Explain Like I’m Five: WTF are Venture Capital Firms?

Earlier in 2025, I had the opportunity to present on raising capital to a few universities in the Bay Area and Southern California. It was an incredible experience because they were wide-eyed, curious economics/business students who really leaned into the lecture.Find the full slides that I presented over in this Google Drive.I literally knew nothing about the venture capital world a year ago when I co-founded Anthromind. So, in six months, being able to present and talk about it in depth required a lot of learning. I was on the ground, building relationships and absorbing as much knowledge as I could on this topic.

The main ideas I touched upon were:

* How do VCs operate and make money?

* Should you even bother raising venture capital money?

* What are the benefits of raising venture capital money, and what are the drawbacks?

* What do the terms 83B election, QSBS, preference tax, etc., mean?

* How do you get noticed by VCs?

Myth: Every Successful Startup Should Raise Venture Capital Money

People think, “let me form a startup, raise some capital, and then I’ll start working,” But in fact it’s the opposite. You typically build something for a while until it’s “venture-ready”. In fact, validating your idea and getting customers is a no-brainer before even attempting to get funded.

The best time to raise capital is when you really need a big lever. Like the Archimedes principle - “Give me a big enough lever and I can move the world,” venture capital funding gives you the biggest possible lever for your start-up. Anthromind has a massive market, and VC funding has a great lever, for example.

So, should you raise capital for your startup? First, consider the outcome that you want. If you wish to build a billion-dollar company, are dead set on it, and willing to risk anything for it, then probably yes. Think about the total market that you have. If you’re doing Uber for dogs, what is this world market for that? That is very different from, like, an AI-native startup building SREs for companies. That is a very different market, with very different potential revenues, so you need to index for that.

In the chart below, I show why the venture capital business model is a little skewed: they expect one company out of a hundred or even thousands to become the next Tesla or Apple, and that’s what floats the whole VC portfolio.

There are also other considerations. You could raise $2M of seed at a $20M valuation. But what happens if your company does not actually meet the expectations? What if you’re stuck at $2M of annual recurring revenue for the next five years? The reality is you’ve stalled, the VCs won’t pick up your calls, and you have nowhere to go, so you effectively become a zombie company. There are so many of these companies that get seed funding and never grow beyond that point because they are effectively zombie companies. In fact, a lot of the time, it would have been better never to raise any capital at all and to continue growing sustainably on angel checks. In conclusion, it’s a hard call, but please weigh all your options before considering raising venture capital.

Friday Positivity: It’s Okay To Be Disliked

For this week’s Friday Positivity, the topic is “It’s okay to be disliked.” There’s a great saying: “Pleasing everybody means earning nobody’s respect.” I found that to be very true throughout my life. I allude to the crabs-in-a-bucket phenomenon, and it is very accurate in how it works in society.

If you’re not aware of the crabs-in-the-bucket mentality, it’s when folks would pull down for others trying to better themselves. There are a lot of reasons for it: jealousy, culture, we’re all in this together, but it’s so detrimental to progress. I feel like this is common among immigrant households, based on personal experience seeing friends and family from Nepal and other immigrant communities. They really treat folks who are trying to ameliorate their situation with a lot of disdain, actually, and it really stifles them.Don’t be an a$$hole, but don’t be a pushover either. If you want the life that you wish to have, be ready to step on some toes. As they say, it’s lonely at the top.

Topic of the week: How VC Math Works, No Cap

I explained a lot about the VC math situation above, but the full podcast talks about a lot more. We go over the QSBS tax incentive, what the VC fund model looks like, and how they actually make money. So listen to the full podcast episode and give me your comments, please.

P.S. What have I been reading/watching/playing?

* [TV Show] Pluribus: Vince Gilligan is the creator of Breaking Bad and Better Call Saul, and he has not missed so far. I really like his new show Pluribus; it’s a lot of things. It’s an introspection on AI usage in this world. It talks about communism because it’s a direct homage to The Invasion of the Body Snatchers. I feel like it’s a great character study of a highly individualistic person, Carol, who thinks she’s better than a hive mind but can't even do the most basic things, like taking out the trash, without help. So the actual story is, is everybody an island, or do we rely on each other more than we think?

* [Paper] Generalist foundational models are not clinical enough for hospital operations: This is an excellent paper on how taking a general foundation model, even the ones specifically built for clinical operations, is not that great when it comes to building trust and accuracy among clinical use cases. The authors of this paper also created one of the world’s largest open-source datasets for medical images. That’s why the agent over here, CheXagent, is really great. It aligns with what we’re doing in Anthromind and with building the best possible post-training datasets.

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