How should investors treat founders whose companies are persistently not working?

Satya Patel · Jan 30, 2023

VCs should let a struggling company ride rather than ask for capital back, so long as they still believe the founders are smart enough to figure something out, even via a pivot

VCs are in the business of losing money — that's why the power law exists

Scope: conditional on still believing in the founders

51:17 20VC: Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed Strategy Today | Why They Decided not to Raise New External Funds | Where Are We in the Cycle & What is Truly F***** | Why Founders Should Take Secondaries Earlier

Harry Stebbings · Sep 6, 2023 · hedged

It is often better to let a struggling but well-funded team keep going rather than have them return capital, since they were a team you backed and meet a quality bar

Stuart Butterfield and Slack is the example that rings true — a team that just kept going

Scope: framed as a question to Nikhil but he plants his own flag

18:26 20VC: Why Small Funds Outperform Large Funds & AUM is a Vanity Metric | Why 99% of Investments in AI Startups Will Go To Zero | Being a "Traction First" VC & Investing Lessons from Investing in Canva and Missing Figma with Nikhil Basu-Trivedi

Ed Sim · Jan 10, 2024

For early-stage companies with minimal revenue after three years, the decision to continue should turn on whether the founder has conviction and can rally the team around the next opportunity, not on investors reclaiming capital

Conviction and team alignment determine whether continuing is viable; absent that, you look at alternatives

Scope: applies to early-stage rather than late-stage companies

15:17 20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

Ed Sim · Jan 10, 2024 · hedged

By not quitting on founders in the bottom third of a portfolio, a fund can probably cobble together another 0.5-0.75x from modest exits, which can be decisive for fund performance

Cobbling together partial returns of capital, a 1.3x here and a 2x there, compounds even without heroic outcomes

Scope: early-stage funds where one or two outliers drive most performance

29:38 20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

Victor Lazarte · Apr 14, 2025

Investors should not give up on a struggling company as long as the founder still wants to keep trying, even when continuing is completely uneconomical

You made a commitment to the founder when you invested, and you stay true to that unconditional belief; the instinct should be to increase engagement (doubling board meeting frequency) rather than cut it loose

Scope: conditional on the founder still wanting to try

53:41 20VC: Benchmark's Victor Lazarte on Why Portfolio Construction is BS| Why SaaS Spreadsheet Investing is Dead | Why China is a Stabilising Force for the US | Three Traits All the Best Founders Have & The Lie All Big Tech Companies Have Been Telling

Frank Rotman · Aug 26, 2021

Investor support can cross a line into enabling a business the market is signaling shouldn't exist, so sometimes the right move is to tell the founder it's okay that it didn't work

Every dollar into company X is a dollar not put into another company, and there is a fine line between being supportive and keeping a doomed business alive

28:01 20VC: Has Price Discipline Disappeared? Is it Possible to Build Ownership Over Time? Why Venture Is Less Collaborative Now Than Ever? How fast Do Breakout Companies Become Obvious? How To Construct an Optimised and Repeatable Investment Decision-Making Pr

Harry Stebbings · Apr 21, 2025

Venture investors, especially US upside-maximizing ones, write off companies struggling to clear their pref stack as mistakes and move on rather than working the outcome

Venture is a home-run business; if a company isn't in the home-run basket it isn't interesting

Scope: especially US upside-maximization funds

10:40 20VC: Do Rich Founders Make Better Founders | The Best Performing Fund Would Only Back YC Founders on Their Second Time | Why SPACs Will Come Back | Why Short Sellers Should Be Banned | Is Trump Better for Business than Biden with Jason Wilk @ Dave

Jason Wilk · Apr 21, 2025

VCs are not the ones blocking small acquisitions, because breaking even is uninteresting to them and their focus is on the 10-20x investments that return the fund

Venture is a home-run-hits driven business, so recovering capital is not worth their attention

10:59 20VC: Do Rich Founders Make Better Founders | The Best Performing Fund Would Only Back YC Founders on Their Second Time | Why SPACs Will Come Back | Why Short Sellers Should Be Banned | Is Trump Better for Business than Biden with Jason Wilk @ Dave

Max Altman · Nov 21, 2025

Investors should tell struggling founders there is no shame in shutting down, returning ten cents on the dollar, or getting acqui-hired, because venture funds are not in the game of downside protection

Whether a failing company returns 10 cents or 50 cents on the dollar doesn't move the needle for the fund, so the founder should optimize for their own next move

Scope: applies after years of the company not working

19:56 20VC: Max Altman on The New Seed War: Can Anyone Compete with Sequoia and a16z | Leaving $2BN on the Table with Reddit | Lessons from Backing Rippling at $25M Post | Why Climate Tech is a Mirage and Disaster

Ophelia Brown · Mar 17, 2023

If a company cannot raise after 24-36 months of runway from a Series A, it probably isn't a viable business and its investors shouldn't put in more money to extend runway

Founders should control their own destiny and manage burn rather than assume a raise is automatic; enough runway to give it a real shot has already been provided, so honesty is required at that point

Scope: they will still work with the founder on all other efforts beyond that point

13:14 20VC: Why Growth Investors Ruined the Venture Market, Why Marketing in Venture Has No Substance, Why Follow-On Investing Can Damage Returns and The Mistakes VCs Made in the Last 18 Months with Ophelia Brown, Founder @ Blossom Capital

Harry Stebbings · May 24, 2023

Companies still at ~$100k ARR after several years and several million dollars burned are usually not working and should either change direction or stop

As an investor he looks at that profile and concludes the money would be better returned than continued

Scope: his reaction as an investor across several portfolio companies

24:37 20VC: Why Being First To Market Does Not Matter, Why You Do Not Have Defensibility on Day 1, How to Analyse Market Size and Present it to Investors, Vitamins vs Painkillers; Do Vitamins Survive Recessions and Good vs Great Messaging with Guy Podjarny @ Sn

Nikhil Basu Trivedi · Sep 6, 2023

Companies with eight to ten years of runway but no product-market fit must find product-market fit somewhere to deserve to exist longer; runway is meaningless unless it leads to a takeoff or a landing

Momentum and the feeling of winning are everything — without them it's hard to have a good culture, hire the best people, or do your best work as a founder

17:17 20VC: Why Small Funds Outperform Large Funds & AUM is a Vanity Metric | Why 99% of Investments in AI Startups Will Go To Zero | Being a "Traction First" VC & Investing Lessons from Investing in Canva and Missing Figma with Nikhil Basu-Trivedi

Harry Stebbings · Nov 30, 2022

Series B investors offering to take their money back while giving founders a million in secondary is a good deal in which everyone wins

He has seen four such cases in the last month, with investors admitting the failure was theirs

Scope: based on four recent instances

28:46 20VC: Jason Lemkin on Why Founders Do Not Care About Their VCs Anymore, Why Zoom Made Us All Worse Investors, Why 80-90% IRR Should Have Been Warning Signs and the Algolia Journey From Seed to $2.25BN Valuation

Jean-Denis Greze · Jul 21, 2023

Founders of zombie companies should seriously consider resetting to a new idea or returning the money rather than spending more years of their life on a business with a very low chance of reaching product-market fit

Life is short, and three years of runway makes it dangerously easy to burn three more years of creative prime on a business that only becomes a lifestyle business — which is not why you took venture funding

Scope: applies to companies with some revenue but no venture-scale growth

37:41 20VC: Why Hiring in Tech is Broken and Founders Need to be as Good at Firing as they are Hiring, Why Product Differentiation is Unsustainable & Why the Current Generation of Tech Employees are Entitled and What Needs to Change with Jean-Denis Greze @ Plai

Harry Stebbings · Sep 20, 2023

A founder is usually better off returning most of the remaining capital and closing down gracefully than running down the clock on a company they know isn't working

Returning capital preserves the investor relationship for a future company and saves the founder's most valuable resource, time, whereas burning the money to zero with no progress loses the firm's money and damages the relationship

Scope: applies when the founder already knows the company isn't working

49:08 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Jason Lemkin · Jan 4, 2024

He is a worse investor now than when he started SaaStr Fund

He is slower and he takes things personally — after dedicating years to a company, a founder not giving 100% or doing the wrong thing costs him too much, when he should behave like a detached financier and move on to the next deal

59:50 20VC: Predictions for 2024: What Happens to Early Stage VC Funding, Do a Load of Venture Funds Die, What do LPs Do in 2024, Does Figma Kill the M&A Market, Will IPOs Comeback & What Does a Trump Administration do for Startups with Jason Lemkin @ SaaStr

Danny Rimer · Jun 17, 2024

The hardest and most important lesson from a failed investment is to let go of the failure and move on

With Nasty Gal he kept trying to engineer money back or an ongoing concern; his partners pointed out how much of his thinking, at night and on waking, the company was consuming even after board meetings had stopped

49:52 20VC: Index's Danny Rimer on Investing Lessons from Hits like Figma, Discord and Etsy to Missing Snapchat, Airbnb, Facebook & Spotify | Why Valuation is a Trap and Market Sizing, Signalling and Sector/Geo-Specific Funds are all Noise

Jamin Ball · Jan 10, 2024 · hedged

Late-stage investors hold loose conviction and want to pull the ripcord at the first sign of trouble, while early-stage investors are indifferent between 0x, 1x and 2x because their returns are driven by power-law outcomes

Fund mathematics differ: earlier funds depend on 100x outcomes, so anything less is equivalent, whereas late-stage investors are trying to atone for high-valuation rounds

Scope: speaking in broad strokes; described as the typical stereotype

15:50 20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

Mitchell Green · Mar 28, 2025

Cutting losers is easier for a late-stage investor than for an early-stage investor who was there from nothing, and some world-class VCs do it

He came in when companies were already bigger, whereas Fred Wilson was there when it was nothing, so the relational obligation differs

55:05 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

David Frankel · Oct 14, 2024

VCs are indeed quiet quitting on struggling companies, and whether an investor stays is a function of relationship and sentimentality rather than commercial logic

A purely commercial investor moves on down the ecosystem just as LPs do; only an abundance of faith in the founder's call option keeps you in a business that isn't working

Scope: acknowledges the faith-based stance may be crazy and sentimental

36:57 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Mamoon Hamid · Oct 21, 2024

Believing in founders for too long before cutting losses is a fair criticism of him but an acceptable cost of his conviction-driven, people-first approach

He believes in the people he backs and wants to be on the journey with them; it's part of who he is

Scope: concedes the criticism is fair

49:52 20VC: Kleiner Perkins' Mamoon Hamid on Investing Lessons from Leading Rounds in Figma, Slack and Rippling | Lessons Building a Generational Defining Firm with Kleiner Perkins | AI: Where Value Accrues, Startups vs Incumbents & Scaling Laws

Harry Stebbings · Aug 26, 2021

It is investors' responsibility to tell founders that failure is acceptable, and in many cases founders' fear of losing investor money is more about the investor than the founder

Losing money is intrinsic to venture — founders aren't supposed to always win — yet many founders carry it as a personal obligation

Scope: 'in some cases'

29:48 20VC: Has Price Discipline Disappeared? Is it Possible to Build Ownership Over Time? Why Venture Is Less Collaborative Now Than Ever? How fast Do Breakout Companies Become Obvious? How To Construct an Optimised and Repeatable Investment Decision-Making Pr

Nikhil Basu Trivedi · Sep 6, 2023

Investors should have the direct conversation with founders about whether they are banging their head against the same wall too long and whether to move on and return the capital

Founders invariably say they want to feel like they're winning and have momentum, which opens the honest question of whether the current path can deliver that

18:02 20VC: Why Small Funds Outperform Large Funds & AUM is a Vanity Metric | Why 99% of Investments in AI Startups Will Go To Zero | Being a "Traction First" VC & Investing Lessons from Investing in Canva and Missing Figma with Nikhil Basu-Trivedi

Harry Stebbings · Jul 22, 2024 · hedged

Even when the founder is the problem, it is not right to tell them you don't believe in them

He is probably wrong and has no standing to judge someone as not good enough

Scope: acknowledges it 'sucks'

31:55 20VC: How I Lost Airbnb at Seed Because of an Exploding Term Sheet | Investing Lessons from Roelof Botha & Peter Thiel | Why VC is Less Collaborative Than Ever and Great Companies Are Being Destroyed by Too Much Cash with Kevin Hartz @ A*

Harry Stebbings · Oct 14, 2024

Telling a founder you have lost faith never works, so investors should not bother giving the hard feedback because nobody wants it

15:10 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Jason Lemkin · Nov 30, 2022

Zombies aren't a crisis for VCs but they are a real opportunity cost — he would rather recover even a couple of million and redeploy it into a breakout seed company

$2M sitting in a zombie for seven years could do a lot in a breakout seed company instead

Scope: speaking about the handful of such positions he personally holds

28:23 20VC: Jason Lemkin on Why Founders Do Not Care About Their VCs Anymore, Why Zoom Made Us All Worse Investors, Why 80-90% IRR Should Have Been Warning Signs and the Algolia Journey From Seed to $2.25BN Valuation

Harry Stebbings · Jan 10, 2024

It is legitimate for investors to ask for their money back when a company has spent three years and reached only minimal revenue

The founder's time is their most valuable asset and is better spent starting something fresh

Scope: framed as a blunt provocation to Ed

14:57 20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

Jason Lemkin · Sep 20, 2023

An investor should never ask a founder for their money back — nudging is the most that can work

For many reasons asking simply doesn't work, so there's no point in asking

Scope: nudging, e.g. sharing the Stewart Butterfield precedent, is acceptable

48:06 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Eric Paley · Sep 20, 2023

It is inappropriate for a VC to ask a founder to return their investment

Asking implies the cash is still the VC's money when it is the company's, and there are multiple stakeholders at the table; joint problem-solving that includes returning capital as one option is the legitimate framing

Scope: possible exception where the VC is the company's only investor; distinct from collaboratively exploring options, which is fine

48:26 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Danny Rimer · Jun 17, 2024

With failing companies, the goal is to recognize failure as fast as possible and get the founder to shut down and start fresh carrying the scar tissue

Speed of recognition preserves the lessons and lets the founder move on

Scope: whether they restart with remaining cash depends on their conviction in the new idea, not obligation

34:09 20VC: Index's Danny Rimer on Investing Lessons from Hits like Figma, Discord and Etsy to Missing Snapchat, Airbnb, Facebook & Spotify | Why Valuation is a Trap and Market Sizing, Signalling and Sector/Geo-Specific Funds are all Noise

David Frankel · Oct 14, 2024

When a company fails for the right reasons, the investor should explicitly tell the team it wasn't their fault and ask them to come back with the next idea

He backs teams before themes and wants to be in business with those people again, not because he's an options junkie; he learned the hard way from not saying it

18:20 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Harry Stebbings · Jan 30, 2023

Senior GPs who have already made a lot of money resist returning capital from failing portfolio companies because it looks bad and threatens their reputation and founder NPS, which amounts to quiet quitting

When he proposed a company with too much money and no product market fit return 70 cents on the dollar, the more senior investors refused on the grounds it was a bad look

50:00 Senior gps refuse capital return to protect reputation and paper marks quiet quitting

Hunter Walk · Jan 30, 2023

Preserving paper marks, ego, credibility or reputation is not an investor's job; investors should speak truth to founders and hold them accountable given the opportunity cost of everyone's time and capital

There's an opportunity cost to everybody's time and capital, and protecting an upside that doesn't exist in order to raise the next fund on a paper mark isn't the job

50:53 Preserving paper marks and reputation should never override truth telling to founders

Hunter Walk · Jan 30, 2023

The point isn't getting capital back to redeploy but forcing a real conversation about whether the remaining capital will create a multiple of enterprise value or just kick the can down the road

If the honest belief is the company grows half x rather than four x, continuing to burn money on something known not to work is the worse outcome

51:32 Capital return conversation should center on future value creation not cash back

Jeff Seibert · Nov 22, 2023

Investors asking founders for cash back is scenario dependent — not acceptable while the founder is still excited and has grit, but arguably justified if the founder is wavering or there's a pattern of bad decisions; bias should be toward supporting the founder

If you wanted to bet on the founder, you should let it run; performance concerns and bad decision patterns change the case

45:58 Bias toward supporting founder unless wavering or pattern of bad decisions

Julio Vasconcellos · Sep 23, 2022

When an investor's confidence in a founder hits zero, the right move is a frank conversation saying they may not be the right CEO, and if the founder disagrees, to part ways or hand the board seat to another investor

Transparency and frankness serve the company and all shareholders; if you're not aggregating value and the founder won't hear you, someone else should be in the seat

23:37 Tell the founder directly when confidence hits zero and if unresolved part ways or hand the board seat to another investor

Taavet Hinrikus · Apr 28, 2025

An investor can promise never to give up before the founder while still refusing to write bad money after good — continued funding should depend on whether the company can still have GDP-level impact.

Founders have been told upfront that Plural exists to back GDP-level impact, so if a company isn't on that path further checks aren't guaranteed even if the founder keeps going.

24:54 Continued funding depends on whether gdp level impact remains plausible

Mike Maples · Jan 6, 2025

When an investor loses faith in a founder, the right move is to 'detach with love' — step back and make clear the disagreement isn't personal, rather than stay and criticize

If he can't help and they disagree about everything, sitting there telling the founder they're doing a bad job serves no one

42:55 Detach with love rather than staying to criticize

Nikhil Basu Trivedi · Sep 6, 2023

Letting a team keep going can be right, but only if they are having honest transparent conversations and iterating with urgency; throwing eight ideas at the wall in an experimentation phase is fine, lacking urgency is not

Those two things — urgency and transparency — are what he tries to suss out and judge

18:42 Continued backing is right only with transparency and urgent iteration

Nigel Morris · May 24, 2021

His inability to give up on investments is a real failing, but it is better than the widespread VC alternative of cutting early and downgrading the board seat from a senior to a junior partner after one missed quarter

He sees peers in VC substitute the senior person with a very junior one by the second board meeting once revenue is missed

20:23 Staying personally engaged despite inability to let go beats the common practice of downgrading a struggling companys board seat to a junior partner

Jason Lemkin · Nov 30, 2022

Offering founders a million in secondary to wind down is great incentive alignment — a lot of money for the founder and $30M back for the VC — even though the VC likely gets less than 1x

The founder gets meaningful personal money instead of grinding on, and a sub-1x return is better than no return

29:03 Secondary buyout wind down deals align incentives despite a sub 1x vc return

Harry Stebbings · Nov 30, 2022

Founders offered ~0.8x wind-down deals should take them, since the company will be a zombie anyway — but most founders refuse

The alternative outcome is a zombie company, so the recovery is worth taking

29:23 Founders should accept partial capital return wind down offers since the alternative is zombie status

Jason Lemkin · Sep 20, 2023

Many founders of the overvalued unicorn cohort will 'quiet quit' — staying nominally in role while disengaging — and some will openly quit

When the weight of expectations from a huge raise becomes crushing and the founder can no longer see a path or recruit a team, disengaging is the natural response

46:26 Founders quiet quit when crushed by unsustainable valuation expectations

Eric Paley · Sep 20, 2023

Founders who raised at crazy valuations without product-market fit should consider giving the money back to preserve their integrity and free themselves of a multi-year burden

Quiet quitting doesn't remove the burden — it stays on your career even if you stop stressing daily — whereas returning the cash on the balance sheet resolves it, and the decision has to originate with the founder in honest dialogue with investors

47:00 Founder initiated return of capital preserves integrity and removes the burden

Harry Stebbings · Jul 21, 2023

Most VCs don't actually care whether a struggling founder shuts down and returns capital, despite many asking for money back at 60 cents on the dollar

37:20 Vcs request capital back as a formality without genuinely caring about the outcome

Harry Stebbings · Nov 21, 2025

It is not wrong for an investor to lose faith in a founder who continuously lets them down

19:49 Losing faith in a repeatedly disappointing founder is legitimate