3 ms·

Not having to remunerate failed founders and starting employees for their effort is a cornerstone of the VC business model.

• tptacek 2y ago
  They're investors. Why would they pay you for failing to generate a return?
  • jackcosgrove 2y ago
    "Failing for generating a return" makes it sound like a skill issue, when it was probably mostly bad luck with the business model you tried out. Negative results can be as valuable as positive results in science, why not in business? Greedy optimization can also get you stuck in local minima. Why does any investor participate in VC? As an asset class it underperforms. There's something more that motivates people than return. Cool factor, bragging rights, and also I think a concern for growth and the macro outlook. In my model the reserved pool of shares for failed founders would come out of the winning founders' pool. It's spreading risk across founders, not diminishing the stake of investors.
    • tptacek 2y ago
      It doesn't matter whether it's a skill issue or not. They're investors. They are voluntarily offering money in exchange for a chance at a return. When you buy two shares of Tesla for $1000, you don't expect to pay them if they're driven out of business. In the main, VC LPs put money into VC firms because they have portfolio allocation constraints for decorrelated investments, is how I understand it. It's definitely not out of charity.