Video · 2026-08-08 · 1h 31m · 6 moments

The AI Boom Will Create Enormous Roadkill: Who Wins & Loses? | David Frankel

✦ AI generated

timeline · colored by role

Mechanism

Scale in venture is a pyramid: the market for access is so narrow that a top-5-tier fund that misses the $3 trillion companies becomes 'much harder to sell,' and because fewer than 100 companies created in the last 25 years are sustainably over $10 billion, a seed fund only needs ~5% of one ~$2.6 billion company to return its fund.

David explains the 'pyramid' narrowing of venture — the biggest firms must be in the $3T-plus companies to keep selling access — and why a 5% stake in a median $2.6B winner (careers' few $10B+ companies) can return a seed fund; spotting such founders is 'code for this may just be another Uber, another Suno.'

transcript

David Frankel: you've got this narrowing out in venture where the bigger you get almost like it becomes like a pyramid... if you miss the $3 trillion companies, right, like you're much harder to sell... if you look at the numbers over the last 25 years of how many companies were created that are over hundred billion dollars and the numbers are like there were less than a hundred companies over the last 25 years, less than a hundred that are sustainably over 10 billion companies. So you've at that top end, you've got to be in that. The median company... the median of the top 500 companies created in the last 25 years, the median is 2.6 billion. Now, if you own 5% of one of those companies, you return the fund each time... you can wait and wait and wait and wait if you're patient and then you just see someone... you see a founder or you see a team and you just go, I have to be there, right? And to me, that's code for this may just be another Uber, another Suno, another Shield AI.

provides context · 1

Prediction◆

The AI wave will produce enormous roadkill — 'it's like Hollywood, man, 95% are not going to be there' — but seed investing still works because you don't need to be in the one huge winner if you own 5% of a $2.6 billion outcome, so seed is not dead, just crowded and commoditized.

David predicts heavy casualties from the AI boom (analogous to Hollywood's 95% miss rate) while defending seed's durability: a 5% stake in a median $2.6B company returns a fund, which is why seed is crowded and commoditized rather than dead.

transcript

David Frankel: will there be roadkill from this wave? Oh my god, there's going to be a lot... How many times, Harry, over the last 11 years have you heard this is different? This is different... It doesn't mean that there aren't survivors and companies that are going to change the trajectory of technology forever... these are the metas and the Googles of our era. Highly likely. But wow, like it's Hollywood, man. Like 95% are not going to be there. And it goes back to why is seed interesting? Like I don't have to be in the one... if you have 5% of a $2.6 billion outcome, you've returned your fund... And that's why I think seed isn't dead. I think seed is crowded and to some degree very commoditized.

explains mechanism · 1

Mechanism

The big mega-platforms are effectively taking call options by writing many small checks, which is bad for roughly 95% of entrepreneurs: they get money from a more junior principal who later leaves, so their funding mandate dies and future rounds die with it.

David argues that mega-platforms take 'call options' that work against roughly 95% of entrepreneurs — the junior investor who championed the deal moves on, the company can't hit growth targets, and the funding mandate evaporates; the few who succeed are those who believe they're the exception.

transcript

David Frankel: the mega platforms are taking call options. So, is this good for the mega platforms? Is this good for the LPs? Or is this good for the entrepreneurs? Well, probably for 95% of entrepreneurs, it's not good... You get more money at a higher price with mostly a more junior VC who will let you do your work and not get in the way... The more junior the principal at that big fund moves on. They start their own fund. They move to another fund. Happens all the time. Right. So the person who invested doesn't have mandate... because your champion's gone... you're overlooked because it's like let's focus on our real winners and that thing's worth2 or 3 billion. So 95% is mandate for further funding is dead is gone. Now this is the beautiful thing about most entrepreneurs is they just don't think about themselves in that category. I'm the 5%, I'm the 2%.

supports · 1

Claim

Refusing deals purely over percentage ownership is the biggest mistake: passing on Eleven Labs, Granola, StarCloud and Fractile solely because we'd only get 1–2% cost us 'hundreds and hundreds of millions of lost returns,' so when the right founder appears you take whatever ownership you can get.

David names his biggest investing mistake: passing on Eleven Labs, Granola, StarCloud and Fractile purely because he'd only get 1–2% — hundreds of millions in lost returns — and confirms he has never turned down a deal for ownership reasons since.

transcript

David Frankel: I look at ours and our biggest mistake and I can look at deal 11 Labs. I can look at Granola. And StarCloud, Fractile could have done them all, but would have had 1 to 2%. And all of them we turned down purely for ownership. And that is hundreds and hundreds of millions of lost returns for ownership. I've never thought about that... all things being equal, like um I'm not a I'm a capitalist, right? So, all things being equal, like I'd love to own more upfront than less... I've never I've never turned it down. Never.

Claim

A billion-dollar valuation is not the new Series A for us: that is the momentum business where you must know when to run for the exits, whereas our business is value — getting in early and finding value opportunities, and momentum assets are not usually the fund returners.

Pressed on whether 'a billion-dollar valuation is the new Series A' — citing McCourt, Cognition, Cursor — David rejects it: that's the momentum business requiring fast exits, not value investing, and momentum assets typically aren't fund returners for him.

transcript

David Frankel: I think a billion dollar valuation is the new series A... No. I think you may be looking at the top two or 300 companies. Is that not our business? Um, I don't think so... I think that that's the momentum business. And I think knowing how and when to get out quickly with some of those really really matters. And that's not really my business. So my business is value is getting involved early and trying to find value opportunities... But I'm not sure that those are your fund returners. The difficulty with some of those momentum assets is like it was what we were talking about earlier is you've got to be able to like run for the exits when you can.

explains mechanism · 1

Prediction◆

AI will not cause mass unemployment: it will bring enormous productivity gains, but it is much easier to train than to retrain, so the young who grow up 'mentally plastic' with these tools gain a huge edge over older, vertically knowledgeable but less adaptable workers.

David rejects the mass-unemployment fear, forecasting big productivity gains instead, but warns that 'train vs. retrain' makes youth an advantage — 22-year-olds tinkering in dorm rooms outpace 45-year-old specialists like 'Simon and Claire' whose only edge is vertical knowledge.

transcript

David Frankel: Do I think that we're going to have mass unemployment because of AI? ... No. I think we're going to see tremendous productivity gains. I think like every wave there the halves and the have nots and if you're not training and playing it's a little bit why youth has an advantage because out of college... you are familiar with the tools... My worry is it's much easier to train than it is retrain. And actually the 22-year-olds coming out of university who are tinkering in dorm rooms with Claude... they're mentally plastic to it... versus Simon or CLA who are 45. They've always done their job in accounting and they just are not so mentally plastic. So the only advantage that Simon and Cla have is they are very vertically knowledgeable and relevant... So sometimes in terms of sales... there'll actually be very good salespeople.

provides context · 1

Highlight slides

The AI wave will produce enormous roadkill✦ from: The AI wave will produce enormous roadkill — 'it's like Hollywood, man, 95% are not going to be there' — but seed investing still works because you don't need to be in the one huge winner if you own 5% of a $2.6 billion outcome, so seed is not dead, just crowded and commoditized.Why seed isn't dead — just crowded and commoditized✦ from: The AI wave will produce enormous roadkill — 'it's like Hollywood, man, 95% are not going to be there' — but seed investing still works because you don't need to be in the one huge winner if you own 5% of a $2.6 billion outcome, so seed is not dead, just crowded and commoditized.AI带来生产力增长而非大规模失业✦ from: AI will not cause mass unemployment: it will bring enormous productivity gains, but it is much easier to train than to retrain, so the young who grow up 'mentally plastic' with these tools gain a huge edge over older, vertically knowledgeable but less adaptable workers.训练易、再培训难：年轻人占据优势✦ from: AI will not cause mass unemployment: it will bring enormous productivity gains, but it is much easier to train than to retrain, so the young who grow up 'mentally plastic' with these tools gain a huge edge over older, vertically knowledgeable but less adaptable workers.

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