In essence, if the startup is slowing down and perhaps not going anywhere, then the standard existing deal with founders where the founders can cash out only if they enable to VCs cash out at a profit (for example, if they manage to pull out all the stops to make a failing startup look attractive to some bigger fool) is exactly what VCs want, and in such a situation the founders have no leverage to extract a compromise that's worse for VCs.
What to you (and pretty much anyone else) looks like a business that just needs adjustments to reach profitability, to the VCs it's profile maintenance work for little relative benefit in the long-term. The chances of that company turning 10-20x profits in the next few years is basically zero and they just cut their losses (in their view).
I can easily imagine an alternate reality where VCs invest more thoughtfully based on more careful analysis of companies and they would have a much higher success rate and end up with even higher returns without creating unsustainable wealth inequality.
Unlikely. The problem of that view is that, when you're handling large uncertainty, you don't know which projects are the ones you should cancel and which ones to nurture. Past performance is a terrible indicator for lucky shots.
See the Talent-Luck simulation for instance.[1] You measure a population of projects affected affected by random events and profiting proportionally to talent, and the projects that end better off are the ones that chain multiple beneficial lucky strikes, with talent having little influence past a minimum level.
And the way to maximise gains over the whole population is setting a small flat subsidy for all, allowing everybody to explore their talent even after a wrong turn.
1 https://www.inc.com/chris-matyszczyk/so-youre-smart-but-your...
I don't think that's what VCs did. It looks more like they dumped millions of funding on a tiny number of hand-picked companies and used short term traction as the main metric and they equated profitability as anti-growth, failing to realize that, without demanding profits, growth could be produced artificially using money/advertising and that it doesn't mean that users actually want to use the product in the long run.
Profitability is how you know that users want to use a product; otherwise a company could just 'launder' investment money to their users somehow and of course nobody will refuse free surplus value and hence they will attract users... Until the investment money runs out and the surplus value stops being handed out to users.
Just think of Uber investors subsidizing rides as an example, as soon as that subsidy goes away, there's a good chance it will start declining. Uber is still unprofitable.
TIL a new term :-)