VC Aileen Lee: The Growing Investor Exodus and Its Impact on Struggling Unicorn Companies
In the latest episode of the StrictlyVC Download podcast, veteran venture capitalist Aileen Lee sheds light on the significant consequences of the recent boom-and-bust cycle in the startup ecosystem. Many companies are facing challenges not only in recovering from excessive fundraising at unsustainable valuations but also in dealing with the absence of their once-supportive champions.
The Dilemma of Limited Partners
During her discussion, Lee highlighted the reluctance of limited partners (LPs) to criticize powerful fund managers. This hesitation stems from the fear of being excluded from future investment opportunities. Lee humorously speculated on what LPs might say if they could express their frustrations openly:
“Everybody wants to get into X brand name fund, and so they never will criticize them [for fear of repercussions]. They probably talk about us behind our backs [laughs]… But what they would say is that all the people who were hired at these venture firms during the ZIRP era made a bunch of crappy investments, and now they are being elbowed out.”
The Impact of Poor Investments
Lee emphasized that many of these investments have resulted in significant losses for LPs. She stated:
- Orphaned Companies: New investors often lack the necessary training and mentorship, leading to poor decision-making.
- Absentee Leadership: Some senior general partners have stopped participating in board meetings, leaving startups without guidance.
The Challenges of Startups Today
Lee pointed out that numerous companies have been left to navigate their challenges alone, which she finds alarming. The lack of due diligence during the rapid funding era, particularly during the COVID-19 pandemic, has contributed to this issue. As a result, many startups are now struggling to formulate effective exit strategies.
Calls for Accountability
Jason Lemkin, another seasoned VC, echoed Lee’s concerns, stating:
“Shouldn’t there be checks and balances? Millions are invested by pension funds and universities, and when you don’t do any diligence on the way in, and you don’t do continual diligence at board meetings, you’re abrogating some of your fiduciary responsibilities to your LPs, right?”
For more insights and to stay updated on the latest trends in venture capital, be sure to check out the StrictlyVC Download podcast, with new episodes released every Tuesday.
