VC Social Contract Breakdown

Jason Lemkin shares his perspective on the deteriorating relationship between founders and venture capital investors, particularly regarding the responsibility and expectations around invested capital. His views stem from both being a founder who raised money and an investor who has deployed significant capital.

Key Points:

• Social Contract Breakdown

  • The relationship between investors and founders has broken down in the last 3 years
  • Many founders now treat venture capital as "free money" without responsibility
  • Personal example: Lost $5M in worst investment loss ever, founder's response was "what do you care, it's not really your money"

• Historical Perspective on Investor Relations

  • Previous generation of founders felt deep responsibility as stewards of investor money
  • Founders used to feel stressed about taking someone's hard-earned money
  • There was a mindset of "better go hungry or die to get a return for them"

• Venture Capital Commitment Implications

  • Raising over $10M means committing to a $1B exit
  • Anything less becomes a disappointment for investors
  • Double-digit millions create different expectations and pressure

• Funding Strategy Advice

  • For first-time wealth building, raise little to no venture capital
  • If raising money, stay under a couple million dollars
    • Only suffer dilution, maintain optionality
    • Any exit can still work
  • Use raised capital for strategic purposes
    • Don't use it for founder salary ("what losers do")
    • Hire good people to derisk the investment
    • Use it to accelerate growth

• Warning Signs

  • Double-digit millions lead to addiction to burning money
  • Many variables can go wrong with larger raises
  • Need to "feel it in your bones" that you can reach $1B before raising significant capital