Podcast Summary: How I Invest with David Weisburd – E281: The Tsunami of Pain Facing Venture Capital (Jan 13, 2026)

Overview

In this episode, host David Weisburd dives deep with a guest investor into the current upheaval facing the venture capital (VC) industry, with a focus on why a “tsunami of pain” is coming for venture-backed startups, especially those outside the elite winners. The conversation blends macro data, real-world anecdotes, and fundraising psychology to provide a nuanced, actionable analysis. Topics include hardware vs. software businesses, the inevitable “Death Valley” for hard tech, data-driven predictions of mass startup failures, and the guest’s unconventional fund that aims to capitalize on the coming market reset. This is a valuable listen for investors, founders, and anyone interested in the present and future of venture capital.

Key Discussion Points & Insights

1. Conviction Investment: Betting on Outliers

• Why Tesla in 2014?
  The guest recounts investing his entire earn-out from Ethereus into Tesla, at a time when market sentiment was negative.
  • “The best bets are something that you truly believe, but the market doesn’t.” (B, 00:23)
  • Gigafactory announcement was a “line in the sand” signaling Tesla’s true ambitions—not just a car company.

2. Business Models: Hardware vs. Software

• Capital Intensity is Misunderstood
  • Hardware often seen as more capital-intensive, but data shows exits’ capital intensity is similar (13% for deep tech, 11% for software).
• Revenue Ramps Differ Vastly
  • Software: Fast, smooth, propelled by global distribution.
  • Hardware: Slow, lumpy, delayed by manufacturing and supply chain constraints.
  • “If you have a successful venture backed software business... they can get to revenue very, very fast... In hardware, that quick revenue pretty much [is] non existent.” (B, 01:35–03:36)

3. The "Death Valley" of Hard Tech Startups (04:11)

• Predictable Crunch Point
  • After years of R&D, startups with no revenue face Series B investors’ skepticism.
  • Most companies either raise a huge round or go to zero.
  • “It’s a very scary moment where everyone’s kind of holding onto their seats, thinking, is this thing going to the moon or is it going to zero next month?” (B, 05:32)

4. Sorting Success from Failure

• Buckets for Troubled Startups
  • No chance: Flawed team, tech, or unit economics.
  • Unmet potential: Fundamentally strong but missing a “marketable extra” (preorders, big contracts, government grants).
  • Outliers: The high-traction, clearly visible winners.
  • “The best ones... have the fundamentals and something extra that gives visibility to the market that says yeah, they have a pretty clear path to scaling.” (B, 07:13)

5. Data-Driven Evidence of the Coming “Tsunami” (08:56)

• Three Striking Data Points:
  1. Series A to Series B Drought: Of 1,700 companies that raised Series A (2019–21), 80% haven’t raised a Series B.
     • “Six out of seven companies that try to raise a Series B can’t.” (B, 11:54)
  2. Declining Venture Funds: Peak years (2021–22) saw $188B/year; by 2025, capital flow is “even lower.” There’s simply “not enough money to keep servicing these businesses.”
  3. Graduation Rates Are Collapsing: 2020 two-year Series A→B graduation rate: 43%. For 2022–23 cohorts: below 15%.
• Implication: Mass startup wipeout is imminent—companies that once would’ve survived are headed for bankruptcy.

6. The Investor’s Contrarian Play: Acquiring Orphaned Startups

• Strategy for Picking Up the Pieces (12:31)
  • Acquire proven tech startups—real R&D assets, real customers, solid IP—for “a fraction of historical R&D spend.”
  • “Once we’ve acquired them...we’re going to narrow the focus, and we’re going to push those companies to profitability in 24 months or less.” (B, 13:26)
• Deal Structure (13:55)
  • Example: For $2M, acquire 53% of a company with $49M R&D spend; drive it to profitability within a year; up 17x in two years.
  • “You can start to see just this fundamental mismatch of how venture is funding these businesses in the market conditions with what’s actually the reality of the companies.” (B, 14:45)

7. Management & Mindset Shift

• Keeping Original Teams
  • Belief: Most aren’t “rotten fruit”—just “late bloomers” who need the time that profitability, not perpetual fundraising, affords.
    • “For us, we just think that these management teams need more time. And the way you get infinite time is profitability.” (B, 15:01)
• Motivation Remains High
  • After years in the trenches, only the most passionate founders remain.
    • “My team are warriors, I’m stronger than I’ve ever been. Like I’m bulletproof right now. We have hardened teams.” (B, 16:36)
• Easy Off-Ramp for Those Not Believing
  • “If you don’t want, if you’re not truly believing in where you’re going, you’re not going to sign up for the journey, right? You just won’t.” (B, 16:52)

8. A “Win-Win-Win” for VCs, Founders, and Buyers (17:19)

• Venture Funds’ Perspective
  • Facing a zero/write-off and the hassle of a bankruptcy, VCs can accept a smaller stake in exchange for a shot at upside and freedom from a failed board seat.
  • “As opposed to a zero, you will get some upside, right? A hope note. ... Also, we’re going to relinquish you of the board ... what you get back is freedom.” (B, 18:10)
• Demonstrated Success: Previous VC investors are sending deals and asking to invest in the acquisition fund.

9. Vision: Building a Physical World “Constellation Software” (19:19)

• The Model:
  • Become to hardware/physical tech what Constellation Software is to software—acquire overlooked but solid assets, use their profits to buy more, and grow into a powerhouse.
  • “For us, though, we want to be Constellation Software, we want to be Bending Spoons, but we want to be doing it in the physical world.” (B, 19:54)

Notable Quotes & Memorable Moments

• Conviction Play:
  “The best bets are something that you truly believe, but the market doesn’t.” – Guest (B), 00:23

• On Death Valley:
  “It's just a very scary moment where everyone's kind of holding onto their seats thinking, is this thing going to the moon or is it going to zero next month?” – B, 05:32

• On the Coming Market Collapse:
  “Six out of seven companies that try to raise a Series B can't.” – B, 11:54

• On Buyouts:
  “We're going to acquire those businesses for a fraction of historical R&D spend ... and push those companies to profitability in 24 months or less.” – B, 13:26

• On Founder Resilience:
  “My team are warriors, I’m stronger than I’ve ever been. Like I’m bulletproof right now. We have hardened teams.” – B, 16:36

• On the Constellation Software Playbook:
  “He would then use the profit of those businesses to acquire new businesses ... I looked at their market cap last night, $70 billion.” – B, 19:29

Timestamps for Key Segments

• Why bet big on Tesla in 2014? — 00:00–01:21
• Hardware vs. Software: Revenue and Capital Intensity — 01:21–04:04
• The “Death Valley” for Hard Tech Startups — 04:04–05:43
• Failure vs. Unmet Potential: Startup Buckets — 05:43–07:46
• Hard Data Showing the Coming Venture Crunch — 08:56–12:23
• A Contrarian Fund’s Acquisition Strategy — 12:23–13:52
• Deal Structures & Rationale — 13:52–14:57
• Founder Psychology and Team Retention — 15:01–16:52
• How VCs View These Buyouts — 17:12–19:11
• Long-Term Vision: Constellation Software Model for Physical Tech — 19:11–20:23

Summary Conclusion:
This episode pulls back the curtain on the underbelly of today’s venture capital landscape—where outsized funding, bearish conditions, and inherent structural flaws are converging to topple swathes of startups. Yet, for those with patience, discipline, and a willingness to swim against the current, huge value awaits in the best distressed assets. The guest offers hard data, actionable portfolio theory, and acute observations on founder and investor psychology—making this required listening for sophisticated market participants.