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Writer's pictureRudolphe Michau

On Dealing with Low-growth VC-backed Companies



Mark is a US-based investor who has been a GP in the venture capital game for more than 30 years. He has consistently generated returns, giving back over $30 billion to his LPs through various investment vehicles.


As I spend more time around successful individuals like Mark, I’ve realized that their success, particularly their consistency, is rooted in their self-awareness, enabling them to focus on what truly matters.


I am grateful for the chance to have such close access to Mark, thankful for his willingness to share his intellectual property, and even more grateful that he let me share it with you as long as his identity is protected.


I met Mark over lunch during his business trip to Amsterdam. My objective was to learn his perspective on the worst outcome an early-growth investor can face regarding an investment. 


The best insights often come from hard-earned wisdom born out of failure and painful experiences. 

However, I didn’t ask him this question at the beginning of our lunch because the quality of his answer would depend on whether he found me worthy.


Most people don’t share their personal insights and unique strategies out of kindness; they treat this knowledge as their intellectual property and only share it with those they see as equals. 


One of my mentors once told me that being perceived as an equal to people with objectively more status (wealth, popularity, power) than me is about demonstrating that I had a much higher level of awareness than they did when they were at the same stage of development.


Therefore, on my end, the beginning of our lunch was focused on increasing my status. Once I felt I had established enough credibility, I asked Mark about the worst outcome an early-growth investor could face. He immediately frowned, sensing my desire to tap into his hard-earned wisdom. 


Instead of answering directly, he asked me what I thought. I answered immediately: 


“Dealing with zombie companies.”


Then I paused, waiting to see if I had intrigued him. He asked me to elaborate.


I explained that a zombie company is a VC-backed company that has experienced stalled growth for two to four quarters, making it unable to raise more money or provide a venture-quality return. 


I continued, stating that it’s one of the most challenging situations for him because:


  • He can only sit on a limited number of boards and still be effective, so when he believes an investment is a zombie, he wants to sell and move on.

  • However, he must still put significant energy into these zombies to maintain his reputation and brand.

  • Selling in this context is difficult because a large gap exists between value expectations (post-money valuation, preferential liquidation, etc.) and the intrinsic value of a low-growth, sub-scale, breakeven software business.


Then I paused. 


I saw his face light up, and he even smiled benevolently. 

He highlighted that his brand was the key to his professional life. It’s his brand that enables him to work again with the people he wants.

He actually measures his success by the willingness of past founders to work with him again. 


To him, the worst-case scenario for investors is when first-time VC-backed founders who fail to achieve venture-style returns don’t make a second attempt. 


This means all the invaluable lessons they’ve learned, which could produce future economic value, are lost.

He finished by pointing out that it’s a shame for the money invested and the economy. To him, the investor has a direct responsibility for this outcome. 


I was already grateful for his answer, but I wanted more. We had five minutes left to finish our coffee, so


I dared to ask him one more question: why don’t first-time founders try again?


He stared into my green eyes for ten whole seconds as if determining whether I was worthy of his answer. It felt as long as the last ten seconds of a stability exercise.


Then, he began to explain that as a series B investor, his job is to back companies on their early growth journey from $3 to $10 m. He mentioned that only one in ten startups that reach $1 million ARR will reach $10 million ARR, usually taking 2–3 years to do so.


He went on to describe what these 2–3 years typically look like:


  • Year 1: During this year, companies develop their sales playbook, establish use cases, and define ideal customer profiles while executing their product vision. They generally grow from $1 to $3 million in ARR, supported by Series A investors.


  • Year 2 and 3: This is where Mark comes in to support the companies. This delicate 18–24 month period involves building the business and organization. After reaching $5 million ARR, scaling becomes increasingly challenging as startups need to add more ARR in absolute terms incrementally. During this period, the company transitions towards a sales-driven organization, with sales and marketing overtaking R&D as the primary cost driver.


Companies that experience flat to negative growth for two to four quarters after reaching $5 million ARR often do so because their go-to-market (GTM) engine serves several ideal customer profiles (ICPs) and addresses various use cases. 


This situation leads to a scattered product roadmap, defocused GTM efforts, and a stressful environment. It also creates a highly challenging environment for the sales team, as they must:


  • Sell to multiple, diverse ICP

  • Consult and solve various use cases

  • Get an uncertain amount of messaging right

  • Navigate different sales processes and playbooks.


When this happens, scaling down the team is traumatizing for founders. Additionally, they must exert immense effort to regain GTM momentum. 


This is where survivor bias kicks in. While some companies successfully overcome these GTM challenges, it often results in burned-out founders. 

When investors have to exit, the outcomes of these M&A transactions often don’t reflect the founders’ sacrifices and the heavy mental loads of frustration they endured over the past 24 to 36 months.


That’s when the risk of the worst outcome is highest, as founders may choose to stay in corporate roles to rest instead of taking entrepreneurial risks, or they may become consultants, coaches, or build accelerators and incubators.


He concluded by explaining that his success as an investor came from educating his founders about exit strategies, making exits an attractive option and preventing them from burning out while trying to fix GTM deficiencies, keeping them motivated to jump back into the game.


As a result, he had the chance to lead the seed rounds for these failed first-time founders. Even as a Series B investor, he justified these investments to his LPs by pointing out the valuable GTM insights gained from their failures. In the end, his greatest returns came from these investments.


However, he was careful not to back the multi-million pre-seed rounds of successful first-time founders; instead, he invested in the single-digit million seed funds when companies reached $1m ARR through bootstrapping, indicating the founders’ ability to deliver with fewer resources.


Most investors either don’t allocate time, forget altogether, stay emotionally detached, or pressure founders to solve GTM problems. His success comes from betting on the lessons learned by first-time founders making a second attempt — he truly bets on the people.


Thanks for reading!

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