> it's a brutally efficient market
I disagree. You're assuming that every startup gets funded. I think this is wrong. Just because there are lots of terrible startups that get funding, doesn't mean there aren't great startups that never get funded. I'm sure you're familiar with the story of how AirBnB wouldn't exist if it weren't for Y Combinator. Or how Y Combinator stopped operating out of Boston because DropBox couldn't get funded there.
I understand why VC is the way it is, and I think it's a big problem (unless you're Sequoia). Everybody is focused on derisking, which makes sense. But most take it too far, and look for external signalling and develop a herdlike mentality. There is absolutely an opportunity for investors to take on bigger risks with bigger upsides - that is part of Peter Thiel's strategy. And I think Marc Andreessen largely made a16z into what it is today by doing one thing extremely well - thinking for himself.
The rules for startup investing are very different for hardware than they are for software. And the world is looking for the next Apple. Who is going to fund it? I'll bet good money it's not Sequoia. I also bet Sequoia won't invest in the next big energy company, or the next big space company, or a company that wins a sizable market for self-driving cars. There are plenty of opportunities for a new VC to make money, you just need to think outside of the box.
Edit: Just wanted to add I think you make a lot of good points, but I think there is an opportunity for more great VCs to exist.