Scaling is the part of the venture story that gets the least honest treatment. The narrative is familiar. The company finds product-market fit. It raises a Series A. It hires a head of growth. It deploys the capital into customer acquisition. It hits the metrics. It raises a Series B at a higher valuation. It does it again. Eventually it hits a target the next round can underwrite, raises again, and continues to a meaningful exit.
That story is not wrong, exactly. It is just incomplete. And the incomplete version produces a particular pattern of failure that the venture industry has, on the whole, declined to look at directly. The pattern is this: companies that have something real, with real customers, real revenue, and real demand, fail not because the product was wrong, but because the capital strategy was wrong.
They raised too much, too fast, with too much dilution, optimising for round-to-round momentum rather than for the kind of company they were actually building. They were given the capital instrument designed for software-only, hypergrowth, exit-in-five-years businesses, and asked to use it to build something that operated under different physics. The instrument did not fit. The strategy that the instrument required did not fit. And the company that emerged was either distorted into something it was never meant to be, or it failed for reasons that had little to do with what the company was actually doing.
You cannot solve a structural problem with a tactical answer.
From The Venture Compass, Falzon and Christopherson, 2025
The pattern: when the capital does not fit
Two short cases, drawn from the work the platform has done with founders over years, illustrate the pattern. Names and details are altered to protect commercial relationships, but the architectural problems are real.
Case A: when the right idea meets the wrong capital path
A growth-stage company in regenerative agriculture had something genuinely interesting. Real product. Recurring revenue from sophisticated agricultural buyers. A defensible technology stack with a credible IP position. A founder team with deep industry expertise. The kind of company that the world needs more of and the venture industry says it wants to fund.
The company raised a Series A from a generalist software fund. The fund did the diligence well, agreed the thesis, and committed at a valuation that priced in software-margin economics. The terms were standard for the fund: heavy preferred-equity stack, anti-dilution provisions calibrated for an aggressive growth path, milestone expectations matched to the next round in eighteen months.
The problem was not the fund. The fund was acting in line with its own model. The problem was that the model did not match the company. Regenerative agriculture does not behave like software. The customer sales cycle is twelve to eighteen months, not weeks. The unit economics improve through field deployments and learning curves, not through performance marketing. The competitive moats are operational, regulatory, and relational, not narrative.
What the company needed was structured capital that paid down through customer revenue, plus modest equity to align long-term partners. What it received was equity capital structured for a software trajectory it was never going to follow. The eighteen-month round expectation forced the founders to push for revenue growth on a timeline that distorted their commercial relationships and burned cash on customer acquisition that did not stick. By month sixteen, the next round was uncertain. By month twenty, the company was raising a bridge round at a punishing valuation. By month thirty, the founders had lost most of their equity, the technology was being sold off in pieces, and the customers had moved to a competitor that had grown more slowly with better-aligned capital.
The product was right. The market was real. The capital path was wrong. The company did not fail because of its product. It failed because of its capital structure. And the venture industry recorded the failure as a market problem rather than as a structural one.
Case B: the cost of the wrong capital strategy
A second company, in distributed renewable energy, had a clearer technical advantage and a faster path to commercial revenue. The product worked. The customers were sophisticated. The unit economics were positive at scale.
The company raised three consecutive equity rounds in eighteen months as it grew. Each round was larger than the last. Each round was at a higher valuation. Each round was structured for the next, with covenants and milestones that assumed continuous high growth and continuous follow-on capital availability.
Then the macro environment shifted. Capital markets tightened. The next round did not arrive on the previous schedule. The company had to extend runway by cutting commercial activity, the very activity that was generating the revenue growth that would have justified the next round. The cuts hit pipeline before they hit costs. The pipeline took six months to recover. The recovery happened just in time to raise a flat round at the previous valuation, after a period of unnecessary stress.
The company survived. It is operating today. But its founders spent eight months in capital-driven crisis when they should have been spending those months growing the company. The cost was not the equity dilution alone. It was the eight months of attention diverted, the team morale impact, the customer relationships that needed mending, the credibility cost with the broader market.
The cause was structural. The company had been encouraged to take equity-only capital at scale on the assumption that follow-on capital would always be available. When that assumption broke, the company had no other instrument to fall back on. A different structure, structured growth capital that paid down from customer revenue, with a smaller equity sleeve that did not require a continuous round cadence, would have produced the same outcome on growth without the eight months of preventable distress.
The architectural assessment
Both cases share an underlying architecture problem. Capital was structured for one type of business and applied to another. The mismatch was not visible at the time of the round. It became visible when the company met its actual operating reality.
The standard venture model has assumptions baked into it about growth pace, unit economics, customer behaviour, and exit timing. The model works when those assumptions match the company. When they do not, the model produces stress that is interpreted as performance failure but is actually structural mismatch.
The companies the world now needs, in food, energy, health, water, waste, frequently do not match the standard venture assumptions. They have longer sales cycles. They have physical capital requirements. They have regulatory pathways. They generate cash earlier and exit through more diverse acquirers than the venture-software pattern. They look more like industrial businesses with technology multipliers than like the SaaS companies the venture model was built for.
Putting these companies into a venture-software capital structure does not just produce slower returns. It produces structural failure. The case studies above are not anomalies. They are the predictable outcome of an instrument-business mismatch.
Capital without capability just accelerates dysfunction. Capital is a lever. Community is the multiplier.
From MAD: What the World Needs Now Is a Little Madness, Mark Falzon, 2025, Chapter 9
What the right capital actually looks like
Capital that is fit for these companies has four characteristics.
First, it is structured. Some component of the capital is repaid through the operating cash flows of the business, not through dilution at the next round. This produces income for investors during the life of the deployment, and it sequences capital to the company's commercial reality rather than to a round cadence.
Second, it has equity exposure aligned to the long arc, not to the next round. A modest equity sleeve preserves capital growth optionality for investors without diluting founders to the point where they lose the agency to keep building. The equity is the upside on a multi-year story, not the only mechanism by which capital returns.
Third, it is paired with capability. Capital alone is not what scales companies. Founders who can sequence the work scale companies. The Venture Compass assessment, the VC Mastermind cadence, the Ambassador network, the advisory function, all of these compound on the capital. They are not separate to it. They are part of the operating system that makes the capital useful.
Fourth, it is patient where patience matters and disciplined where discipline matters. Patient about the underlying multi-year story. Disciplined about the quarter-by-quarter commercial reality. The founders who scale companies well do both, in sequence, repeatedly. The capital instrument has to support that.
The missing middle
The category of capital described above does not have a clean home in the existing capital stack. Banks do not lend it; the risk profile is too high. Standard venture funds do not deploy it; the return profile is not built around the unicorn outcome that justifies the model. Private credit funds do not deploy it; the equity component does not match the credit fund's return target. Family offices and high-net-worth investors increasingly want this profile but have lacked instruments built for it.
That gap is what the venture industry calls the missing middle. It is the category between early-stage venture and late-stage growth, where the company has revenue, traction, and capital efficiency but does not yet have the scale or stability that institutional credit and growth-equity buyers require.
Most of the companies that will rebuild the systems the world depends on sit in the missing middle. They are too advanced for grant funding. They are too small for institutional growth equity. They are too capital-intensive for traditional venture. They have been operating for years without an instrument designed for them.
That is the gap MAD Fund 1 is built to fill. The 80/20 model, structured growth capital plus equity sleeve, generates income during deployment and aligns long-term participation in upside. The Venture Compass assessment and Mastermind cadence supply the capability layer. The Ambassador network adds operating depth. The platform compounds across multiple vehicles and engines.
What this means for allocators
Allocators have a structural opportunity in the missing middle. The category is real. The demand from companies is established. The supply of suitably structured capital is limited. The companies in the category are not the speculative venture bets that defined the last decade; they are operating businesses with revenue and traction that need capital matched to their commercial reality.
The structural opportunity is the same as it was in the early days of any new asset class. The category exists. The instruments are being built. The allocators that participate early will compound across the cycle. The allocators that wait until the category is fully institutionalised will participate at lower returns and at scale that no longer requires conviction.
What venture capital gets wrong about scaling is that scaling is not about more capital. It is about the right capital, in the right structure, paired with the right capability, deployed at the right time. Get the architecture right and the company scales. Get it wrong and the company breaks under capital that should have supported it.
The case studies that opened this article are not exceptions. They are the predictable outcome of structural mismatch. The instrument that fixes the mismatch is what MAD has built, and what the missing middle has needed for some time.
Read more about the assessment methodology behind this analysis in The Venture Compass, available in our Books library. Wholesale-qualified investors interested in the Information Memorandum for MAD Fund 1 are welcome to enter the Investor Room.
Information for wholesale clients only. This paper is general commentary and does not constitute financial, tax, legal, investment, or other professional advice. It does not take into account the objectives, financial situation, or needs of any person. It does not constitute an offer of securities or an invitation to subscribe. Any investment opportunity referenced is offered privately and only to wholesale clients as defined under sections 761G and 708(8) of the Corporations Act 2001 (Cth), under separate offer documentation. Past performance is not a reliable indicator of future performance and capital is at risk. Tax positions referenced are based on the manager's understanding of the ESVCLP regime at the date of publication; legislation may change. Prospective investors should obtain their own independent financial, legal and tax advice before making any investment decision. Nothing on this page should be relied on as a substitute for the Information Memorandum and Partnership Deed, available on request to wholesale clients via the Investor Room.