The Venture Capital model is broken. VC interests are not aligned with the best interests of their limited partners nor of their portfolio companies.
VC’s push portfolio companies too fast in a short-term greedy effort to maximize valuations at the expense of operational rigor: VC’s push portfolio companies to generate warp speed revenue growth at the expense of building a long-term sustainable business and winning culture:
- WeWork famously blew up after having acquired too much commercial space ahead of demand, after having diversified away from its core, after having backed a CEO who was better suited to be a cult leader.
- Uber under founder Travis Kalanick was a prime example of a company that grew too fast at the expense of employees, customers, drivers and ultimately its investors.
- Zenefits is another example of a company that grew rapidly and eventually imploded due to the lack of operational rigor.
There are many other examples of companies that were pressured to grow too quickly by VC owners and blew up as a result. It would seem the solution is patient capital. Rather than maximizing returns over the shortest period of time, VC’s ought to invest the necessary capital to ensure a given portfolio company is on solid footing before pushing it to grow rapidly. Replace “growth at all cost” with “intelligent, profitable growth”. This would require a change in VC culture, one that is long overdue. Those VC’s bold enough to break with the norm would significantly reduce the reputation risk associated with having portfolio companies implode.