The Cultural Consequences of a Structural Shift
In October 2023, I wrote about how AI would reshape startups and VCs. The core argument was straightforward: AI would make it so cheap and easy to build software companies that the traditional venture capital model would start to break down. When a handful of people can do what used to require dozens, the economics of raising tens of millions of dollars to build a SaaS company stop making sense. I predicted this would push more capital toward deep tech and frontier science, where the problems are genuinely hard and the need for significant funding is real.
A recent essay by Michael Dempsey, a partner at Compound VC, suggests that this structural shift is now manifesting as something I didn't fully anticipate: a cultural crisis.
In VC-Backed Startups are Low Status, Dempsey argues that the mainstream venture-backed startup path is undergoing the same kind of status decline that investment banking went through after 2008. But unlike banking, which had a clear catalyzing moment, the startup world is experiencing something more diffuse. He calls it "cultural exhaustion." The path of starting a VC-backed company has become so default, so optimized, and so legible that it no longer signals anything meaningful about the person doing it.
What struck me most about his essay is how many of his cultural observations map directly to the structural dynamics I was writing about two years ago.
The Same Forces, Different Lenses
My argument in 2023 was economic. As automation dramatically reduces the cost of building and scaling software, two things happen. First, the market floods with new entrants because the barriers to starting a company collapse. Second, the economics shift toward smaller, more specialized products (what I called "micro-SaaS") that don't need or justify traditional venture funding.
Dempsey is seeing the cultural fallout of exactly these dynamics. He describes a world where the large venture firms have essentially become investment banks, deploying billions into whatever is most "legible" in a Monday partner meeting. He sees founders optimizing for consensus rather than conviction, building whatever fits the current zeitgeist because the system rewards legibility over originality. The noise has outpaced the signal.
This is what happens when the barriers drop but the institutional machinery stays the same. You get more founders building more companies, but fewer of them are building anything genuinely different. The system produces volume, not vision.
Where the Status Is Going
One of my key predictions was that as traditional software became less suitable for venture capital, more money would flow into deep tech and frontier science. These are areas where the problems are scientifically hard, the capital requirements are real, and you can't shortcut your way to a product with a few engineers and some API credits.
Dempsey arrives at essentially the same conclusion from the cultural angle. He notes that frontier-facing companies doing genuinely novel scientific work aren't losing status. They're gaining it. He points to Anthropic as a case study in how "vibes," values coherence, and a sense of genuine mission are becoming real competitive advantages for attracting talent.
This makes sense. When the average startup path becomes the default path, the only way to stand out is to do something that is genuinely hard and genuinely meaningful. Deep tech and mission-driven companies naturally separate themselves from the crowd because you can't (easily) fake the work.
The VC Funding Question
Perhaps the most direct overlap between our perspectives is on the question of whether founders will continue raising venture money at all. I argued that drastically reduced costs would make it economically viable to target smaller markets and self-fund. Dempsey frames the same dynamic as a cultural awakening, calling the notion that you still need tens of millions of dollars when you have access to incredibly powerful AI tools for a couple hundred dollars a month a "psyop" that is starting to lose its grip.
This is the part that I think will play out fastest. The founders who are building genuinely differentiated companies will still raise money when the problem demands it. But the growing mass of founders building incremental products in consensus categories will increasingly find that the juice isn't worth the squeeze. The dilution, the board dynamics, the pressure to chase outcomes that justify a fund's return model. None of that makes sense when you can build a profitable business with a small team (or even solo) and with modest capital.
Looking Forward
When I wrote my original piece, I was focused on the mechanics. What would happen to the economics of startups and the allocation of venture capital as AI matured. What I underestimated was how quickly the cultural layer would shift in response.
Dempsey's essay is a signal that we're now firmly in the transition period. The old model hasn't collapsed, but the people inside it can feel that something is off. The status signals have shifted. The energy is moving toward founders and companies that are doing work that matters, using capital that matches the actual needs of the business, and building cultures that people genuinely want to be part of.
I think we're heading toward a world with far more companies, far less venture capital per company, and a much sharper divide between the small number of ventures that truly need and deserve significant funding and the vast majority that don't. The founders who recognize this shift early will have a significant advantage.
