The Hidden Strategies of Venture Capital - E687

"A Southeast Asia fund may see more than 5,000 startups in the ecosystem. From that, they will do deep due diligence into about 100 companies, write deal memos for 50, and ultimately invest in only 10 startups in a year. There is a huge funnel process." - Jeremy Au

"Across stages, VCs are collaborative with one another. However, within the same vertical, VC funds are often highly competitive because there is only a limited opportunity to make an investment at that specific point in the startup lifecycle." - Jeremy Au

"While many consider Y Combinator the 'Harvard for Startups,' from a VC fund strategy perspective, they operate much like an index portfolio. Conversely, funds like Union Square Ventures are focused on making highly concentrated bets, resulting in completely different hit rates for building unicorns." - Jeremy Au

In this episode, Jeremy Au breaks down the inner workings of the Venture Capital ecosystem, exploring how VCs balance fierce competition with strategic collaboration. He details the four core functions of every top-tier VC—sourcing, selecting, supporting, and exiting—and unpacks the distinct strategies funds use, from index portfolios like Y Combinator to venture builders and concentrated bets.

Jeremy also sheds light on the staggering logistics of the VC funnel, explaining how a typical Southeast Asian fund narrows down 5,000 potential startups to just 10 investments a year. Whether you are a founder navigating a stealth startup launch or an aspiring investor looking to understand benchmark hit rates and proprietary sourcing, this episode offers a transparent look at how capital is deployed from pre-seed to growth stages.

00:00 - Collaboration vs. Competition in the VC Ecosystem

00:47 - Categorizing VCs: From Pre-Seed to Growth Stage

01:23 - The Four Core Functions of Every Great VC

01:36 - Four Common VC Fund Strategies Explained

03:45 - The Spectrum of Traction and Startup Evaluation

03:52 - Minority Investments vs. Management Control

04:42 - Benchmarking VC Success: Hit Rates and Unicorns

05:45 - The Logistics of the VC Sourcing Funnel

07:00 - Proprietary Sourcing and Stealth Startups

08:23 - Reference Checks and Deal Referral Mandates

Watch on YouTube: https://www.youtube.com/watch?v=gbjFiih9Wnc&list=PLl9u6ECOP8_7scb97PE3whKu4yJVizIOd

Listen on Spotify: https://open.spotify.com/episode/0GYDJ3JZEdjQWHJYqjB3Tf

Keywords: Venture Capital Southeast Asia, VC Sourcing Funnel, Startup Investment Strategies, VC Fund Economics, Stealth Startups, Venture Builders, Y Combinator vs Union Square Ventures, Pre-seed and Seed Funding