Venture is an engine to build the future
Although it is a tiny asset class, venture is the engine of innovation.
While only a small portion of global investable assets (see Figure 1), a majority of the world’s most valuable companies were venture backed(see Figure 2).
Given venture’s role in seeding the future, it is no accident that the majority of today’s most valuable companies were venture-backed, and it is an understatement to say they have transformed our way of life.
Venture may be small in scale, but its influence is profound. Where and how we invest will shape what the future becomes. As we look forward, we must ensure venture remains a thriving ecosystem and we point innovation towards the future we want.
Avila invests at the intersection of atoms and bits to reinvent our economy—building for abundance, sustainability, and human flourishing.
This has been our thesis for over a decade—and today, the combination of three major super-cycles is driving urgency to act like never before. We are living through a historic inflection point—the world around us is being rewritten faster than ever.
These forces are compounding, creating both pressure and opportunity. How we respond will define the next chapter.
If venture wants to be a force that positively shapes what comes next, it must evolve alongside the world it helps build.
That requires examining how we got here—and where the current model has fallen short.
The misguided evolution of venture capital
The history of venture is rich with founding stories of many of the most important companies of our time, each driven by major waves of technological innovation - ‘supercycles’ (see Figure 3). In its early days, venture was a small, cottage industry which played a foundational role in building the backbone of American competitiveness, productivity growth and innovation. To do so it often invested in hardware and made bold, long-term bets.
But in the past two decades things changed. In the 2000s and 2010s, new supercycles caused the industry to narrow its focus.
The consumerization of tech, the SaaS wave, and the globalization trend led venture to narrow its focus so tightly that “generalist” became synonymous with software and consumer. This retreat from the real and broader economy was magnified by the stock market boom after the global financial crisis (GFC) and inflated by the zero-interest rate policy (ZIRP) bubble, leading to prioritizing quick value extraction over long-term value creation.
In recent years, investors erroneously assumed only software could deliver the scale, margins, and returns expected from venture. The success of Google and Facebook and the rise of the SaaS era led a generation of venture capitalists to narrow their pattern recognition so tightly that funding overflowed to copycat business models, incremental and short-term approaches, and extractive businesses built atop others’ historical investments. This belief, magnified by ZIRP-era quick markups and rich valuations, led VCs to forget the long-term, foundational nature of generational companies (see Figure 4).
As capital flocked to asset-light models in a small number of economic sectors, investment in physical infrastructure and the foundational sectors of our economy withered — and with it, critical national capacity (See Figure 5).
The increasingly pervasive myths that hardware was capital inefficient and incapable of delivering power law outcomes created an entire generation of investors who shied away from bigger challenges, ignored the long-term defensibility of the companies they backed, and imperiled the long-term competitiveness of America on the global stage. The past two decades led to the belief that venture could simply perpetually extract value at the software layer from capex/physical world investments made by others.
But these myths are simply myths.
In reality, even in this recent era, many of the biggest software successes required immense capital to build durable moats—comparable to or exceeding what hardware demanded. For example, Uber and Airbnb raised capital comparable to Tesla and SpaceX (see Figure 6). And perhaps more importantly, in success, hardware companies can deliver massive outcomes as big or bigger than their “asset lite” counterparts (see Figure 7).
What’s more, “software-only” is rapidly becoming untenable. Today, even the leading “software” players are doubling down on CapEx (see Figure 8). AI, chips, robotics, and cloud infrastructure are pulling tech back into the physical world—and with it, the realization that we can’t outsource the foundations of our economy.
It is becoming clear that bits and atoms must be considered together. Perhaps even more in the age of AI with easier software replicability, vertical integration will be key to durable moats for the most valuable businesses. Expanding the aperture beyond software towards hardware and the physical world isn’t a return to the past. It’s a chance to leap ahead.
And one more thing…
One additional distinct change came more recently to the venture industry itself - industrialization. Historically, the asset class was understood to require long-term illiquidity for outsized returns, and it self-corrected through painful downturns that restored discipline. The 2022 correction seemed poised to provide this reset, but the combination of an order-of-magnitude increase in leading tech companies’ valuations and AI's emergence enabled leading players to bypass the usual reckoning. Instead, it drove venture’s industrialization, with the rise of mega-funds justifying massive fund sizes and as a result encouraging huge rounds and effervescent valuations, sometimes at the earliest inception stages. This new structure creates misalignment between LPs and venture capitalists, and more ominously often between venture capitalists and founders. It can also sideline the true nature of venture – identifying outliers and nurturing them to success – in favor of copycat and gambling-style investing.
Redirecting venture’s power
Venture still holds extraordinary leverage over what gets built—and what doesn’t. To meet the demands of this moment, we must redirect that leverage toward solving real-world problems: energy, food, materials, infrastructure. It’s time to build with depth, not just speed.
We must expand our aperture beyond software, beyond the service layer, and invest in foundational industries rather than extract value at the surface layer. We must build to win the critical industries of the future and invest domestically as well as abroad. We must tackle the big problems and recognize that durable value creation is not built overnight. Although the world is moving faster and the best companies execute at lightning speed, the real work of venture and company building takes patience and perseverance.
We are entering a once-in-a-century rebuild of the physical world.
From modern manufacturing to housing, from resilient food, energy, water, and logistics systems to our built environment, the foundations of our economy are being reimagined. Robotics, advanced materials, and intelligent infrastructure are no longer science fiction—they are deployment-ready.
Software is no longer just a layer on top. It is embedded into physical operations, enabling performance, reliability, and scalability. The divide between “tech” and “industry” is collapsing. Our flourishing tech economy demands copious energy. Bits and atoms must be considered holistically, and vertical integration will drive durable value creation.
Energy is the cornerstone for abundance.
There’s a direct correlation between energy consumption and human prosperity—a truth we must embrace as we build a thriving future (see Figure 9).
To improve global wellbeing, we must dramatically expand energy production. While fossil fuels will play an important role for decades to come, our future depends on scaling sustainable energy sources—particularly as AI accelerates demand.
Energy abundance will drive productivity growth and reduce the risk of conflict over scarce resources. We need aggressive investment in nuclear, solar, and geothermal technologies to build a world powered by limitless, clean, and resilient energy. And we need to invest in smart technologies to harness, store, distribute, and utilize our energy much more efficiently.
But energy alone won’t be enough. Everything that underpins how we live, move, build, and produce must be reimagined. Our systems weren’t built for the demands of today—let alone tomorrow. For the first time, we have the tools to do it differently: advanced materials, robotics, intelligent infrastructure, and precision manufacturing are ready for deployment. It is time to invest across our entire economy across multiple themes.
Our Investment Themes
The opportunity is bigger than ever. The time is now. Let’s meet the moment.
Our Worldview
Venture has an important role to play. If we back founders focused on human flourishing, we can build a brighter future
The true job of a venture investor is funding the unique individuals that can articulate a compelling vision and bring it to fruition—and supporting them in their long journey
Venture investments should go beyond software and across our economy’s foundational sectors
First principles truly matter at a time when everything is changing at warp speed, thus requiring making the underlying assumptions explicit
Venture must return to its roots to drive true value for limited partners and society
We believe in aligned interests, right-sized firms, and long-term focus