When a well-funded startup overspends and runs out of money, who bears more responsibility — the investors who enabled it, or the founders who spent it?

Jason Lemkin · Aug 23, 2023

Multi-stage funds writing large early checks is not a new phenomenon and does not excuse founders — the founder's job is simply not to run out of money

The seed critiques are all true (a 5-on-25 makes the next round hard, mega funds treat you as an option), but if you raise $8M instead of $2M the answer is not to spend it all

Scope: concedes the structural critiques of multi-stage seed rounds are accurate

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Des Traynor · Nov 15, 2023

Blaming venture capital for over-hiring is wrong; the responsibility sits with the founder, who doesn't have to take the money, spend it, spend it on hiring, or spend it wastefully.

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Harry Stebbings · Aug 23, 2023

Founders should take the large early round and operate as if they only raised 20% of it, but in practice no founder ever does this

8:54 Operate as if you raised a fraction of the round though no founder actually does this

Harry Stebbings · Aug 23, 2023

Founders run out of money because extra capital lets them hire more engineers, expand product, scale sales and test multiple marketing strategies and regions at once — and they choose to do all of it

Abundant capital creates more things you can do simultaneously, and founders take all of them

9:22 Abundant capital enables simultaneous initiatives founders cannot resist pursuing all of them

Rick Zullo · Aug 23, 2023

Investors are primarily responsible for the overspending problem, having steered founders toward growth over return on equity on the assumption capital would always be there

Capital was assumed abundant, founders watched peers doing the same thing, and VCs reinforced it; the last four or five years produced a ludicrous amount of stupid behavior

9:44 Investors are primarily responsible for steering founders toward overspending

Jason Lemkin · Aug 23, 2023

VCs are marginally more to blame than founders for the excess — 51/49 — but there is still no excuse for a founder running out of money

It's the founder's life and their company; if the business was declining eighteen months ago they should have seen it and adjusted, and 'don't run out of money' is the oldest rule in venture

10:18 Blame splits roughly 51 49 vcs slightly more but founders still must not run out of money