VC Aileen Lee highlights how the broader investor exodus is worsening woes for unicorn companies

In the latest episode of the StrictlyVC Download podcast, experienced VC Aileen Lee addressed a significant issue resulting from the recent cycle of boom and bust: numerous companies are struggling to recover after raising too much money at unsustainable valuations, and they have lost the support of their former backers.

Lee highlighted how limited partners are hesitant to criticize influential fund managers for fear of being excluded from future investments. She imagined what they might say if they could speak freely:

“Everyone wants to be associated with well-known funds like X, so they avoid criticizing them [to avoid consequences] . . . they probably gossip about us behind our backs [laughs] . . . But what they would acknowledge is that the individuals hired at these venture firms during the ZIRP era made many poor investments, and now they are being pushed out – but it’s too late,” observed Lee. “All the LPs’ money has essentially gone to waste because the venture professionals didn’t stay long enough to see if the companies succeeded.”

Lee emphasized that it’s not the fault of newer investors. Many individuals were given investment authority without proper training or mentorship, resulting in numerous unsuccessful investments and orphaned companies.

Furthermore, Lee noted another concerning trend where senior general partners who led investments are still present at firms but have stopped actively participating in board meetings, leaving companies without necessary guidance.

This lack of oversight has been ongoing for some time, with insufficient due diligence during the funding frenzy of the Covid era. As a result, many companies are struggling to secure assistance with their exit strategies, prompting justified frustration from LPs.

As VC Jason Lemkin pointed out, the absence of diligence in board meetings neglects the fiduciary responsibilities to LPs who have invested significant funds. This lack of accountability raises concerns about the management of investments made on behalf of pension funds, universities, and other stakeholders.

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