Radioactive Isotopes, Potential Energy, and the Second Layer Approach to Venture Investing
Why the market matters so much in early-stage investing, and why now is such an exciting time for builders and investors.
Note: This piece focuses on market timing and value capture frameworks; a deeper exploration of the Second Layer approach can be found here.
I was reading one of my favorite collections of venture capital theories, perspectives, and lessons, which are derived from concepts within economics, math, physics, chemistry, biology, and psychology. This document was authored by Chris Paik, General Partner and Co-founder of Pace Capital (and former partner at Thrive Capital, early backer of Twitch, Patreon, and Unity).
If you (like me) never thought of the role other industries/areas of study could play in how startups and the businesses/consumers they serve operate, this collection does a fantastic job of explaining the connection. Understanding why people and businesses operate the way they do is perhaps more important than the economics itself. The collection does a great job of explaining how user behavior creates the demand fulfilled by entrepreneurs.
Being the Answer to ‘Why Now’
One thought that resonated with me most was a startup being the answer to the ‘why now’ question for others companies. In other words, providing the runway for other companies to launch from. If your idea can deliver an answer to this ‘why now’ question for others, then it’s capable of becoming the unicorn VCs dream about. This is especially true during a major technological breakthrough, where there is a ton of untapped value potential within a rapidly-growing market.
A perfect example of this is Shopify: a startup making it easy for individuals and businesses to build, run, and scale their own business. It took advantage of the rapidly growing e-commerce market and the rise of early social networks, serving as the platform of choice for numerous well-known startups including Gymshark and Fashion Nova.
Importance of the Market
For those unfamiliar with investment pitches, the following three terms are used to reflect the attractiveness of the market: the Total Addressable Market (or TAM), which is simply the value of 100% of the revenue within the market; the Serviceable Addressable Market (or SAM), which is a component of the TAM you realistically can capture; and the Serviceable Obtainable Market, which reflects what a startup can realistically capture within the short term (1-3 years). If a startup is building in an industry where these market sizes aren’t favorable, it certainly hurts its investment attractiveness.
As Chris highlights in the document, venture capital is built to serve a single purpose: deliver capital to its limited partners by investing in areas capable of explosive value creation within a certain period of time. When a major market shift occurs (i.e., the AI-Era), the opportunity for new ventures to scale and capture the value within the industry is seismic.
However, as more and more founders innovate, the amount of capturable value declines over time (similar to the decay of a radioactive isotope). This is why it’s so important for startup founders to have an answer to the “why” in the “why now”: what’s so special about this time in history, what’s so special about the market, and why am I (the founder) poised to capture a lot of its value?
Paik provides a good example of this: today, we rarely see the creation of major mobile-first social companies in 2026. The smartphone market matured (at least in the Western World) around 2014 - 2016. Snapchat, Instagram, TikTok, and others captured a majority of this market; today, there simply isn’t enough “uncaptured value” within the mobile-first social market for a new startup to be an attractive investment. For a venture capitalist, the market simply won’t cut it.
Why Now is Such an Exciting Time
Today, it’s a bit different. AI in its current form is in its breakthrough stage, hence the significant amount of VC investment that’s been committed to it; a study from the Organisation for Economic Co-operation and Development found that artificial intelligence firms accounted for 61% of global venture capital investment in 2025 (OECD, 2026). However, the next question has to be, what’s next?
Yes, the shift from AI as a tool to the implementation of AI into workflows (agentic workflows, to be specific) is another example of explosive value creation. And while I do think we have some time before the AI-first era reaches its maturity from a value creation standpoint, at some point a lot of that value will be captured. I believe taking the Second Layer approach to venture investing could give us insight into what the next areas of explosive value creation could be.
Like Chris, I look at venture investing as an open field of value waiting to be captured by startups and investors alike. But what happens when all the value is captured for AI in its current form? Where do we look next? By focusing on the second layer, investors face less competition from other VCs across areas with a ton more untapped value to capture.
Note: The views expressed in this article are my own and are intended for informational purposes only. Nothing here constitutes financial or investment advice. Venture capital involves significant risk, and all investment decisions should be made in consultation with a qualified financial professional.
References
Organisation for Economic Co-operation and Development. (2026, February). AI firms capture 61% of global venture capital in 2025. OECD. https://www.oecd.org/en/about/news/announcements/2026/02/ai-firms-capture-61-percent-of-global-venture-capital-in-2025.html
Paik, C. (2021, January). Frameworks v0.2. Pace Capital. Retrieved May 19, 2026, from https://docs.google.com/document/d/1-UiEeoiV0xBFVZgid63FRaph03OCmHzyEExubn63j0U/
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