Shifting Away from the Keynesian Beauty Contest in VC

First, a definition: The Keynesian Beauty Contest (KBC)is a concept in behavioral finance that illustrates how people make decisions based on predicting others’ choices rather than their own preferences. It was developed by John Maynard Keynes and introduced in his 1936 work, “The General Theory of Employment, Interest and Money”. In this concept, participants are rewarded for selecting the most popular option among all participants, rather than choosing based on their personal judgment

In a recent YouTube interview, Jonathan Ross, founder and CEO of Groq — an AI chip developer and a Fabrica Ventures portfolio company — discusses a significant shift occurring in the VC industry right now. Below is a freely transcribed summary of his key points.

The KBC perfectly encapsulated the dynamics of VC until now.

Imagine a magazine filled with attractive models. A group of VCs is gathered in a room, each placing bets on who they believe is the most beautiful. The model with the most money wagered on them is declared the winner. If you place your money on a model that doesn’t receive the most investment, you lose to those who did.

Traditionally, in VC, there has been a clear winner in this contest — one company that captures the majority of capital.

But something unprecedented is happening now: startups are raising billions of dollars, yet multiple competitors are securing similar sums. Instead of a single dominant player attracting capital, we now see a fragmented race. The KBC has spun out of control, leaving investors more uncertain about how to navigate this environment. Previously, raising $1 billion signaled victory; now, three or four startups are hitting that mark, creating a level of competition that VCs are unaccustomed to.

SoftBank’s entire strategy was built on winning the KBC. However, this approach becomes problematic when genuine technological advancements take precedence over sheer marketing (popularity contest). When startups solve real customer problems, the market functions more like a weighing machine than a popularity contest. Once a superior solution emerges, the focus shifts from hype to actual value.

Who wins in this environment? The traditional KBC logic no longer applies because capital is abundant and widely distributed. As a result, startups with the best products will ultimately emerge as winners. However, even they will face challenges. One of the biggest issues will be talent retention — competitors, flush with funding, can offer astronomical salaries to key employees. In the past, the clear winner would attract the best talent, reinforcing its dominance. Now, capital is so dispersed that top engineers and data scientists are just as likely to join rival firms, diluting the competitive edge of any single company.

Conclusion

Welcome to the battle of substance.