While returns come from a small number of breakout companies, a VC firm's long-term reputation and deal flow are determined by its relationship with all founders. How a firm supports founders through failure influences whether they'll back them again or if those founders will recommend the firm to others.

In today's founder-centric climate, many VCs avoid confrontation to protect their reputation (NPS) within the founder network. This fear of being blacklisted leads them to abdicate their fiduciary duty to shareholders, failing to intervene even when a company's performance is dire and hard decisions are needed.

The power dynamic is shifting, with founders now conducting due diligence on VCs by asking their portfolio founders how they behaved during tough times. Investors who were unhelpful, absent, or pushed for unfavorable terms are developing a negative reputation that impacts their ability to win competitive deals.

A VC recounts advising founders to accept a massive acquisition offer during a market bubble, but they refused. Prioritizing his 'people-first' philosophy, he supported their decision to continue building. This choice ultimately cost the company, investors, and employees a potential $25-30 billion outcome when the market later corrected, highlighting a major conflict between financial optimization and founder support.

A lead investor's influence can place startup founders in a difficult position, compelling them to accept investments from controversial sources they might otherwise reject. The example of Curie Bio introducing a portfolio company to Boris Nikolic's fund highlights the power imbalance, where founders may lack the leverage to refuse capital for fear of jeopardizing their primary funding relationship.

To compete with top-tier firms, other VCs are using aggressive deal structures as a weapon. This includes offering huge secondary sales or other founder-friendly terms that might not be in the company's best long-term interest, simply as a tactic to win the deal at all costs.

Venture capital often operates on cooperation and long-term reputation. In contrast, some private equity firms may take a more adversarial, zero-sum approach to deals. VCs partnering with or selling to PE firms must recognize this cultural difference to avoid being exploited in negotiations and deal structures.

Sequoia's reputation for being brutally direct with founders is evolving into a high-status brand attribute. Ambitious founders are starting to prefer this 'stab you in the front' approach over unconditional support, viewing it as a necessary form of pressure to drive exceptional performance in a gladiatorial arena.

An investor's power over a portfolio company is fundamentally limited and primarily negative. While a VC can block a founder's actions, such as through board approval or withholding capital, they cannot force a founder to take a specific path, even if it seems obviously correct. The role is to advise and assist, not to command or execute.