May 24, 2022

It's easy to blame founders, but should VCs have known better?

Sure, there are some founders who did insane things. But where did they get the capital to do that?

Finn Murphy

4 min read

Finn Murphy, Frontline Ventures.

The Nasdaq drops 20% in a month and people are starting to lose it. Are they wrong? The last 24 months have been some of the headiest times in modern memory.

Never in the history of tech finance have so many made so much — doing so little. Crypto, growth, venture, day-trading public equities. Fast and loose money flowed from central banks to markets to LPs to funds to businesses to pockets.

But that brief era seems to be coming to an end. When it does, there’s going to be a lot of explaining to do — and with that will come a fair share of finger-pointing. 


Look no further than the darling of European venture, Hopin, to see the blame game beginning. Once valued at $7.8bn, the virtual events platform has seen demand for its shares at nearly any price evaporate and had to enact major layoffs as in-person events come back into vogue. 

Is the CEO responsible for not building a more sustainable business? Yes. Ultimately that’s your job in the top chair. Is he more responsible for this failure because he took over $200m in secondaries — selling part of his stake in the business — from hungry investors on the ride up? Absolutely not.

👉 Read: Startups can ride out the bumpy market by going back to basics

He didn’t force anyone to buy those shares. He didn’t force anyone to buy into the company at such a lofty valuation — investors could have said no. But many decided to partake as they were trapped in a self-imposed prisoner's dilemma fuelled by FOMO. 

It’s an investor’s responsibility to capitalise a business, build their position and manage that position. How you do that is your responsibility and yours to own, both when it goes right and when it goes wrong. 

The 'growth at all costs' days are over

This public unwinding might be one of the first for this generation of tech founders but it certainly won’t be the last. 

For the past 24 months, many investors have pushed a “growth at all costs” agenda in boardrooms everywhere. That made sense when the money was cheap and each incremental 50% added to your growth rate resulted in an extra 15 turns to your valuation multiple.

I’ll be the first to admit: I was a part of this. “The best way to raise your Series A is to start acting like you already have” was a strategy I rolled off like gospel. 

Increase the burn. Acquire the customers. Damn the CAC/LTV (a measure of the lifetime value of a customer versus the cost of acquiring that customer): headline growth was king. 

Companies raised at loftier multiples fuelled by biblical levels of cash burn

Many investors drank from the same well and forgot that these times would not and could not last forever. LP expectations went up, prices went up, and suddenly everyone needed every company to rip to the moon as fast as possible.

Many forgot that the best way to raise a Series A was to build a great product, onboard adoring customers and tell a great story. 


As rounds progressed it felt irresponsible to not take on money at higher and higher valuations. Companies raised at loftier multiples fuelled by biblical levels of cash burn. Fund managers rejoiced at the paper gains, selling them to LPs like cash in the bank, and even continuing to hold onto these paper gains in public markets to squeeze out every last drop of carry. 

Listen to the words of investors as the repricings start. Another golden child of VC, Instacart, recently repriced themselves from $39bn to $24bn as they couldn’t justify to new employees their stock-based compensation coming in at that level. There’s a cost to all those prior decisions as the music starts to slow.

It’s easy to blame founders, but don’t forget where they got the money

So as these flat rounds, repricings and layoffs start to get announced we’ll see more stories like Instacart, Fast and Hopin. Stories where the founders might hold their fair share of blame.

But we all build up idols only to tear them down. Shifting our culpability onto their failures. 

Sure, there are some founders who did insane things. But where did they get the capital to do that? When the blame games start, watch who throws the first stones. There’s a little bit of blood on everyone’s hands.

Sure, there are some founders who did insane things. But where did they get the capital to do that?

It’ll happen on the fund side too — you just won’t see it quite so publicly. But in the past 10 years, you could count on one hand the number of GPs fired for poor performance and bad decisions. Expect that number to increase if things get worse.

Ultimately these moments should remind us that it’s not easy being a founder. Nor is it easy to generate consistent great investment returns over a long time horizon. When these things “look” easy, that’s when something in the air is not quite right.