# Cheap capital left venture with zombie funds

Markdown copy of https://realalpha.app/s/cheap-capital-left-venture-with-zombie-funds/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Jack Selby](https://realalpha.app/people/jack-selby/) · Jack Selby is a Managing director at Thiel Capital, early PayPal team member, and Clarium Capital cofounder. · Joined PayPal as an original employee, led international operations, and co-founded Clarium Capital with Peter Thiel.
- Host: [David Weisburd](https://realalpha.app/people/david-weisburd/)
- Show: How I Invest
- Episode: [Peter Thiel's 27-Year Partner on the AI Bubble, the Venture Capital Crisis, and the PayPal Mafia](https://realalpha.app/v/4VjI-3FcHSg/), Nov 4, 2026
- Moment: 32:21 to 38:37 of the episode (6 min), playing on https://realalpha.app/s/cheap-capital-left-venture-with-zombie-funds/; the episode from there: https://realalpha.app/v/4VjI-3FcHSg/?t=1941

## Quote

> “the industry has done a **poor job of returning capital** to its investors over the last decade.”
> — [Jack Selby](https://realalpha.app/people/jack-selby/) at [32:47](https://realalpha.app/v/4VjI-3FcHSg/?t=1967) · How I Invest

## Takeaways

1. Zero interest rates pushed too much money into venture.
2. Many funds held paper gains through the 2021 market peak.
3. Ten-year fund structures slow the exit of struggling managers.

## About this segment

Jack Selby links weak distributions and fee-dependent zombie funds to the post-GFC flood of cheap capital. Long fund lives delay the cleanup, leaving LPs waiting for managers to return money.

From “Peter Thiel's 27-Year Partner on the AI Bubble, the Venture Capital Crisis, and the PayPal Mafia”, Nov 4, 2026. [Watch the full episode](https://realalpha.app/v/4VjI-3FcHSg/)

## Transcript

From the transcript How I Invest publishes with the episode.

[32:34](https://realalpha.app/v/4VjI-3FcHSg/?t=1954) I think last quarter, there's, like, $500,000,000,000 raised to date. Where's venture capital at in terms of an asset class? I was essentially on the road every single week for the first six months of this year, and I took a very significant sample set of meetings with LPs. So I feel like I have a reasonably well informed opinion on this topic. So here's the distillation of what I found. So one, the industry has done a poor job of returning capital to its investors over the last decade.

[33:06](https://realalpha.app/v/4VjI-3FcHSg/?t=1986) And we can talk more about why that's the case, but that's just the fact. So that's number one. Two, the mega funds. So essentially, eight firms went out and raised, I think, an aggregate of $70,000,000,000 earlier this year for whatever capital that was still positively disposed towards this asset class. That's two. Three, any capital that is left over that is... Remains positively disposed towards private technology, that capital is infatuated with shiny toy late stage AI deals.

[33:38](https://realalpha.app/v/4VjI-3FcHSg/?t=2018) That's the entire landscape today. Full stop. And you think that's wrong? Well, to step back as to why Venture got into this position in the first place, after the great financial crisis when the printing presses at the Federal Reserve and other central banks was on full tilt for thirteen plus years and interest rates were zero, it caused a real problem for the venture capital industry in the following way.

[34:04](https://realalpha.app/v/4VjI-3FcHSg/?t=2044) So yields were zero. Investors were reaching for yield. They associated tech with growth with yield, so they stuck way too much money into the venture capital asset class, which by the way is tiny, especially compared to its big brother private equity. So venture is probably... I don't know what that number is. 3.5. 3,500,000,000,000. Right. It's a tiny asset class. In good venture, top quartile, which is the only place you really wanna be or higher, it's even smaller.

[34:30](https://realalpha.app/v/4VjI-3FcHSg/?t=2070) And so essentially, way, way, way, way too much capital got stuffed into this otherwise tiny asset class that then spawned way too many managers that have turned out to be b minus or worse, and here we are. And because of these private capital structures, the Darwinian cathartic culling of the herd takes forever. So there's They're ten year vehicles. They're ten year vehicles, and these venture firms that turn out to be b minus or worse just play the game of manage...

[35:00](https://realalpha.app/v/4VjI-3FcHSg/?t=2100) Management fee ventures. And they just ride it out, and they milk the fees, and they're zombies. And so in 2021 hit, and so so many venture managers rode the wave up, top of the cycle, crystallized no gains, which is their fiduciary responsibility. I'm not saying you need to be a macro manager and know when to top ticket, but they crystallized no gains and rode the wave down. So those paper gains just went poof, and that's a real problem.

[35:22](https://realalpha.app/v/4VjI-3FcHSg/?t=2122) So you have a vintage of venture managers that are ostensibly still in business today, but they're walking zombies because they screwed up by not returning capital to investors at the last cycle peak, which is back in 2021. So that's a problem. And now so many of those folks have reinvented their portfolios as all being AI companies. So if you had a way back machine and looked at their portfolios from five years ago, you would not see nary a mention of AI.

[35:48](https://realalpha.app/v/4VjI-3FcHSg/?t=2148) And if you fast forward today, all of them are AI enabled companies doing something or another. And they're doing that because that is their only chance of potentially staying in business, because if they can throw a Hail Mary and have one of those companies potentially get acquired, go public, whatever sort of liquidity outcome you could have, then they can stay in business. But otherwise, they're zombies.

[36:07](https://realalpha.app/v/4VjI-3FcHSg/?t=2167) And probably... I mean, Peter wrote an amazing editorial in Barron's about the hedge fund industry back, I think, in 2006. So... But how does that cleansing, that Darwinian culling of the herd, it just takes forever. And I've been wrong about this because I've been pounding the table about this dynamic, and I would have thought if it was a baseball analogy, we would be in the fifth or the sixth or maybe even the seventh inning of this process.

[36:30](https://realalpha.app/v/4VjI-3FcHSg/?t=2190) And the reality is we might be in the second inning at best. It's a very, very strong process. Realizing the losses. In terms of these firms just going the way of the dodo and going out of business. And so they're all out there, and they're they're they're trying to get in front of the same LPs, the guys that I were seeing nonstop for the first six months of the year, the andlcom... LP community is like, listen.

[36:50](https://realalpha.app/v/4VjI-3FcHSg/?t=2210) You haven't given me money back in over a decade. You haven't raised a fund in three or four years. You need to go do something else for a job. And that's a very difficult conversation. And so these firms, in the meantime, just kinda hang on for dear life, reinvent themselves as AI companies, throw a Hail Mary, see if they land the path. The way that I would explain this from the psychological lens is a lot of these people also have this identity as a venture capitalist.

[37:11](https://realalpha.app/v/4VjI-3FcHSg/?t=2231) And once you're a venture capitalist, you really could only be two things. You could be a founder or a venture capitalist. That's the perception, whether real or imagined. And then if you really humble yourself, you could be a CXO at some startup. But, essentially, a lot of managers have this identity of being a venture capitalist, and the pain is not painful enough for them to have to kind of decouple from this identity.

[37:32](https://realalpha.app/v/4VjI-3FcHSg/?t=2252) I can go very deep on this. So if you're one of these b minus or worse managers that got spawned during the easy money period after the great financial crisis, what do you do? Because in venture, it's an existential crisis. It's not as if, like, if you're an investment banker and you start your career at Goldman Sachs, and you hit a bump in the road, you can go work at Citibank. And then you hit a bump in the road, you can go work at Jefferies.

[37:50](https://realalpha.app/v/4VjI-3FcHSg/?t=2270) And you can hit a bump in the road, and and no offense to any of those firms, but there's a natural kind of cascade you could potentially go through to kinda land the plane and remain employable. There's no equivalent to that in venture. If your venture firm goes south, you're done. And that means you gotta pull your kids out of private school, and maybe you can't pay the mortgage, and maybe you get divorced.

[38:10](https://realalpha.app/v/4VjI-3FcHSg/?t=2290) It's an existential crisis for your life, and you have no other choice. So you have to hold on for dear life and ride down with the ship, and it's very hard. And because of that dynamic, it makes this catharsis process that much slower to play out. So that's on the bottom of the stack.