The Two Types of Startups to Invest in: A Framework for 2026 and Beyond

More or Less is one of the best podcasts to get the zeitgeist of Silicon Valley. I really enjoyed this specific episode as they talked about the environment of seed stage investing which is intensely competitive: https://www.youtube.com/watch?v=2q99bDO-a1E

”Look, at the end of the day, I think that seedstage investing is the most defensible part of the entire investing world. Everything should get more efficient, ETFs, algorithmic trading. Does that come down market? Of course, it comes down market and expands. But any idea that a bot can route to the six right firms and everyone bids and everyone top ticks it, no one will make any money, which is fine. That's actually what the whole point of why capitalism works is it creates efficiency, right? So that's fine, but that's not what we do. 

Like I'll give you an example, like candidly, we don't do outbound sourcing at all. Like there are companies there are venture firms inside whatever that built machines for outbound and market mapping on stuff. I don't do any of that. Like we say sh-t on the internet and then people email me, right? And I only want to talk to a certain percentage of them…..And so like the idea I think, the answer is for a lot of types of investing. Yeah, like all this data if you're doing something like an associate can do in Excel that's going to be overly efficient and you'll have no margin in it. 

But that's not really what we do. I don't think it's what you guys do either. Well…. what I think is interesting in the seed market, you have the multi-stage firms and 2,000 seed funds competing for the 75th percentile of all of the sort you said, the mainstream stuff out there in the market. And so that effectively means you have almost perfect pricing and a bunch of synthetic beta in the top quartile of the seed market. 

And so where in the seed market is there alpha is like a question and it's you know I think you and I have always agreed, it's in the illegible spaces. But the question is how to stay there ever more. You have to be smarter, more original, have access to networks that everyone else doesn't have access to, ideas other people aren’t willing to take risks on…..”

Sam Lessin of Slow Ventures talks about his framework for how he operates in this kind of competition and the two types of startups he thinks are interesting. 

“What I've been telling founders for 2026 is there's only two business types I'm interested in right now….

One type is you have a secret about the universe and you should tell no one ever what that secret is because it is an incredible idea and insight and way to mint money. It's like a secret incantation and if you know what you're doing is like a great way to make money with all the technical leverage. But don't ever tell anyone and your hope is that no one ever finds out. 

There are lots of cool businesses being built right now that look like this. What's the example of that? Yeah, give me an example. What's one that already exists that was like this? Coca-Cola. They're all pretty stealth. Yeah, I guess they have a formula. Nothing lasts forever, but there are businesses I keep hearing of…. I have a business like that, but it's not based on one of those. It's based on consistently generating those things that aren't known, that are important.

These are companies where it's like someone has a brilliant insight about a way to make money using like a bunch of AI tools and they're minting cash, but they will never tell anyone what they're doing because it's infinitely copyable. Everything's infinitely copyable, right? That's option one. 

Option two is there are these things that everyone agrees. So there are none of these in option one. There is a new phenomenon that there's no such thing as an example that's big that you can point to. Probably are, but in some ways you don't know what they're like. There are a lot of businesses in America that make a ton of money that you've never heard of and will never find, right? Like these exist, right? Who represents the copying at launch like the second it launches because no one cuz you don't even know.

There's no website for these things, right? These are literally businesses people are minting cash off of very quietly using more and more technical leverage.

Yeah, it's mostly with AI leverage and tech leverage, you can now build things and connect things together with an insight where you're like, "Oh my god, I can get this type of data here and sell it there. I can do this here and do this here. I can make this." 

There are all sorts of things going on with tons of levers that small teams are doing. They're making fortunes. That's type one. There are those that exist. It's just they're really hard to talk about and find. 

Type two, which I really do believe in, is like there are all these businesses out there which you can say will obviously be categories, right? Like everyone knows what they are. Like we all know that ads are going to get hyper hyperpersonalized, right?

Like there's no question about that. So then the other thing is the only way to win is you must own the narrative very loudly. 

I'll give you an example that we can talk about. You know, I love Memelord and like this mimemetic warfare platform. It’s like, I would argue everyone understands if you're smart that the future of communication and marketing whatever is mimetic, right? And there's an argument that you should be able to build the defining platform at scale in AI mimetic warfare, right? 

You can make that argument. You might disagree with it, but it's an argument. You have to fully own that narrative is like I am the meme warfare company. You will buy it from me, right? And so I think there's this big schism of like you either are a secret company or you're the most obvious company in the world, but you lead the narrative. You can't be in the middle.”

Sam further elaborated in later podcast:

“Now, I will say just to justify it, I think there is one like I've been telling entrepreneurs a lot this year like this is my theme of the month that there's only two ways to make money right now and build companies, right? One which we've talked about. One is have a secret that no one knows, right? And like just send it capital efficiently. I  know people doing this. It's great. 

The other is own the narrative. And the only justification you could give, and it's just a matter of, can you be the company that quote unquote owns the narrative and gets cheaper acquisition for customers. And there's an argument that if it's very capital consumptive to do that, you might need a lot more capital to own a narrative than you would to, to go from a series seed to your millions in ARR to get your series A in our world. Like you can kind of squint and make it justify. I just don't think it's going to work out very well for most people.” 

Always food for thought. As an investor, trying to stay relevant in this competitive world, you always need to be updating your frameworks. You always need to be learning and gathering input and learning. As always, but maybe more so than ever, it’s an exciting time to be investing.