Silicon Valley’s Shift from Meritocracy to Connection-Driven Success

Author: Shower Thoughts

Compiled by Deep潮 TechFlow

Shenchao Summary: Silicon Valley is shifting from meritocracy to nepotism. Founders with Stanford backgrounds secure funding effortlessly, while VCs pour $50 million into pre-selected teams to generate hype—yet truly capable outsiders struggle to raise capital. This strategy may work in the short term, but it will ultimately lose to undervalued outliers—those who follow the crowd are just waiting to be wiped out.

Peter Thiel always asks variations of the same question: "In a given environment, what can’t you say?" In the evangelical-dominated South, it’s dangerous to be gay or liberal. On college campuses, it’s dangerous to be conservative.

In Silicon Valley, the unchallengeable dogma is meritocracy.

Silicon Valley has long prided itself on meritocracy. Outsiders without connections or background could emerge, build generational companies, and be rewarded for it. The industry has always taken pride in its 2,851-mile distance from Washington, D.C.—the place notorious for achieving results through lobbying and insider relationships.

Today, success in Silicon Valley depends on who you know and how willing they are to push you forward.

It’s no different from how any other old-money industry operates. In the elite financial circles of the East Coast, you need to attend the right prestigious schools. In British politics, you need the right family name.

How did Silicon Valley transform from an elite system into a game of kings?

It’s no secret that the Silicon Valley mindset has become extremely consensus-driven over the past few years, primarily due to: 1) AI distorting growth expectations, 2) concentrated LP capital, and 3) the professionalization of the venture capital industry.

First, AI has completely distorted expectations for revenue growth. For the first time in history, we are seeing startups go from $0 to $1 billion in ARR within one or two years. In contrast, during the SaaS era, consistent annual triple-digit growth was enough to propel a company toward an IPO. Even more astonishing is the scale of growth demonstrated by Anthropic—rising from $90 billion in ARR in December 2025 to $470 billion in ARR by May 2026 (surpassing the combined annual revenues of Palantir, Snowflake, and CoreWeave along the way)—an unprecedented achievement.

Leading VCs now say: never invest in raw jade. Either wait for a turning point before trying to enter the hottest companies, or try to pattern-match past successful cases and back a new company early. The former is the correct strategy for growth-stage investing; the latter is a mistake. We’ll explain why later and how this affects founders.

Second, LP capital has become concentrated in the hands of a few established multi-stage franchise funds. In the first half of last year, 12 VC firms captured 50% of all LP capital. This is largely a reaction to overallocation to venture capital during 2021–2022, as well as a flight toward “premium” brand names where institutional allocators don’t have to risk their careers defending their choices at investment committee meetings. Family office LPs, in particular, are especially focused on gaining access to Silicon Valley’s hottest companies, regardless of valuation. If VCs must pay high prices to secure small stakes in these sought-after companies to attract LP capital, then so be it.

Third, the culture of the venture capital industry has shifted from a craft-based model to a mature professional career path. More than a decade ago, venture capital was a craft. Like medieval guilds, VC followed an apprenticeship model, in which experienced senior GPs trained junior VCs to develop the intuition for evaluating founders and timing the market.

Over time, the VC industry has professionalized into another standard career path. Previously, it was two years in investment banking, followed by two years in business school, then private equity; now, it’s two years at a big tech company, followed by two years at a high-growth startup, then venture capital. Once a standard career path emerges, it attracts followers—excellent but conformist NPCs—rather than the fiercely independent thinkers upon whom the industry relies to make contrarian investments.

Given that IPO timelines are longer than ever, extending the feedback cycle, targeting hot companies (not necessarily the best ones!) is a better strategy for advancing within a VC firm. Mid-stage VCs prefer the quick, easy markup from safe, consensus-driven bets rather than risking capital on a potential fund returner. Additionally, turnover at large VC firms is higher than ever, meaning many of those involved may no longer be at the firm by the time the return from that deal materializes.

People used to think of typical startup founders as extreme nonconformists and rebels carving their own path in the world, utterly indifferent to what the establishment thought. These founders were often polarizing among their peers, disobedient to bosses, and likely to be fired from structured corporate jobs. But that’s less true now.

Startups are becoming a more standard career option, no different from working at a large corporation or consulting firm. One contributing factor is the high unemployment rate among recent college graduates seeking entry-level white-collar jobs, which are being reduced due to AI. Instead of enduring the job search, apply to a startup accelerator as if it were an internship, spend $500,000, have fun, and figure out what adult life is really about.

The Stanford Review once wrote that YC is for cowards. It’s no surprise that as YC expanded from two batches per year to four (around 800 startups annually!), alongside the explosive growth in the number of other accelerator programs, startup founders have become increasingly homogeneous and no longer the unconventional outliers they once were.

Accelerators pressure startups to be understandable to VCs before Demo Day, so startups wandering through the maze of ideas in search of product-market fit naturally gravitate toward building in the most obvious, crowded categories that have already worked. This batch of YC has 81% working on AI for XYZ. Crypto startups are building new banks for stablecoins in XYZ regions or prediction markets in XYZ niches. Consensus VCs fund these consensus ideas because they feel safe, familiar, and easily matchable to what has already succeeded. But the truth is that the best companies define new categories and begin years before those categories become obvious—or even have a name.

For founders not going through accelerators, a strong background is more important than ever. Anyone who attended Stanford can raise funds. Anyone spun out from OpenAI can raise funds. Check size and valuation are functions of how prestigious the founder’s background is and how well-connected they are in the VC community.

In addition, large multi-stage funds are providing $10 million to $50 million in war chests to a select group of elite founders—those with the most prestigious credentials—to dominate entire categories before their companies have gained traction, making it difficult for others outside this elite group to compete in these markets.

So now it’s no longer “Can you build a great company?” but “Can you fit the mold that large VC firms want to fund?”

A closed inner circle with no soul—where those with connections and privilege receive preferential treatment—contradicts the meritocratic ideal that anyone with skill and hard work can succeed. Meritocracy historically gave Silicon Valley its luster, making it the one place in America where the American Dream still exists and works. Today, Silicon Valley is becoming more like Wall Street or K Street.

Founders outside the network now feel they must play "the game" to become one of the central players. This means mingling with VC associates at happy hours and dinners, acting slightly aloof to create FOMO and momentum for fundraising. Typically, networking with VCs is a waste of time; founders should focus on building their company and talking to customers. Now, however, it’s all part of the game—an additional skill founders must cultivate.

Fairly speaking, creating a king does work to some extent. Raising substantial capital gives you a massive war chest to acquire customers at a loss (i.e., acquiring users unprofitably until your competitors go bankrupt or pivot). It also deters other teams from entering your market.

However, the creation of kings also fosters moral hazard: companies become “creative” in reporting revenue, and founders begin selling secondary shares very early on.

The pressure from investors to demonstrate revenue growth at all costs—so that it’s understandable to VCs—has led some companies to outright falsify revenue (securities fraud) or get creative with their methodologies. One example is taking one-time contracts and annualizing them as ARR. These contracts are typically pilot pricing with exit clauses, making them ironically neither “annual,” nor “recurring,” nor even “revenue.” Another example is rebranding ARR from “annual recurring revenue” to “annual run rate” and calculating ARR as last week’s revenue multiplied by 52—or even yesterday’s revenue multiplied by 365. While this isn’t outright securities fraud, it looks terrible to anyone conducting due diligence.

VCs attempting to win competitive funding rounds often allow founders to sell secondary shares to secure the deal. It is now common practice to allocate 10% of the round to founder secondaries in hot companies. A downstream effect of founder secondaries is that they attract scammers—those who expertly play the “game” described above to create VC FOMO in the Series A round, exploit it to sell millions in founder secondaries (often exceeding the company’s lifetime revenue), and then slowly rug pull.

The pendulum has swung too far toward consensus today; I bet there will be a mean reversion toward contrarian thinking.

History has repeatedly shown that the hottest theme of any given year is not the category in which the most valuable companies of that year were founded. I have no reason to believe this time will be different.

I’d rather support outsiders with chips on their shoulders around the clock than insiders prematurely crowned by VCs. I believe there’s a massive blind spot beyond Silicon Valley’s groupthink bubble—great founders without background, outside the distribution, and incomprehensible to most VCs.

I am optimistic that meritocracy will ultimately prevail, and those chasing momentum and playing kingmaker games will be left licking their wounds.

Those who follow the crowd are waiting to be slaughtered.