The relationship game in Silicon Valley elite circles: Those with connections get 50 million, while the truly talented can't raise funds?

Author: Shower Thoughts
Compiled by: TechFlow

Deep Tide Introduction: Silicon Valley is shifting from meritocracy to connectionism. Founders with Stanford backgrounds raise funds effortlessly, VCs pour $50 million into "centrally cast" teams to create hype before they even have traction, while truly capable outsiders can't secure funding. This approach works in the short term, but will ultimately lose to underestimated outliers — those who follow the herd are waiting to be slaughtered.

Peter Thiel loves asking variations of one question: "In a given environment, what can you not say?" In the evangelical-dominated South, being gay or liberal is dangerous. On college campuses, being conservative is dangerous.

In Silicon Valley, the unquestionable dogma is talent meritocracy.

Silicon Valley has historically prided itself on meritocracy. Outsiders with no background or connections could emerge, build generational enterprises, and be rewarded. The industry has always been proud of being 2,851 miles away from Washington, D.C., a place notorious for getting things done through lobbying and insider relationships.

Today, outcomes in Silicon Valley depend on who you know and how willing they are to elevate you.

This is no different from how any other old-money industry operates. In East Coast high finance, you need the right elite school. In British politics, you need the right family name.

How did Silicon Valley go from meritocracy to a game of kingmaking?

Consensus Groupthink

It's no secret that Silicon Valley's thinking has become extremely consensus-driven in recent years. This mainly stems from 1) AI distorting growth expectations, 2) LP capital concentration, and 3) the professionalization of venture capital.

First, AI has completely distorted expectations for revenue growth. For the first time in history, we are seeing startups go from 0 to $100 million ARR in one to two years. In the SaaS era, sustained threefold annual growth was enough to take your company to IPO. Even more extreme is Anthropic's scale of growth — from $9 billion ARR in December 2025 to $47 billion ARR in May 2026 (adding the combined annual revenue of Palantir, Snowflake, and CoreWeave along the way) — which is unprecedented.

Well-known VCs now say never invest in diamonds in the rough. Either wait until the inflection point is visible and try to get into the hottest companies, or try to pattern-match past successes and back a new company early. The former is the correct growth-stage investment strategy; the latter is a mistake. I'll explain why later and how this affects founders.

Second, LP capital has concentrated into a few established multi-stage franchise funds. In the first half of last year, 12 VCs took 50% of all LP capital. This is mainly a reaction to over-allocation to the venture asset class in 2021–2022, and a flight to "premium" brand names that institutional allocators don't have to risk their careers defending in IC meetings. Family office LPs, in particular, care deeply about getting into Silicon Valley's hot companies, regardless of valuation. If VC funds have to pay high prices for tiny stakes in hot companies to attract LP capital, so be it.

Third, the culture of the VC industry has shifted from boutique craftsmanship to a mature career path. Over a decade ago, venture capital was a craft. Like medieval guilds, VCs followed an apprenticeship model, with experienced old GPs training young junior VCs in taste for judging founder quality and feel for market timing.

Over time, VC has professionalized into another standard career path. What used to be 2 years of investment banking → 2 years of business school → private equity is now 2 years at a big tech company → 2 years at a high-growth startup → venture capital. Once a standard career path exists, it attracts conformist good sheep NPCs, not the extremely independent thinkers the industry relies on for contrarian investing.

Given that IPO timelines are longer than ever, extending feedback cycles, getting into hot companies (not necessarily the best ones!) is a better strategy for career advancement within VC firms. Mid-level VCs prefer quick, easy markups from safe consensus bets rather than risking a potential fund-returner. Large VC firms also have higher turnover than ever, so these VCs may not even be at the firm in a few years to reap the carry from that return fund investment.

Consensus Money Attracts Consensus Founders

One would think that typical startup founders are extremely nonconformist rebels, carving their own path in the world and not caring what the establishment thinks. These founders are often polarizing to peers, don't follow orders, and get fired from structured corporate jobs. That's not so much the case anymore.

Startups are becoming a more standard career option, no different from big tech or consulting. One contributing factor is the high unemployment rate for recent college graduates seeking entry-level white-collar jobs, which are shrinking due to AI. Instead of struggling in the job search, they might apply to a startup accelerator, treat it as an internship, burn $500k having fun, and figure out adulthood.

The Stanford Review once wrote that YC is for cowards. As YC increased from 2 to 4 batches per year (about 800 startups a year!), plus the explosion of other accelerator programs, it's no surprise that the typical startup founder has become more homogeneous and less of an unconventional outlier.

Accelerators pressure startups to be understandable to VCs by demo day, so startups wandering the idea maze trying to find product-market fit naturally gravitate toward the most obvious crowded categories that have already worked. 81% of YC's current batch is doing AI for XYZ. Crypto startups are doing stablecoin neobanks in XYZ region or prediction markets in XYZ niche. Consensus VCs fund these consensus ideas because they feel safe and familiar, easily pattern-matching to what has already worked. But the best companies define new categories and start years before the category becomes obvious or even has a name.

For founders not going through accelerators, a good background is more important than ever. Anyone who went to Stanford can raise funds. Anyone who spun out of OpenAI can raise funds. The check size and valuation are a function of how good the educational pedigree is and how well-connected the founder is in VC circles.

Moreover, large multi-stage funds are giving "centrally cast" figures (those with the best credentials) war chests of $10 million to $50 million, kingmaking a category before their company even has traction, making it hard for non-centrally cast players to win those markets.

So now it's no longer "Can you build a great business?" It's "Can you fit the mold that large VC firms want to fund?"

A soulless inner circle — where those with background and connections get preferential treatment — runs counter to the meritocratic ideal that any skilled, hardworking entrepreneur can win. Meritocracy historically gave Silicon Valley its luster; it was the only place in America where the American dream still existed and worked. Today, Silicon Valley is becoming more like Wall Street or K Street.

Founders outside the network now feel they must "play the game" to become one of the centrally cast. That means hanging out with VC associates at happy hours and dinners, acting slightly aloof to create FOMO and funding momentum. Usually, founder networking with VCs is a waste of time; they should focus on building the company and talking to customers. Now it's all part of the game, an extra skill founders must cultivate.

Downstream Effects of Kingmaking

To be fair, kingmaking works to some extent. Raising a massive war chest gives you a huge advantage for loss-leading customer acquisition (i.e., unprofitably acquiring users until your competitors go bankrupt or pivot). It scares off other teams from entering your market.

However, kingmaking also creates moral hazards for bad behavior. Companies get creative in reporting revenue, and founders sell secondary shares early.

Kingmaking pressures companies to show revenue growth at all costs to be understandable to VCs. This leads some companies to flat-out misreport revenue (securities fraud) or get creative with methodology. One example is taking a one-off contract and annualizing it as ARR. These contracts are often just pilot pricing with exit clauses, so they are ironically neither "annual," "recurring," nor "revenue." Another example is rebranding ARR from "annual recurring revenue" to "annual run rate" and calculating ARR as last week's revenue × 52 or even last day's revenue × 365. That's not exactly securities fraud, but it doesn't look good for anyone doing due diligence.

VCs trying to win a kingmaking round typically allow founders to sell secondary shares to win the deal. Apparently, 10% of a hot company's round allocated to founder secondary shares is now common practice. The downstream effect of founder secondary shares is that it attracts scammers. Those who can play the "game" described earlier to create VC FOMO at Series A, and use it to sell millions of dollars worth of founder secondary shares (often exceeding the company's lifetime revenue), then slowly rug-pull.

Mean Reversion

The pendulum has swung too far toward consensus today, and I bet there will be a mean reversion toward contrarian thinking.

History has repeatedly shown that the hottest theme in any given year is not the category of the most valuable company founded that year. I have no reason to believe this time will be different.

I would rather support outsiders with chips on their shoulders than insiders prematurely crowned by VCs. I believe there is a huge blind spot outside the Silicon Valley groupthink bubble — great founders with no background, outside the distribution, who are incomprehensible to most VCs.

I am optimistic that meritocracy will ultimately win, and those who chase momentum playing the kingmaking game will be left licking their wounds.

Those who follow the herd are waiting to be slaughtered.