Pack up or buckle up?

The current Venture Capital shift could in fact make resilient businesses stronger.

💨 Headwinds: per NYT/Pitchbook, about 3,200 private venture-backed U.S. companies went out of business this year, involving $27.2B in venture funding. This situation underscores an "astonishing cash bonfire," where substantial investments fueled by abundant cash supply have failed to deliver anticipated returns.

💪🏻 Darwinism: today's VC firms are focusing on their strongest portfolio companies, advising less promising ventures to either cease operations or pursue a sale. A few like Dayslice and Pebble proactively returned funds due to diminished growth prospects. Others find themselves in a "zombie" state, where they manage to survive but struggle to grow.

💡 Reflection: invaluable lessons can be learned from startups that have not succeeded. Often, these failures can be attributed to a misplaced emphasis on rapid top-line growth rather than strategic focus, coupled with a lack of disciplined operations, including sound unit economics and judicious hiring practices.

🛞 Realignment: startups with financial runway have a chance to recalibrate. Founders should consider reevaluating not just their business and operating models, but also their capitalization tables. While VCs play a crucial role in fostering innovation in the tech ecosystem, their pursuit of large-scale outcomes may not align with startups with moderate, linear growth trajectories.

In short: the prevailing venture capital model is well-suited for businesses with exponential growth patterns and specific risk and liquidity profiles. For many startups, a steady 15-20% annual growth rate is a more realistic and sustainable goal.

Founders, often driven by unique missions, can still realize strong economic success when partnered with the right investors. For these startups, venture buyouts offer a viable alternative, bridging the gap between traditional venture capital and private equity firms.