Do American VCs even bother with start-ups who want to be small/medium sized firms, and have a solid case for making a few hundred million dollars every year?

There are startups in small niches; I was part of one. But you don't hear about them much.

Honestly, most 'public' startups know they have zero shot at being a unicorn (because giants will crush them like bugs if copycats don't get them first) and chase getting acquired by Big Tech instead. That's literally the business plan. An example would be some AI firm that comes up with a novel long context scheme (of which there have been several), maybe offering an API. They hype the snot out of it... But it's not sustainable at all. They never open source it, they never work it into anything sustainable, the whole unspoken plan is literally for someone to just eat them and the tech to disappear into corporate oblivion.

In terms of advancing software, its extremely inefficient, which is one reason the Chinese are doing so well sharing stuff instead. Not that the Chinese firms don't have their own issues.

You aren't wrong, but Deepseek's is a 600B model, so it's kinda a different class. 20B/120B are much cheaper to run for agenic tasks. Beside, I think GLM 4.5 is where its at now :P

That being said, there's a boatload of competition in the small model class anyway.