Welcome back to Field Notebook!

Here are some of the thoughts, essays, and hot takes that have surfaced across the Redbud team this month. In Edition #2 of Field Notebook, we discuss how AI is shifting the build versus buy debate, capitalism as an economic system, and whether more private unicorns should pursue IPOs 🤔

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It isn’t perfect, but it has created more opportunity and innovation than any alternative. It needs guardrails. When those guardrails become too rigid or too loose, the system can break, often as it drifts toward more socialistic or communistic extremes.

Capitalism is what fuels entrepreneurship and the American dream. VC is a clear reflection of capitalism working. Founders, employees, and investors own all the upside of their company.

Entrepreneurs need capital. They want to build. They're willing to give up some of the upside. Investors have capital. They want to deploy it and make money. In other economic systems, you would not have those dynamics.

Policies like QSBS can allow a meaningful portion of those gains to be retained, creating a flywheel in which capital recycles into the next generation of entrepreneurs. Entrepreneurs go through a hard journey and develop a deep appreciation for what it takes to build a company. Many go on to support others on that same path. That belief is core to Redbud VC. We invest in founders strengthened by struggle.

In a more socialist economic system, ownership is capped or shared. That weakens the incentives to innovate. Innovation becomes more state-funded than private, with more caution and less risk-taking.

For example, France recently announced that they are allocating €30M because they want to become an AI leader.

My favorite reply was, “This is like a pre-seed round for AI labs in California.”

Common misconceptions about capitalism:

What often gets missed is that many critiques come from distortions of capitalism rather than the system itself. Sometimes policies or regulations shift how markets behave, but capitalism takes the blame.

People mistake capitalism for decisions that the government makes. The rich becoming richer can partly come down to government incentives and regulatory dynamics. In some cases, lobbying and policy design make it harder for new innovation to enter the market or protect incumbents. But those outcomes reflect distortions of markets, not capitalism in its pure form.

The poverty discussion is more of a utilitarian debate, but there will always be some level of inequality. In socialistic environments, systems try to level the playing field so outcomes are more even. In a capitalistic environment, the range of outcomes widens. You can come from nothing and build a billion-dollar company.

A strong example of this is EquipmentShare. They grew up in a communist environment and saw how those dynamics play out: You work hard, but make no money. Everything gets pooled and redistributed. Then you step into a capitalistic environment and realize the upside is uncapped. You can build something meaningful.

And they did.

Amazon went public in 1997, three years after it was founded. eBay took three years, Yahoo! took two, and Google took six. The IPO frenzy during the Dot-Com boom was the result of a perfect combination of hype, incentives, and access. On August 16, 1996, E*Trade debuted on the NASDAQ, entering the public markets at 14 years old. The platform gave retail investors easy access to public markets, pumping more trade volume into the internet vertical. The internet was a once in a generation innovation that the market was more than happy to pay for, further incentivizing founders to IPO. The founders wanted easy access to capital, and IPOs gave them access to that capital. IPOs also allowed VCs to exit their positions, and let the average American invest in the hottest new internet companies. The music began to fade, however, on March 13, 2000, when news of Japan entering a global recession triggered a selloff across all internet stocks, bursting the Dot-Com bubble. Unlike the early 2000s, the driving forces of the market today are the private companies.

During the Dot-Com boom, access to a wide base of retail investors gave founders access to sufficient amounts of capital. But, private equity AUM over the last decade has risen to $12 trillion and is expected to double to $25 trillion over the next decade. The influx of capital to the private markets has allowed startups to stay private for longer and facilitate more value creation in private markets. You can also point to rising interest rates as another factor keeping companies stashed away in the private markets. Rising rates mean a higher discount rate baked into financial models, which disproportionately affects startups whose value largely stems from future cash flows, as opposed to profitable companies with large cash flows in the near-term. Since 2021, the majority of billion-dollar deals have shifted to the private side. Increased volatility has also chipped away at the attractiveness of public markets. Below are charts from a16z’s State of the Markets slide deck that help visualize the increase in post-COVID volatility.

While access to private capital, rising interest rates, and increased volatility have kept more startups in the private domain, private markets lack one structural feature that public markets have: price discovery. Public markets exist to discover the true price of an asset, whereas private markets are built on agreed upon prices. Every VC knows that the companies who raised in 2021 aren’t worth what they were valued at in 2021. Although this is an extreme example, many later-stage rounds are valued based on forward revenue multiples and expectations of future exponential growth. It can take a company many years for the private valuation to match the scrutiny of public markets. Despite this, you can find companies that refuse to raise a down round in order to hold on to their lofty valuations. Even the wildly successful companies had to deal with the consequences of 2021 valuations. Superstar startup, Brex, valued its 2021 Series D at $12.1B. When it was announced in January that they were being acquired for $5.2B by Capital One, late-stage investors lost money, as some lacked liquidation preferences.

Private markets have an extremely important purpose in the startup ecosystem. They sidestep the short-termism and expensive capital imposed by the public markets, giving startups the freedom to scale with less investor punishment. However, when capital is too cheap and valuations are too lofty, those benefits become a liability. In some cases, companies overhire, creating a poor cost structure that the short-termism of public markets would scrutinize. And this lack of scrutiny creates unresolved pricing mismatches that complicate exits, undercutting the benefits of cheap capital. It should also be noted that a mix of FOMO, misaligned incentives, and the need for massive funds to deploy swaths of capital, competing for a few good opportunities, all contribute to higher and higher private market prices. The result is VC hot potato where deals are pushed around until someone is stuck with the consequences of diverging from scrutinized prices.

Although you could argue that one just shouldn’t play hot potato with valuations, one bad actor forces the hand of all investors. The biggest risk to VC and growth investing isn’t losing money, but missing out on the winners. Those familiar with the power law know that success compounds on success, resulting in exponentially large returns from the true winners. The economics of early-stage and growth investing necessitate adherence to the power law, such that not having one true winner undermines the potential to return a fund and raise more capital. Because the power law dictates this stage of investing, going for the winners is non-negotiable. This creates the cycle of FOMO and private market price inflation. The cycle only stops if someone steps back. Either VCs stop handing out cheap capital, founders stop accepting it, or LPs stop investing in funds that promise artificial returns.

To continue this train of thought, if you undermine the economics of growth investing, at what point does the current ecosystem break? You could argue that the result is that the majority of growth investors will post mediocre performances with the occasional winner. But why wouldn’t institutional investors just throw their money into the biggest names? If capital allocators conclude that smaller players with less sway to win top deals aren’t worth investing in, then would that result in the consolidation or the slow death of the growth middle market? Certainly, either outcome would shift the balance of power within the venture ecosystem.

I’ve included a graph, representing the balance of power between investors and founders over time. However, it should be noted that influence now lies in the hands of founders, given the graph cuts off in 2022.

Stripe announced a tender offer at $159 billion in late February, providing liquidity to employees. This round represented a 49% increase in valuation, surpassing the high watermark set in 2021. This is being interpreted as Stripe delaying their IPO, as the market remains weak. The small appetite for IPOs has led major players to seek liquidity via new avenues. Robinhood launched Venture Fund I, giving retail investors the ability to purchase stakes in top-performing startups at NAV, without the price scrutiny of public markets. However, several critics have pointed out that the introduction of retail investors via this fund seems like a plea for liquidity amongst a weak IPO market. Other institutional funds like Fidelity, also offer access to private markets, but Robinhood’s approach offers daily liquidity and high concentration. Reluctance to IPO is a departure from the late 1990s eagerness to IPO, but still represents an underlying issue. By targeting secondary markets and retail investors, investors are trying to salvage their 2021 vintages by avoiding punishing public markets for private markets that are more willing to purchase at favorable prices.

While startups and investors may prefer the private markets, continued step-ups in valuations over the extreme 2021 prices make soft-landings increasingly difficult. Brex couldn’t manage to save their late-stage investors, Stripe is continuing its run in the private markets, and Robinhood introduced broader retail participation in public-averse private companies.

Public markets should gain more consideration as a means of soft-landing rather than just a risky haircut to high valuations. Investors need to exit their positions, and while M&A offers more certainty around price, valuation downgrades through M&A unevenly assign losses to the hot potato losers. While secondary rounds provide liquidity, those prices aren’t being held accountable by the opinion of the public market, resulting in a prolonged departure from large scale, clean distributions. But IPOs keep late-stage investors in the game allowing them to recover losses through public market price appreciation. As the gap between public and private pricing persists, the resulting question is whether late-stage investors can continue absorbing the full weight of price corrections. Public market volatility is real, but delaying IPOs only widens exposure because each new private round exposes capital to prices that have not been vetted by public markets. If winners continue to shy away, distributions will continue to fall and too many late-stage investors will be forced to absorb uneven losses, threatening the slow death of the growth middle market.

The build versus buy decision is being reset by AI. What used to be a predictable tradeoff around cost, time, and complexity is shifting fast as the cost of building software collapses.

Non-technical operators are now generating real products with AI tools. In days, sometimes even hours.

I met with a commercial banker recently who doesn’t know a lick of coding, wrote 170k lines of code in 8 weeks, building a full ERP suite for a niche vertical. Nights and weekends for business professionals are now obsessive product sprints. According to Claude, this would have taken a team of devs 18 months to build.

This changes the question. It is no longer “Can we build this?” It is “Should we?”

AI’s impact is often overestimated in the short term and underestimated in the long term. AI is expanding who gets to build. Enterprises are building more because they already have engineers and internal complexity worth solving. Custom tools, internal copilots, and workflow automation now justify themselves faster.

At the other end, small teams are building because they finally can. AI collapses the skill barrier, making bespoke internal tools viable without deep technical talent.

Middle-market companies may face the most disruption. They are too complex for scrappy internal builds but often lack the resources to replicate enterprise-grade development. That leaves them dependent on external software while facing pricing pressure and fragmentation.

Not all software is equally exposed.

Horizontal tools face the most pressure. Generic SaaS layers and commoditized workflows are increasingly vulnerable to internal builds or AI-generated alternatives.

Vertical software remains more defensible. Products that compound value through proprietary data, network effects, and embedded workflows are far harder to replace.

This creates a split: commodity features compress, deeply embedded platforms persist.

One Head of AI at a Fortune 500 company framed it simply: “We buy what accelerates us, and build what differentiates us.”

What AI changes most is supply. The real risk is not just internal builds replacing vendors, but a flood of new software creation.

At a recent construction panel I moderated, two multi-billion-dollar GCs noted that they are primarily building tools internally with their IT teams.

As

@jaminball

recently put it,

“the cost of creating software is going to zero.”

If that holds, the real disruption is not replacement but saturation.

When Buying Still Wins

Highly regulated domains like payments, tax, and security favor buying. The operational burden extends far beyond code, and the cost of failure is high.

Systems of record and foundational platforms benefit from scale and specialization that are difficult to replicate internally.

AI does not remove implementation friction either. Whether built or bought, adoption, training, and internal change management still exist. The friction doesn’t disappear, it just moves.

Pricing Pressure Ahead

Even when companies continue buying software, AI shifts the leverage.

If customers can credibly threaten to build alternatives, pricing power moves. SaaS margins, especially in horizontal categories, are likely to compress.

As building gets easier, distribution becomes the moat. Founder-market fit, networks, and creative go-to-market strategies become your true advantages. In a world where anyone can build, not everyone can reach users.

For SMBs and middle-market companies: build lightweight, buy heavy infrastructure. Internal tools and AI layers are built quickly, while foundational systems remain external.

For enterprises: buy the foundation, build the intelligence layer. Systems of record remain external, while internal teams build AI overlays that automate workflows and orchestrate data.

The closer software sits to proprietary workflows, the more likely it is to be built. The closer it sits to infrastructure or regulation, the more likely it is to be bought.

Categories built on proprietary data and long research loops remain difficult to replace. Products powered by unique datasets or complex training pipelines retain strong defensibility, often shifting toward partnerships rather than internal builds.

The Takeaway

Build versus buy is becoming dynamic rather than static. Companies will mix strategies, revisit decisions more often, and layer internal AI on top of external foundations.

The direction is clear: as the cost of building falls, leverage shifts toward speed, distribution, and proprietary context. The winners will not pick build or buy. They will develop the judgment to do both.

Software won’t disappear, but it will compress. Margins tighten, and differentiation concentrates in fewer hands.