If everyone is bullish on the same industry, the valuations are often too high to generate a good return. The “top VCs” get access to the best deals and there’s high competition between many participants.
The fundamental uncertainty at early stage is getting traction that is repeatable. If the startup is able to achieve that, there are many ways to expand (horizontally and vertically) into adjacent markets. Successful products in relatively niche markets can be great acquisition targets by larger players looking for expansion into that niche segment.
Very rarely do companies who otherwise fail become large winners. If anything their ceiling is a 3x result. In fact, most companies fail by “suicide” (from within - founder conflict, lack of clear strategy, lack of traction, etc), and NOT by “murder” (outcompeted by another company or outside force). If a company fails, I want to have predicted why it would fail.
There are undoubtedly smart and accomplished investors at the large/tier1 VCs. These funds, however, have very specific portfolio strategies as well as a large distribution of winners and failures in their portfolio. Thus their investment might not make sense for a smaller fund or different portfolio.
Just because a tier1 VC invested in it, doesn’t mean its a good investment. For every Airbnb, there’s an investment in Clubhouse. And I’d rather have these guys invest after me than before me.
Most early stage investors treat teams as paramount - which is why they invest in 2nd time founders and often the same profile from the same schools. However, in certain markets, B level teams can also be successful, depending on the tech/business model, etc.
“A rising tide lifts all boats.”