In this week’s episode of the StrictlyVC Download podcast, veteran VC Aileen Lee was direct a couple of main consequence of the latest boom-and-bust cycle: many firms caught in limbo aren’t simply struggling to regain their footing after elevating an excessive amount of cash at unsustainable valuations; they’ve additionally misplaced the champions who as soon as backed them.
Lee was discussing how restricted companions hesitate to criticize highly effective fund managers, fearing they’ll be shut out from investing in these corporations once more. But she imagined one factor they’d say if they may communicate freely:
“Everybody wants to get into X brand name fund, and so they never will criticize them [for fear of repercussions] . . .they probably talk about us behind our backs [laughs].. . .But what they would say is [that] all the people who have [were] hired at these venture firms during the ZIRP era . . . they made a bunch of crappy investments” and now they’re being elbowed out — besides that it’s too late, noticed Lee. “All [the LPs’] money basically just got thrown down the drain because the people in the venture jobs didn’t stick around long enough to see if the companies were successful.”
It’s not the fault of those newer buyers, Lee continued. “Just a ton of people didn’t get trained and didn’t get any mentorship or apprenticeship were given checkbooks, and a lot of investments were made, and . . .there are a lot of orphaned companies,” in consequence.
But there’s one more reason startups are being left to their very own units “and I find this crazy,” mentioned Lee; in lots of circumstances, firms have been orphaned by a extra senior common associate “who led the investment – who is still there [at the firm] but just stopped showing up to the board meetings.”
For sure firms, it’s been occurring for years at this level. No one did as a lot due diligence throughout the go-go Covid period of funding, and the nook reducing by no means fairly stopped when it got here to those similar investments. But it’s additionally a key motive a rising variety of firms are struggling to search out exterior assist with exit methods, and why LPs could be justified in voicing extra frustration.
As one other longtime VC, Jason Lemkin, instructed this editor in late 2022 when VCs first stopped exhibiting up on the board conferences of startups that have been dropping momentum: “[S]houldn’t there be checks and balances? Millions and millions are invested by pension funds and universities and widows and orphans, and when you don’t do any diligence on the way in, and you don’t do continual diligence at a board meeting, you’re kind of abrogating some of your fiduciary responsibilities to your LPs, right?”
Check out StrictlyVC Download weekly; new episodes come out each Tuesday.
