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0 pointsturnsout1y ago0 comments

When a VC-backed company shuts down, it's usually because they weren't growing. You can only get to the next round of funding if you're still growing—otherwise you run out of runway.

I don't think profit plays a big role.

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parsimo20101y ago

Profit plays the biggest role, growth is secondary. Another round of funding is only necessary if they aren't profitable enough to sustain themselves on their own.

Although, as I think about it, maybe as an AI company nobody ever expected them to ever get to profitability so the only way to continue their existence was through continued funding.

pc861y ago

IMO the biggest detriment of VC-backed companies is that they can still get killed when they're profitable because they're just not profitable enough.

You found a company and own 100%. You get investment and bring on partners, you set aside 20% for employee shares, etc. All of a sudden there's a dozen owners and nobody owns 50%. You're profitable in the sense that everyone's payroll clears and you're making rent, with money left over, but it's not enough to invest in anything big, and the investors won't put up anything more because your growth has stalled.

Every investor who was previously your "partner" will be trying to shut the company down and sell it for parts.

VCs don't make their money by having a portfolio of companies throwing off $200k/yr in profit to a dozen different investors.

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