E377: Midas List VC: Why Most VCs Miss the Biggest Companies

Episode Summary

Executive Summary: Nico argues that venture value is increasingly captured before a category is named, making early-stage investing extremely timing-sensitive and often better suited to exceptional founders than obvious themes. He says AI is compressing startup capital needs, overhyped areas are attracting too much money, and overlooked sectors like consumer, fintech, crypto, and gaming may produce the next great companies. The conversation also emphasizes relationship-building, self-awareness, and cold outreach as enduring edges in VC.

Main Topics: Investing before a category has a name (Priority: 5/5): Nico’s core thesis is that most profits in a new vertical accrue before the market is widely recognized, so late recognition often means much of the upside is gone. What makes a ‘freak’ founder (Priority: 5/5): He defines exceptional founders as rapid learners who make in a day the progress others make in a week, and says the idea matters far less than the founder’s rate of learning. AI is changing venture financing and company scaling (Priority: 5/5): AI lowers headcount and capital requirements while boosting productivity and revenue, allowing founders to reach profitability and later-stage economics much faster. Overhyped vs. undervalued sectors (Priority: 4/5): He says AI and American dynamism are overhyped due to crowding and easy capital, while consumer, fintech, crypto, and gaming are undervalued and likely to see renewed activity. Age, neurodivergence, and information alpha (Priority: 4/5): Nico argues VC is increasingly biased toward very young founders, but says the real edge is information access, agency, taste, and the ability to learn quickly—not age alone. Relationships, long-term thinking, and firm-building (Priority: 4/5): He credits General Catalyst’s success to trust, relationships, and long-term orientation, and says the same principles should shape Verdict’s culture and investing style. Self-management and tactical habits for investors (Priority: 3/5): The discussion closes on practical operating advice: rate yourself on key behaviors, avoid busywork, focus on the one big thing, and cold-email people you admire.

Key Arguments: Most of the profit in a new category is often captured before the category even has a name, so investors entering after consensus may be too late. AI is reducing the amount of time, people, and capital needed to build startups, which means founders can raise less and wait longer between rounds. The best early-stage VC is more like an artisan craft than a scalable asset class because identifying true outliers is rare and highly judgment-based. Founder quality matters more than the initial idea or market; freak founders can learn fast enough to correct course even if the first concept is wrong. VCs often follow each other into hot areas for markups and career safety, which pushes them away from genuinely underappreciated opportunities. Consumer, fintech, crypto, and gaming look undervalued because few firms are focused there, but large outcomes in tech often come from ignored categories. Young founders can be advantaged by AI-native instincts, but age alone is not the signal; curiosity, independence, and access matter more. Relationship-building creates durable fundraising and investing advantages over time, especially during difficult markets. Long-term greedy behavior in VC is rare, but it tends to produce better outcomes than optimizing for quick promotion or short-term marks. Cold emailing and direct outreach remain powerful because they let any operator or founder access people they admire without needing gatekeepers.

Data Points: Profit capture before category naming: 50% - Claim that half of the profits in a vertical are made before the category has a name. Timing error rate: 70% wrong - Nico says his timing as an investor is wrong about 70% of the time. VC returns from original checks: 100Xers - He says truly high-multiple seed returns are very hard to scale and only a few VCs achieve them. Founder learning delta: 1 day vs 1 week - A ‘freak’ founder makes in one day the progress an average founder makes in a week. Gen Z investing window: 2021–2023 - He and Michael Furdick were investing exclusively in Gen Z founders during these years. Young founder example: 19-year-old - He cites a 19-year-old founder who is now an angel investor and venture partner. Angel investments: 6 in 4 months - The 19-year-old made six angel investments in four months. Markup rate on those investments: 6 of 6 - All six angel investments had already marked up. GDC attendance change: 50% fewer attendees - At the Game Developers Conference, attendance was down roughly half versus two years prior. General Catalyst size at joining: $1.7B AUM - Nico describes GC’s total AUM when he joined. General Catalyst team size: 35 people total - GC had 35 employees when he joined, with 4 in Palo Alto. Palo Alto founding team: 4 people - He was one of four people in the Palo Alto office. Seed-investing focus: 10 other VCs - He says only around 10 US VCs were focused on Gen Z founders in 2021-2023. VC career duration at GC: 15 years - He spent fifteen years at General Catalyst before spinning out.

Pivotal Quotes: "fifty percent of the profits are made in a vertical before it even has a name" — Nico: Core thesis on why entering a category late can miss the majority of upside. "a freak is somebody who is a learning animal" — Nico: Defines the kind of founder he seeks: unusually fast learners who compound progress rapidly. "investing in freaks, also known as learning animals, that are working on creating new categories" — Nico: Explains Verdict’s investment philosophy and focus on category creation.

Implications: VCs may need to concentrate more on founder quality and less on consensus themes. AI is compressing startup cycles, making speed, taste, and early conviction more valuable than ever. Consumers, gaming, fintech, and crypto may re-enter favor as crowded AI bets mature.