The Consolidation Paradox: Why Venture Capital Is Moving Away From Its Core Mission

Geri Kirilova stumbled into venture capital through a college internship at Credito Ventures in Prague. While studying finance and international business, she had planned a traditional path toward investment banking or private equity. Then she encountered something unexpected: an entire subsegment of the investment industry dedicated to funding innovation.

"Wait a minute, we have a whole subsegment of the investment industry that is subsidized innovation," she recalls thinking. "Like we get to give people money to realize their dreams, right?" That realization changed everything.

After her Prague internship, Kirilova spent about a year at Launch Hub Ventures in Sofia, Bulgaria, before moving to New York for what would become a decade-long chapter. She met Jeffrey Silverman at an industry event, and they began working together in 2016. Along with David Arcara, they founded Laconia, which now manages three funds focused on pre-seed and seed investments in applied AI and specialized software companies.

What has kept Kirilova in venture for over a decade isn't the capital deployment or the deal flow. It's the learning curve. "Your job is really to constantly, constantly learn," she explains. "And I feel like it's an industry where if you have the flexibility and the autonomy to determine what your focus areas are, the learning curve never really flattens."

The numbers tell a stark story. First-time fund count in the United States reached an all-time low in 2026—approximately 100 expected compared to more than 200 in 2016. This isn't a temporary market correction. It represents a fundamental shift in how capital flows through the venture ecosystem.

The consolidation stems from a seemingly rational observation: the top 0.1% of startup outcomes are larger than ever. As those exits grow, limited partners naturally gravitate toward managers with proven track records. The logic appears sound—why take a risk on an unproven fund when established managers have demonstrated their ability to identify winners?

But this logic contains a fatal flaw. "The core strength of venture capital is its massive amount of diversification and dispersion," Kirilova argues. "It's an extremely power law-driven industry." The very nature of venture returns—where a tiny fraction of investments generate the majority of returns—demands broad experimentation at the earliest stages. Concentrating capital into fewer decision-makers directly contradicts this fundamental principle.

The ecosystem now operates under an assumption that Kirilova finds troubling: "The ecosystem operates as if past performance does equal future performance." In an industry defined by unpredictability and outlier discovery, this represents a dangerous departure from first principles.

For emerging managers, the path to raising a first fund has become increasingly opaque. Unlike startup fundraising, which follows relatively structured processes, LP fundraising operates on relationship dynamics that can take years to develop.

"Many of these LPs are fully on the record saying that they do not want more pipeline," Kirilova explains. "They really only want to talk to the people who are sent to them by the people they already know." This preference for warm introductions creates a closed loop that naturally favors established networks over emerging talent.

The timeline compounds the challenge. Kirilova emphasizes that LP fundraising cannot be approached like a startup seed round. "You can't sprint through it in 90 days," she notes. The relationship building required—understanding LP investment theses, demonstrating consistent market insight, building trust—unfolds over years, not quarters.

This extended timeline creates a chicken-and-egg problem for emerging managers. Without a fund, they lack the platform to demonstrate investment acumen. Without demonstrated investment acumen, they struggle to raise a fund. The industry has developed some institutional support to bridge this gap, but structural incentives still drive capital toward established firms.

The challenges facing emerging managers vary significantly by geography. Kirilova, now based in Zurich after a decade in New York, has observed these differences firsthand. The contrast between US and European venture ecosystems extends beyond capital availability to fundamental operational realities.

Setting up a fund in Europe costs significantly more than in the United States. A Luxembourg fund structure, for example, carries approximately €150,000 in administrative fees—substantially higher than Delaware structures. These upfront costs create an additional barrier for first-time managers, particularly those without existing capital or institutional backing.

The fundraising timelines differ as well. The US market generally moves faster, both for fund formation and for portfolio company customer acquisition. This velocity creates a compounding advantage—faster deployment leads to faster feedback loops, which accelerates learning and subsequent fundraising.

Kirilova's decision to base Laconia in the United States while living in Europe reflects these structural realities. The firm maintains its US legal structure while she operates from Zurich, capturing advantages from both ecosystems.

Perhaps the most troubling aspect of consolidation isn't the difficulty it creates for emerging managers, but what it reveals about the industry's evolution. "The industry does not function with the objective of identifying and funding outliers in the early days," Kirilova observes. "It is now fulfilling a different goal potentially, but it is no longer fulfilling that goal."

This represents a fundamental mission drift. Venture capital emerged to solve a specific market failure: the inability of traditional financial institutions to fund high-risk, high-uncertainty innovation. The model worked because it distributed decision-making authority across many independent actors, each making different bets based on different theses.

As capital concentrates, this distributed decision-making collapses. Fewer managers make more decisions about which companies receive early-stage funding. The diversity of perspectives narrows. The range of experiments funded contracts. The very mechanism that made venture capital effective at discovering outliers weakens.

The irony is that this happens precisely as the outcomes from successful outliers grow larger. The bigger the potential returns, the more important it becomes to maintain broad diversification at early stages. Yet the bigger the potential returns, the more capital flows to established managers with concentrated decision-making authority.

In this consolidating landscape, early-stage firms like Laconia have found differentiation through value-add beyond capital. The firm has built a network of over 1,700 venture fellows—operators, domain experts, and potential customers who provide market feedback and sales leads to portfolio companies.

This focus on go-to-market support reflects a broader shift in how pre-seed and seed investors create value. When capital becomes commoditized, access to customers and distribution channels becomes the differentiator. Kirilova and her partners leverage their network to help portfolio companies navigate early sales cycles and validate product-market fit.

The approach requires significant infrastructure. Maintaining relationships with 1,700+ fellows, coordinating introductions, and ensuring quality interactions demands operational sophistication beyond traditional venture capital. But it creates defensible value that pure capital deployment cannot match.

This model also addresses a fundamental challenge in applied AI and specialized software—the categories where Laconia focuses. These companies often target technical buyers in specific industries, making warm introductions and domain expertise particularly valuable. A fund that can accelerate customer acquisition provides more than money; it provides time.

The consolidation paradox suggests that venture capital needs structural reform, not just incremental change. If the industry's core strength lies in diversified decision-making, then the current concentration of capital represents a systemic failure.

What would reform look like? Kirilova doesn't prescribe specific solutions, but her analysis points toward several possibilities. Limited partners could allocate more capital to emerging managers, accepting that individual fund performance may be unpredictable but portfolio-level diversification across managers improves odds of capturing outliers. Fund-of-funds structures could provide emerging managers with initial capital while they build LP relationships. Regulatory changes could reduce the cost differential between US and European fund structures.

The challenge is that these reforms require coordination across a fragmented ecosystem. No single actor can solve the consolidation paradox alone. LPs respond to incentives shaped by their own stakeholders. Established managers have no reason to advocate for increased competition. Emerging managers lack the influence to change structural dynamics.

Yet the stakes are significant. If venture capital continues consolidating, it risks becoming precisely what it was created to replace—a concentrated, risk-averse capital allocation system that favors proven approaches over experimental ones. The industry would still exist, still deploy capital, still generate returns. But it would no longer serve its original purpose of discovering and funding outliers in their earliest days.

Despite these structural challenges, Kirilova remains committed to building Laconia over the long term. The firm is currently raising its third fund, refining its thesis around applied AI and specialized software, and expanding its venture fellow network.

The decision to stay in venture despite its challenges comes back to that initial realization in Prague: this is an industry that subsidizes innovation, that funds people's dreams, that operates at the frontier of what's possible. The consolidation paradox may threaten that mission, but it doesn't eliminate the underlying opportunity.

For emerging managers, Kirilova's journey offers both caution and encouragement. The path to establishing a new fund has become more difficult, requiring longer timelines, deeper networks, and more patient capital. But the fundamental need for diversified decision-making in early-stage investing hasn't changed. The power law dynamics that define venture returns still reward those who make differentiated bets.

The question is whether the industry's structure will evolve to support that diversification, or whether consolidation will continue until venture capital becomes something fundamentally different from what it was designed to be. Kirilova doesn't claim to know the answer. But by building Laconia, by raising successive funds, by maintaining her focus on pre-seed and seed investing, she's betting that the original mission still matters.