Welcome to 2025! In many ways, optimism has returned to the early-stage market after a three-year correction. Everything is AI all the time, crypto is back, and my sense is that most investors (those with capital, at least) are coming in guns blazing after a few quiet years. Many companies and investors are still licking their wounds or managing the fallout from past mistakes (Bench won’t be the last), but overall, I believe the narrative is shifting—from an industry on its heels to one charging forward again.

Amidst this renewed energy, one idea has dominated my thinking in recent months. It’s not really a prediction. Call it a hope, an encouragement, or perhaps just a declaration of my own intentions.

My hope is that this is the year early-stage investors return to funding “hunches.”

What’s in a Hunch?

A hunch is a view of the future based more on intuition than facts. It’s speculative by nature—probably a little whacky and often entirely wrong. It’s a non-consensus opinion that is ultimately proven out over time.

Hunches often start small and are not fully formed. They emerge from connecting seemingly unconnected dots, noticing subtle shifts, or anticipating what today’s changes might mean for tomorrow.

Hunches are frequently born out of tinkering (to borrow a word from Bryce at Indie).  It’s scratching one’s own itch or pursuing something for the joy of it, without preconceived notions about market size, business models, funding paths, or exit strategies. They benefit from quiet time to develop and often don’t require significant funding to become a solidified vision. Hunches might then need large amounts of capital to turn that vision into reality—or they might not.

A hunch can also center on a person. Someone talented but unproven. Someone who’s seen what it takes to succeed but hasn’t had their shot yet.  Or as Mike Maples might say, someone who is living in the future that isn’t quite here yet.

Many of the best companies we know today were born out of hunches. Founders followed these hunches, pulling on threads until they unveiled a coherent vision that led to a transformational company.

Funding Hunches vs. Factories vs. Master Plans

Seed investors have different tastes, but I believe those who excel at funding hunches are few and far between. Market conditions have also pushed seed investors toward two alternative styles of investing.

One style is what Sam Lessin has referred to as the “factory model.” About 5–6 years ago, a significant portion of the VC-backed startup world began to resemble a factory assembly line. With larger downstream capital pools, hunches became relatively less attractive because they often take time to develop. Instead, it became more rational to anticipate what Series A investors might want, get in slightly earlier, back founders who fit an archetype, and play the traction-and-hype game. This strategy rewarded consensus investing with positive IRRs and quick marks.

But this assembly-line approach led to overcapitalized, uninspired companies. When the music stopped, we were left with many “meh” businesses at unrealistic valuations. Some great companies will make it through, but the carnage has been considerable.

The second style of investing focuses on “master plans.” These big-picture ideas, often helmed by experienced founders, involve raising significant capital from day one. It’s a go-big-or-go-home mentality backing consensus founders on their second, third, or fourth act. While some succeed spectacularly, others fail just as spectacularly (remember Quibi?). We’re seeing this now in AI, with high-profile founders raising $10M–$100M seed rounds to pursue grand visions.  Some of these will work. But I think in many cases, the influx of huge amounts of capital way too early will prove to be a weakness and not a weapon.

Where Have All the Hunches Gone?

The last few years have not been kind to hunches.

During frothy times, factory-style investing just seems easier. Devoting energy to cultivating hunches doesn’t seem worth it when the alternative—pattern-matching consensus trends—offers quick rewards. This was true during the ZIRP-induced bubble and is resurfacing amidst today’s AI frenzy.

When the market corrected in 2023, the pendulum swung the other way. Downstream financing dried up, and seed investors grew extremely conservative. Hunches seemed too risky, and capital flowed to proven founders with master plans. If things went sideways, backing a high-profile founder at least provided the comfort of a defensible choice.

Competitive dynamics have further shifted toward master plans and factory-style investing. Multi-stage funds, despite recent market weakness, have aggressively led mega seed rounds, devoting small percentages of AUM to proven entrepreneurs with grand visions. At the same time, YC crushes the factory model, producing a high volume of strong startups. In many cases, they flood categories with multiple teams pursuing the same ideas, creating enormous pressure for quick traction and fundraising.

This leaves dedicated seed funds stuck in the middle. Competing for proven founders with master plans means going head-to-head with mega funds willing to pay astronomical prices. Competing for technically pedigreed founders building in desirable sectors often pits seed funds against YC, which operates at an unmatched scale.

Why Hunches Still Matter

The answer for dedicated seed funds is to recommit to funding hunches. But this style of investing takes time—and patience is in short supply. Coming out of a liquidity-constrained period, LPs are wary of models that don’t produce quick numbers, even if those numbers are unrealized. Non-consensus hunches don’t become consensus overnight, and many prefer shorter-term wins.

But I deeply believe that the truly transformative, 100X opportunities emerge from hunches. Over time, the absolute best early-stage returns will come from identifying and supporting these sorts of projects. And right-sized, focused seed funds are best positioned to cultivate these kinds of opportunities.

Funding hunches requires less money, more attention, and sharper insight than factory or master-plan investing. It demands investors operate closer to the ground, discovering hidden talent and helping founders develop their hunches into something extraordinary. Mega funds don’t have the time to commit to this style of investing. And the tempo of an accelerator doesn’t really fit many who are pursuing this path. The best dedicated seed funds have and continue to do all these things.  It may not be the biggest or sexiest game on the field, but it’s one worth playing. And for those who persist, the rewards will be well worth it.