Follow the Incentives, Not the Pitch Deck

VCs have access to non-public financials, board-level strategy, and real-time metrics across dozens of companies. They should be the best-informed investors in the market. They often still make consensus bets, following their peers into oversubscribed rounds.

The discipline is rare — contrarian bets take years to validate. As one operator at a top-tier venture fund shared with me (they preferred to remain anonymous): “It takes immense discipline to evaluate your thesis without being swayed by short-term noise.” Many don’t manage it.

Most founders, taking VC money, never trace the incentive chain far enough to understand what’s driving the people across the table.

The misconception: VCs all play the same game

They don’t. A small seed fund may exit via secondaries when portfolio companies raise subsequent rounds — their rational question is “what’s most likely to raise a Series A?”, which naturally pulls toward hot spaces. A large growth fund writing $50M checks needs truly enduring companies — it’s much harder to exit, let alone 10x, at that scale. Different fund structures, different incentives. The problem is when founders don’t ask which game their VC is playing.

The job requires a rare combination: humility about luck, clarity about the limits of their own expertise, and the discipline to act on their own data when the herd is moving the other way.

“Some of the best investors are extremely reflective about what part of their success they owe to luck, the limits of their knowledge, and are on a constant mission to fill those gaps.”

The best VCs come from decades in a specific industry — a strategic seat that gives them an unfair advantage in predicting where the market moves. But it’s a double-edged sword — the best also recognize when their own experience has become a bias.

And not all experts are equal. As they put it: “Asking your buddy who’s a VP at a relevant company is different from paying $1k to speak to an expert online. Not only are they more likely to share unique insights, but you’re also more aware of their biases.”

VC is the business of predicting the future. The best tend to know the right people, ask the right questions, and strip away biases — including their own — to distill signals from noise.

Not everyone agrees the average is even positive. Vinod Khosla goes further: “70% of investors add negative value to a company.” His argument being that “having an MBA doesn’t mean you’re qualified to advise.” Bad advice from a board member may be worse than no advice at all.

The arranged marriage problem

Taking VC money isn’t hiring a vendor, an employee, or a founder. It’s an arranged marriage with no divorce law.

There’s a gap between what VCs market, what they think they deliver, and what founders actually experience. The value of VCs lies in bundling capital, talent, and connections. The best VCs bridge that gap by going out to find resources they don’t already have. Most just redistribute what they already have.

The problem: you can’t tell which type you’re dealing with until you’re locked in.

What helps: seek out markets with a high concentration of funds. Competition forces better VC behaviors — a bad reputation in a dense ecosystem costs deals. Monopoly VCs in thin markets have no such upward pressure.

Follow the money

VCs are businesses. They take high risks using other people’s capital. Partners earn carry — a share of investment returns. The game is to invest in ten companies, hoping one returns 100x. That math explains everything: the herding, the swing-for-the-fences mentality, the willingness to let nine companies die.

But whose money is it?

Large endowments. Pension funds. Sovereign wealth. Family offices. These are the LPs — limited partners — and their incentives are different from the VCs they fund. LPs aren’t chasing high alpha. They’re preserving wealth: reliable beta, diversified exposure, long horizons. Their decision-makers earn salaries, not carry.

True diversification in venture happens at the LP level, not the fund level. Each VC pitches a specific thesis, but many end up making concentrated bets. It’s the LPs — holding positions across dozens of VC funds — who diversify. The VC is the concentrated bet inside someone else’s diversified portfolio.

Your VC’s incentive is to push you toward the 100x outcome, even when the 10x outcome is more likely and better for you. The LP backing them is fine either way — they have forty other funds. You don’t.

What to do instead

1. Understand the incentives. Do some due diligence on the VCs, too. How is their fund performing? Are you raising their next fund? What’s their ownership target? Better to ask awkward questions upfront.

2. Know what you need, then verify they deliver it. Some founders want customer introductions. Others want runway and operational space. Figure out what you actually need from a VC, then check whether they have a track record of delivering it — not just promising it. Fundraising is dating season: they’ll be on their best behavior.

3. Treat the relationship as permanent, because it is. Before closing a round, talk to founders who’ve been with the fund for years. It’s a multi-year relationship, until you exit or die. Their counsel: “Treat everything as a two-way process. Figure out who they are as people — the partner, not the fund — and whether you can see yourself working with them for the long term.”