The rise of founder-optimized fundraising—raising smaller, more frequent rounds to minimize dilution—is systematically eroding traditional VC ownership models. What is a savvy capital strategy for a founder directly translates into a VC failing to meet their ownership targets, creating a fundamental conflict in the ecosystem.
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 venture capital return model has shifted so dramatically that even some multi-billion-dollar exits are insufficient. This forces VCs to screen for 'immortal' founders capable of building $10B+ companies from inception, making traditionally solid businesses run by 'mortal founders' increasingly uninvestable by top funds.
For established software companies with sluggish growth, the path forward is clear: find a way to become relevant in the age of AI. While they may not become the next Harvey, attaching to AI spend can boost growth from 15% to 25%, the difference between a viable public company and a sale to a private equity firm.
After 18+ months in the AI era, software companies that haven't re-accelerated growth have a team execution problem, not a market timing one. The capital and opportunities are too vast to miss. This failure to ship a relevant product and capture new revenue warrants drastic measures, including replacing a significant portion of the team.
Contrary to the popular VC idea that IPO pops are 'free money' left on the table, they actually serve as a crucial risk premium for public market investors. Down-rounds like Navan's prove that buyers need the upside from successful IPOs to compensate for the very real risk of losing money on others.
The paper wealth generated on IPO day is a misleading metric due to lockup periods and market volatility. A more accurate mental model for an investor's actual return is the company's market capitalization 18 months after the public offering. This timeframe provides a truer 'locked in value' after initial hype and selling pressure subsides.
Navan's post-IPO stock drop, despite strong revenue, is a troubling sign for the venture ecosystem. It highlights that even a multi-billion-dollar outcome can be considered a 'bummer' and may not generate sufficient returns for large, late-stage funds, resetting expectations for what constitutes a truly successful exit in the current market.