Founders First: Equity Above Everything — Unpacking the Venture Capitalist Paradox
The venture capital (VC) world thrives on a paradox: while it professes to back visionary founders and game-changing ideas, its actions often undermine the very principles it claims to uphold. Despite being instrumental in shaping some of the biggest tech successes of our time, the industry has developed habits and structures that favor control, profit certainty, and insiders over bold risk-taking. As we dissect this paradox, one thing becomes clear: founders and startups must look beyond VCs for funding models that preserve equity and autonomy.
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A Brief History of VC Returns
In the 1970s and 1980s, venture capital was synonymous with high risk and equally high rewards. Firms like Sequoia Capital and Kleiner Perkins pioneered an industry where early bets on companies like Apple and Genentech led to staggering returns. Back then, the promise of funding ideas rather than metrics created an era of innovation-driven wealth. Fast forward to today, and while VCs still boast solid returns (averaging 20–25%), these are a far cry from the exponential gains of earlier decades.Why? The industry has shifted focus.
Modern VCs increasingly look for startups that have already de-risked themselves. They lean on proven revenue streams, established product-market fits, and scalable operations — ironically, the hallmarks of a business that may not even need venture capital. In doing so, they act less as risk-tolerant investors and more like private equity firms with a penchant for early-stage branding.
Success stories like Facebook, Tesla, or WhatsApp capture our imagination with their meteoric rise to billion-dollar valuations. They’re celebrated in headlines, business schools, and the startup ecosystem as the ultimate goal for entrepreneurs.
But here’s the reality check: these are outliers (Pitchbook, CB Insights):
- Unicorn/IPO likelihood: ~1%
- ~70% of acquisitions: under $100M
- Median M&A deal size: < $50M
For every Facebook, there are thousands of startups that quietly shut down. For every Tesla, there’s a graveyard of ambitious ideas that didn’t make it. And for every WhatsApp, countless apps fail to gain traction or turn a profit. The billion-dollar exit isn’t just rare; it’s statistically improbable.
While these unicorns fuel the dream of entrepreneurial success, they can also skew expectations, creating a pressure cooker environment where anything less than a billion-dollar valuation feels like failure.
Even Fortune Magazine’s article ‘The era of free money is over, and unicorns are paying the price’ articulates this nicely.
The Inner Circle: Nepotism in Investment Decisions
Another systemic issue lies in how VCs choose their investments. Data shows that venture capitalists disproportionately fund individuals within their networks — former colleagues, alumni from prestigious schools, or referrals from trusted insiders. While network trust has value, this approach perpetuates a cycle of exclusivity and limits opportunities for diverse, unconventional founders who lack these connections.
The ‘VC Bro Club’ is very real and it is hurting limited partner (LP) returns on innovation investment.
The irony is palpable. VCs often tout diversity as a priority, yet their reliance on insular networks leads to homogeneous portfolios. Less than 2% of VC capital went to female founders in 2024 and if you are a female person of color, that number is smaller than measurable. Beyond the ethical concerns, this narrow focus stifles innovation by ignoring fresh perspectives that could challenge the status quo.
Resistance to Founder Autonomy
Perhaps one of the starkest contradictions in the VC narrative is their stance on founder control. Venture capitalists frequently state they “invest in founders,” emphasizing trust in the leadership and vision of entrepreneurs. Yet, this trust seems conditional — especially when founders push for supermajority voting rights or maintain significant equity stakes. The term “founder-friendly” becomes an empty slogan when these same founders are asked to relinquish control in favor of VCs and their board appointees.
For founders, the promise of capital often comes at a steep price: their ability to steer the company they built. The increasing frequency of founder removals underlines the inherent power imbalance. According to the World Economic Forum, 20% of founder-CEOs are replaced within three years of receiving venture capital funding (https://www.weforum.org/stories/2020/02/righting-power-imbalance-funders-ngos/)
This stat supports the notion that founders often face a significant power imbalance and risk of removal after accepting external capital, highlighting the tension between founders’ control and investors’ influence in startup governance.
Customer ‘Non-Dilutive Funding’: The Underrated Alternative
So, where does this leave startups that are determined to maintain their autonomy? The answer lies in customer funding. Unlike venture capital, customer funding is non-dilutive — it doesn’t require founders to give up equity or control. Instead, it relies on delivering products or services that directly solve problems for paying customers.
Customer funding has three significant advantages:
- Product Validation: By earning revenue early, startups prove their product-market fit, ensuring they’re solving real problems.
- Market Insights: Direct customer feedback shapes the product roadmap in ways that no boardroom discussion can replicate.
- Preserved Equity: Founders retain ownership, setting the stage for long-term value creation.
Startups like Mailchimp, Midjourney and Patagonia are prime examples of what’s possible with customer-funded models. These businesses have grown sustainably, reinvesting profits into their vision without diluting their founding teams’ stakes.
The Role of Customer Funding in Shaping the Future
As founders increasingly turn to customer funding, a powerful shift is occurring in how businesses are built. This model doesn’t just preserve equity; it also aligns the company’s success with customer satisfaction. Unlike traditional funding, where the pressure comes from boardrooms, customer-funded startups are accountable directly to their users. This creates a virtuous cycle of innovation and growth driven by genuine market needs.
For example, consider the rise of direct-to-consumer (DTC) brands. Companies like Warby Parker and Glossier initially bypassed traditional funding routes by focusing on customer relationships. Their ability to scale while maintaining control demonstrates the viability of alternative funding strategies.
Why This Matters
The current VC model isn’t broken, but it is misaligned with the needs of early-stage founders. As VCs shift toward safer bets and metrics-driven investments, their value proposition for high-risk, high-reward startups diminishes. Founders need to approach funding with a “Founders First, Equity Above Everything” mindset, prioritizing capital sources that align with their long-term goals.
“Founders First, Equity Above Everything”
A Call to Action for Founders
If you’re a founder, consider these steps to chart a funding journey that works for you:
- Focus on Product: Build something people love and are willing to pay for.
- Start Small: Customer funding, crowdfunding, or pre-orders can generate early revenue.
- Negotiate Smartly: If you must take VC money, protect your voting rights and equity position.
- Read the following books BEFORE taking VC capital: Secrets of Sandhill Road and Venture Deals
- Network Strategically: Cultivate relationships with diverse investors who align with your values.
The Path Forward
Venture capitalists play an essential role in the startup ecosystem. However, their current trajectory favours predictability over innovation, control over collaboration. Founders must navigate this landscape with eyes wide open, understanding that VCs are not the only path to success.
By embracing customer funding and prioritizing equity preservation, founders can build businesses that are both financially sustainable and true to their vision. In the end, startups don’t just need capital — they need partners who believe in their mission as much as they do.
Founders at a Crossroads: Reclaiming the Narrative
The VC ecosystem is at a crossroads. As more founders recognize the trade-offs of accepting venture capital, a new narrative is emerging — one centered on reclaiming power and autonomy. The hard truth is that while VC funding can accelerate growth, it often comes at the expense of the founder’s original vision. Understanding this dynamic is critical for any entrepreneur navigating the early stages of their startup journey.
Building a Founders-First Ecosystem
The future of innovation demands a shift in how funding is approached, not just by founders but also by the broader startup ecosystem. A founders-first approach can revolutionize how businesses are built, enabling long-term sustainability without sacrificing equity or creative control. This vision requires a collective effort from all stakeholders:
Alternative Capital Sources:
- Revenue-Based Financing: Allows founders to repay funding from their revenue, ensuring flexibility without diluting equity.
- Angel Investors: Individual investors, often former founders, bring not just money but mentorship and a genuine alignment with founder priorities. Use SAFE notes to kick the valuation conversation down the road.
- Crowdfunding: Platforms like Kickstarter and Republic democratize investment, letting startups raise money directly from their communities.
- Grant Funding: Government, University, Blockchain or other development grants can provide great sources of exposure in addition to non-dilutive capital.
VCs Need to Evolve
It’s not just founders who need to adapt. For venture capital to remain relevant and impactful, the industry itself must evolve. Here are three key shifts VCs should consider:
Diversify Investment Pipelines:
- VCs must actively expand their networks beyond traditional circles, creating opportunities for underrepresented founders.
- Firms that prioritize diversity have been shown to generate higher returns — a win-win for all.
Support Founder Autonomy:
- Instead of seeing supermajority voting rights as a threat, VCs should recognize them as a safeguard for founder-led innovation.
- A partnership model built on mutual respect and shared vision fosters long-term value creation.
Return to Risk-Taking:
- The industry must remember its roots: taking calculated risks on unproven ideas with transformative potential.
- By funding bold visions, rather than chasing SaaS metrics, VCs can reignite the spirit of innovation that once defined the sector.
Use AI to take out the decision bias:
- By leveraging new AI technologies, VCs can try and reduce bias from sex, geography, skin colour and nepotism and focus on the likely outcome of greater success.
A Final Word: Founders Over Formulas
At its core, entrepreneurship is about challenging norms and rewriting rules. For too long, the VC model has dominated the startup narrative, often sidelining founders in the process. By championing approaches that prioritize equity and autonomy, we can create a more inclusive and innovative ecosystem.
Founders, the power lies in your hands…remember money is a commodity, your idea is not. The road may be harder without VC backing, but it’s also richer with possibility. Remember: your vision, your equity, and your mission are worth protecting. Build your business for the people who matter most — your customers, your team, and yourself. The future of innovation doesn’t belong to venture capitalists; it belongs to you, they are there to fund your vision and be helpful if possible, otherwise, get out of your way. Your responsibility as a founder is to keep the channels of communication open at ALL TIMES and do your absolute best to provide great financial returns for your shareholders (founders, employees and investors).
About me: My purpose in life is to inspire and educate leaders to think and act in a socially, economically and environmentally responsible way. I am the co-founder of Emulator DJ, METAVRSE, Your Director AI, Lawfully Minded and co-author of a new book called ‘2030: 5 Decades of Transformation in Only 5 Years’ coming out in 2025.
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