Defy's Sequeira: Controversial Deals Yield Highest VC Returns

Neil Sequeira, co-founder of early-stage VC firm Defy, argues that the venture capital deals generating the most heated arguments among investors are the ones that ultimately yield the highest returns, according to a VC10X video series episode summarized in this article. This contrasts with the industry consensus-driven approach that most large venture capital firms use to minimize risk.

Small Partnerships Over Large Committees

Sequeira emphasizes that early-stage venture investing requires decision-making frameworks fundamentally different from those used by larger funds. While large platforms structure decision-making through investment committees to manage risk, Sequeira believes this approach is “often fatal to early-stage investing.”

“We really believe a small partnership is the best way to do early stage venture capital,” Sequeira states. “The most contentious deals are the ones that end up doing the best.” Small teams force investors to face facts directly and maintain personal accountability, rather than diffusing responsibility across committees.

Speed Without Sacrificing Due Diligence

Operating with a tight group changes how a firm handles investment pacing. While the tech sector rewards rapid capital deployment, Sequeira argues that rushing reviews is “often just disguised panic.” A small partnership allows investors to move quickly without skipping due diligence.

“Speed is much easier when you have everyone in one room,” Sequeira says. Defy pursues proprietary deals where time becomes an advantage—approximately 75% of the firm’s deals are proprietary, involving founders known to the partners for extended periods. These relationships are often established by “writing the business plan before the company even exists,” allowing the firm to identify the right founder to execute the plan.

Adapting to AI-Driven Fundraising

As artificial intelligence alters how startups raise capital, Defy’s investment strategy has shifted. Technical teams that generate revenue with minimal staff require different funding models. The firm’s approach now emphasizes:

• Small early investments that allow observation before deploying heavier capital
• Spending less money early to push companies toward profitability, reducing mid-stage fundraising needs
• Funding more companies overall, as AI startups often avoid taking huge early investments

“Our goal is to convince them over the next three to six months that we are their next partner for a bigger check,” Sequeira explains, describing how smaller initial checks build rapport for later funding rounds.

Alternative Methods for Acquiring Equity

When lean startups grow rapidly, windows to acquire meaningful stakes close fast. Sequeira describes several tactics to secure shares before prices climb:

• Buying shares from departing employees to quietly increase stake
• Offering cash for life events as a retention tool for executives
• Spending heavily during market crashes to buy shares while competitors withdraw

“We own on average 17% of our seven highest-marked companies,” Sequeira reports. He recounts leveraging the early 2020 pandemic panic to his firm’s advantage—while the broader venture market crashed, Defy issued its largest capital call, deployed a massive fund chunk, and bought more shares in their strongest companies.

Founder Character Over Financial Modeling

Sequeira prioritizes founder character assessment over market knowledge and financial projections. “Even if you know everything about a market… that doesn’t always end up with a great investment,” he argues. “What will is a great founder and a great passionate person who you honestly love.”

Building real trust requires participating in founders’ personal lives. “We love our founders. We go to their weddings… kids’ sports games,” Sequeira says, “because that’s really how you build a true relationship.” This approach enabled Defy to fund an unproven AI collectibles business on a single phone call based entirely on trust, which had no revenue for the first couple of years before quickly reaching nine figures.

Red Flags and Integrity Issues

Relying on character assessment requires recognizing red flags immediately. Sequeira identifies integrity issues and behavioral inconsistencies as primary warning signs. “Any issues with integrity or the founder’s ability to tell the truth… when you see inconsistencies… that’s the end of the relationship for us… you can see that with almost every one of our failed investments.”

Sequeira warns that the VC ecosystem contains significant misinformation, with investors frequently backing out after promising to fund startups once specific revenue milestones are hit. He advises founders to control their own destiny rather than treating casual external feedback as guaranteed truth. He notes that artificial intelligence now provides founders with protection against toxic reliance on external capital—unlike previous eras requiring expensive physical servers, AI allows founders to achieve significant results with minimal funding.

Industry Counterpoint

While Sequeira treats small, highly aligned partnerships as ideal for early-stage investing, the broader market shows competing trends. According to the 2025 Data Driven VC Landscape Report, 12% of data-driven funds now run primary investment loops managed entirely by algorithms, suggesting venture advantage may increasingly derive from repeatable data systems rather than partner debate.

Sequeira’s view that AI is pushing firms toward smaller checks also faces a different funding reality. The OECD noted AI companies accounted for 61% of global VC investment in 2025, while Reuters reported that U.S. funding surged largely due to a handful of giant AI rounds, suggesting capital may be concentrating into fewer companies at the top rather than spreading widely.

The secondary-share acquisition strategy is also becoming less proprietary. IMD noted in April 2026 that the venture secondary market is growing quickly, while PitchBook reported that employee tenders now account for significant portions of U.S. transaction value, indicating that buying stock from departing employees is becoming an institutionalized part of private-market investing rather than a unique edge.