Is the traditional VC model — Broken!?
Many will find this itchy but someone actually stood out and pointed it out.
For an industry that doesn’t do it for the money, we sure talk about money an awful lot in the world of startups.
Says Bruce Roberts a VC with while making a point on how constant talk about the returns of VCs dominate the talks in almost every startup ecosystem nowadays and that in return influences the behavior of startups who have raised money from VCs
His points are well put and one of them is a definite strike
Differently put this table means that while there is a substantial difference in exits for early stage and for a Series D company from an investors point of view. However things look surprising from a founder’s point of view.
Despite increasing the value of the underlying business 7x, the dollars at exit for the founder remain roughly the same.
The founder seem to cash out almost the same amount no matter if he exits after a Seed round or after a Series D round which is noticeable because the time period and the amount of work and personal investment one puts to push a company that far is usually gargantuan.
Is this low probability high reward scenario which has become so normal and standard nowadays where founders obtain seed round just to attain a well defined set of milestones for the next round of funding (where the next round and yet another round of dilution is the only goal), putting aggressive growth and market share as priority over early profitability, the only way for a founder funded by an investor to build a company?
I find this a discussion worth having. The traditional VC model might as well have become rotten if we dare to peek inside.
