The founders personal problems have nothing to do with the business. Venture capitalists are investors, not life partners. You are rewarded for success, not effort.
The founder's personal problems have everything to do with the business. If a founder's life falls apart, then it's the business that will suffer. Keeping founders poor is a great way to make an investment more risky.
What percentage of the founder/investor drama you read about on HN comes from misunderstandings about that basic fact? 90%?
You can imagine a better world in which everyone worked together as a team to the betterment of all involved, but the reality is that you are in business, and there are going to be times when business doesn't give a sh#t about your problems.
I think this gets overlooked because we read a lot about a very specific investor who seems unusually attuned to the well-being of its investments. But they do that because it makes very good business sense, and because they've rigged their model so that the success or failure of any one investment is much less impactful than it would be at Battery Ventures; they have less incentive to be ruthless.
Well he is pretty replaceable...
A founder's personal life becomes relevant the moment it affects the successful management of the company.
Don't forget, most VC funds make 1-4 investments per partner/year, invest huge sums of money, invest at a point where the business has a life beyond the founder, and require a home run return to move the dials.
Graham invests in many tens of companies per year. He invests a small amount of money. He invests at a point where there is nothing but the founder. And he's thrilled with Wufoo.
Should more firms invest the way YC does? Maybe, but remember that many YC companies depend, at the DNA level, on eventually getting an investment from a major VC.
As the article points out, there can be sensible reasons for letting the founders cash out. The conflict between early exit (that sets the founders up for life) and risky home-run (that meets the numbers the VC needs) is classic. I saw it firsthand in the last startup I worked for. It caused a palace coup that replaced the management team. I understand the issue.
But what does that have to do with the question I responded to? Sorry, it's not despicable for investors to focus on their investment and not the personal problems of founders.
(If I'm wrong about what you meant, let me know and I'll delete this comment; I'm not trying to be antagonistic.)
Meanwhile, note two things: first, that you may in reality be a lot more replaceable than you think you are, and second, that you are almost certainly perceived as being a lot more replaceable than you perceive you are.
As soon as you sell board seats, the question of your ruthless replacement stops being a moral issue and starts being a business issue. Venture capitalists aren't investing their own money. It is the case that their absolute most important priority is the protection of their investors money.
I think the fundamental issue here though is that there are massive costs of having an under-performing head founder. Replaceability is a massive risk (bad replacement, moral, public image, learning periods, etc.) compared to what it costs to keep the original CEO happy and driving hard toward the dream - assuming they're good in that position in the first place.
I think I'm still on the side of letting the founders take some money off the table, but not satiate their hunger. I like Mark Suster's article on this:
http://www.cloudave.com/1616/should-founders-be-allowed-to-t...
(a) Because he is addicted to arguing about things on Hacker News.
(b) Because he takes pleasure in pointing out how ruthless the venture capital funded startup environment actually is.
(c) Because he believes that people who factor their blood, sweat, and tears into how they should be treated by investors have set themselves up for otherwise avoidable heartbreak.
(d) All of the above.
The question being begged is whether these two things are positively, negatively, or un-correlated. That has a whole lot to do with the logic of making the investment in the first place.
So, setting aside the "despicable" question, is it rational to invest in a startup where the founders have tons of credit card and student load debt, or planning a wedding they can't afford right now, without also putting some money into alleviating that pain? Do crushing financial burdens make founders "hungry," "panicked," or somewhere in between?
I think those are more interesting questions.
Now restrict your perspective to the stages of these experiments that A-round investors like Battery or First Round or DFJ concentrate on. In other words, stipulate that we're not talking about firms like YC that invest in 30-50 pairs of individual people they like every year.
What are the assets of these companies?
Yes, the founders are assets.
But so is the total team.
And so, to an even greater extent, are the proprietary results of the customer discovery/validation experiments they've been running.
And so, to an even greater extent than that, are the customers they have managed to close (or more broadly the "market traction" they've achieved) in the course of conducting those experiments.
And so is inventory, so is brand value, so is the core idea, so is the foothold in the market, so is the framework code they've built and the expertise in extended it, and so on.
Against all these assets, what's the real pragmatic cost of replacing the rare founder whose incentives have flipped so totally against the investors that he will drag the company away from the home-run outcome the investors need so he can salvage his personal life?
Now what's the cost of simply not giving a founder bonus money that itself might pose the risk of allowing the founder to disengage, consider a new startup, become obstinate in board meetings, etc?
I don't know, but I can see sane arguments in both directions for not giving VC founders liquidity.
The nice thing about not taking VC this time around: I don't have to give a shit. =)