The VCs Are Salty

My work

Earlier this year, once it became clear we were in a downturn, the advice to founders was to raise internal rounds, cut costs, reduce burn, and drive to profitability. It’s been months since then and most founders are asking ‘Now what?’. I published an article on my company blog laying out a guide to founders on how to think about fundraising in this current market (link).

The revenge of capital

Capital providers are always looking for people who can provide (the promise of) returns. People who (believe they) can provide returns are always looking for capital providers. The balance of power between these two groups shifts based on the availability of capital in a particular asset class and how good the recent performance of that asset class has been.

The history of venture capital has been a story of the balance of power shifting towards entrepreneurs. This shift is most notable in the board room. In 1985, the Apple board famously fired Steve Jobs. At the time, VCs removing the CEO was completely unremarkable. Since the turn of the millennium, founders of companies like Facebook, Snapchat, and Google, have been able to prevent a scenario where they are removed by the board by creating dual-class stock, which allows them to retain control. Most recently, Sam Bankman Fried was able to build a $32B company without even having a board.

Over 40 years, we went from VCs controlling the board, to the founder controlling the board, to the founder not even having a board.

If the balance of power had been slowly shifting over decades, the pandemic, as it was for so many other things, was an accelerant. The availability of capital and the shift to virtual work meant that all assumptions about how VC worked were tested. If you could invest without physically meeting the founder, what other parts of diligence could you skip? Did you have to visit the geography the company operated in? Did you have to speak to customers? If you could invest in a founder you’ve never met, after minimal diligence, did you even need to be on the board? If you weren’t on the board, did it matter if the company didn’t even have a board?

We ran all these experiments over 2020 and 2021, driven by VCs that had more capital to deploy than they had time to diligence and