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In this week\u2019s episode of the StrictlyVC Download<\/a> podcast, veteran VC Aileen Lee was direct about a major consequence of the recent boom-and-bust cycle: many companies stuck in limbo aren\u2019t just struggling to regain their footing after raising too much money at unsustainable valuations; they\u2019ve also lost the champions who once backed them.<\/p>\n Lee was discussing how limited partners hesitate to criticize powerful fund managers, fearing they\u2019ll be shut out from investing in those firms again. But she imagined one thing they\u2019d say if they could speak freely:<\/p>\n \u201cEverybody 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\u201d and now they are being elbowed out \u2014 except that it\u2019s too late, observed Lee. \u201cAll [the LPs\u2019] money basically just got thrown down the drain because the people in the venture jobs didn\u2019t stick around long enough to see if the companies were successful.\u201d<\/p>\n It\u2019s not the fault of these newer investors, Lee continued. \u201cJust a ton of people didn\u2019t get trained and didn\u2019t get any mentorship or apprenticeship were given checkbooks, and a lot of investments were made, and . . .there are a lot of orphaned companies,\u201d as a result. <\/p>\n But there\u2019s another reason startups are being left to their own devices \u201cand I find this crazy,\u201d said Lee; in many cases, companies have been orphaned by a more senior general partner \u201cwho led the investment \u2013 who is still there [at the firm] but just stopped showing up to the board meetings.\u201d<\/p>\n For certain companies, it\u2019s been happening for years at this point. No one did as much due diligence during the go-go Covid era of funding, and the corner cutting never quite stopped when it came to these same investments. But it\u2019s also a key reason a growing number of companies are struggling to find outside help with exit strategies, and why LPs would be justified in voicing more frustration.<\/p>\n As another longtime VC, Jason Lemkin, told this editor<\/a> in late 2022 when VCs first stopped showing up at the board meetings of startups that were losing momentum: \u201c[S]houldn\u2019t there be checks and balances? Millions and millions are invested by pension funds and universities and widows and orphans, and when you don\u2019t do any diligence on the way in, and you don\u2019t do continual diligence at a board meeting, you\u2019re kind of abrogating some of your fiduciary responsibilities to your LPs, right?\u201d<\/p>\n Check out StrictlyVC Download<\/a> weekly; new episodes come out every Tuesday.
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