topics.
1. Joe’s Entry to Technology
2. Working for Paul Allen
3. Import Furniture Business
4. Opportunity Cost of MBA
5. Building Viral VoIP App for MySpace
6. Selling Media Piston to Upwork
7. Starting Crowd Cow
8. Problems with Chicken in the U.S
9. Fundamental Shifts from AI
10. AI Tinkerers
Follow Joe on LinkedIn at https://www.linkedin.com/in/joeheitzeberg
To stay up to date checkout thestartupproject.io & follow Nataraj on twitter @natarajsindam and on LinkedIn at https://www.linkedin.com/in/natarajsindam
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Tim Chen is the Managing Partner at Essence VC, an early-stage fund focused on data infrastructure and developer tool companies. He has over a decade of experience leading engineering in enterprise infrastructure and open source communities and companies. Prior to Essence, he was the SVP of Engineering at Cosmos, a popular open source blockchain SDK. Before Cosmos, he co-founded Hyperpilot with Stanford Professor Christos Kozyrakis, leveraging decades of research to disrupt the enterprise infrastructure space, which later exited to Cloudera. Tim was an early employee at Mesosphere and CloudFoundry. He is also active in the open source space as an Apache Software Foundation core member, maintainer of Apache Drill and Apache Mesos, and CNCF TOC contributor.
Full Conversation includes:
Early Career
Co-Founding Hyperpilot
Being early to Kubernetes
Failing to get a job at a VC fund
Story of how Essence Fund started
How Tim approached investing and building reputation
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Aseem joined Madrona in 2021 after spending almost twenty years as an operating executive. He works alongside founders building the future of next-generation infrastructure (core, security, DevOps), intelligent applications, robotics, and automation.
To stay up to date checkout thestartupproject.io & follow Nataraj on twitter: @natarajsindam
T.A. McCann is a serial entrepreneur with an impressive track record. He has founded and served as CEO of several successful companies. Some notable ventures include Senosis (acquired by Google), Gist (acquired by Blackberry), and Rival IQ, a leading company in marketing analytics.
McCann’s expertise extends beyond founding companies. He has also held senior roles at Microsoft, where he led divisions such as Exchange and the Mobile Services divisions. Additionally, he has worked as an EIR (Entrepreneur in Residence) at Polaris Venture Partners and Vulcan Capital.
Full conversation includes:
Becoming a professional sailor
Working at Microsoft Exchange
Starting 5+ companies (3 exits)
Working for Paul Allen & building Startup Studio Vulcan Labs
Selling Gist to Blackberry
Rival IQ
Synosis (acq by Google)
Pioneer Square Labs
Systematic customer discovery & customer development process
Advice to entrepreneurs raising capital
Is AI a step change?
Who will capture value in AI? Big tech or startups?
