Clouded Judgement 10.25.24 - Misaligned Incentives

Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date! Misaligned Incentives In the venture capital world, there are largely 3 constituents: The GPs (investors), the LPs (pension funds, endowments, universities, family offices, sovereign wealth funds, etc who give money to GPs), and founders (portfolio companies). In the early days of venture capital, it felt like the incentives were all quite aligned between these 3 groups. Win together, lose together. There were even specific mechanisms introduced in the GP - LP part of the equation to ensure this - the GP commit. This is the amount of money the partners themselves commit to the fund, oftentimes expressed as a percentage of the overall fund size. As a GP, if your own money was at stake, you’d put more thought into every individual investment. Today, I want to talk about the GP - Founder leg of the equation, and how the incentives are diverging. I think it’s an important dyna

Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date! Misaligned Incentives In the venture capital world, there are largely 3 constituents: The GPs (investors), the LPs (pension funds, endowments, universities, family offices, sovereign wealth funds, etc who give money to GPs), and founders (portfolio companies). In the early days of venture capital, it felt like the incentives were all quite aligned between these 3 groups. Win together, lose together. There were even specific mechanisms introduced in the GP - LP part of the equation