MISALIGNED INCENTIVES

Summary from the TLDR Founders newsletter

In the VC landscape, incentives between general partners (GPs) and founders are increasingly misaligned. While GPs once focused on maximizing carried interest (20% of profits), the growing size of funds has shifted their focus to management fees (2% annually), leading to a deployment-driven approach that may not align with founders' long-term success. This shift can result in overfunding early-stage companies and a more transactional relationship where GPs are less invested in the success of individual companies, especially during challenging times.