So at the end of last year, I made my biggest write-off ever at SaaStr Fund. $4 million to $0. Gone.
But here’s what’s wild: my co-investor in the exact same deal? He marked up his investment. From about $15 million to $30 million.
Same company. Same outcome. Completely opposite marks.
How is this even possible?
The “Acquisition” That Wasn’t Really an Acquisition
The startup was “acquired” for stock. All stock. No cash. The acquiring company is one of those moonshot plays where you could, I suppose, squint really hard and argue the combined entity might be worth $100 billion someday.
Could be.
Maybe.
But I couldn’t make that argument with a straight face. The startup we invested in was effectively dead. The “acquisition” was really just a soft landing — a way to give the founders somewhere to go and avoid the ugly press release.
So I did what I thought was right: I marked it to zero.
My co-investor? He looked at that same deal and saw an opportunity. Not an opportunity for returns — an opportunity for markups.
The VC Fundraising Game — When VCs Themselves Are Fundraising
Here’s what was really going on: my co-investor was raising his next fund.
And when you’re raising a fund, your marks matter. LPs look at your TVPI (Total Value to Paid-In). They look at your unrealized gains. They want to see a portfolio that’s growing, not shrinking.
So when this “acquisition” happened, he had a choice:
- Mark it to zero and take the hit to his track record right before fundraising
- Mark it up based on the theoretical value of the stock he received
He chose door number two.
That paper markup — from $15M to $30M — helped him tell a better story to LPs. It helped him raise his next fund.
He also voted for the deal, even though it was effectively a zero for everyone involved. Why? Because he needed that acquisition to happen to justify the markup.
This Is How Incentives Actually Work in Venture
I’m not saying my co-investor is a bad person. I’m saying he responded rationally to his incentives.
And that’s the point.
When a VC’s incentives diverge from yours as a founder, things get weird fast.
Here are a few ways this plays out:
Markups vs. Reality. VCs can mark their portfolios however they want, within reason. There’s no central authority checking. A VC who needs to show momentum for fundraising has every incentive to be… optimistic. A VC who doesn’t need to raise again can afford to be brutally honest.
Voting for Bad Deals. Sometimes a VC will vote for an acquisition or merger that’s clearly bad for common shareholders — because it creates a paper outcome they can point to. “We had an exit” sounds better than “we wrote it off” even if the economics are identical.
The Fund Timeline Problem. A VC with a fund that’s 8 years old and needs to show returns is a very different animal than a VC with a fresh fund and a 10-year horizon. The older fund VC might push you toward a mediocre exit. The newer fund VC might push you to swing for the fences when you shouldn’t.
Ownership vs. Outcome. Some VCs care more about maintaining ownership percentage (for bragging rights, for fund marketing) than about the actual dollar outcome. They’ll pressure you to avoid dilution even when raising more money is clearly the right call.
What Founders Should Know
1. Understand where your VCs are in their fund cycle.
Ask directly: “When did you raise this fund? When do you need to raise your next one? How is this fund performing?” A VC raising their next fund in 12 months has very different incentives than one who just closed.
2. Know that marks aren’t real until they’re liquid.
When a VC tells you your company is worth $500M based on their internal marks, take it with a massive grain of salt. The only mark that matters is when someone actually writes a check — or when you sell for cash.
3. Watch how they vote, not what they say.
A VC can tell you all day that they’re “founder-friendly” and “long-term oriented.” But when a crappy acquisition offer comes in, how do they vote? When you want to raise a down round to extend runway, do they support it or block it?
4. Diversify your investor base.
If all your VCs are at the same point in their fund cycles, their incentives will all be aligned — with each other. Not necessarily with you. Having investors at different stages creates natural checks and balances.
5. Get things in writing.
Handshake agreements about “we’ll always support the founders” mean nothing when incentives shift. Protective provisions, voting rights, and governance structures are what actually matter.
Accounting Can Drive Outcomes
Look, I’ve been doing this for a while. I’ve seen a lot of deals, sat on a lot of boards, watched a lot of outcomes.
And here’s what I’ve learned: VCs are not your friends. They’re not your enemies either. They’re your partners — partners with their own incentives, their own pressures, their own fund dynamics.
The best VC relationships happen when your incentives are aligned. When you’re both trying to build a massive, generational company. When their fund timeline matches your company timeline. When their ownership position means they win big only if you win big.
The worst VC relationships happen when incentives diverge. When they need a markup and you need more runway. When they need an exit and you need more time. When they need to show activity and you need patience.
That $4M write-off? It stings. But I’d rather take an honest zero than play games with marks to juice my next fundraise.
Because at the end of the day, the only returns that matter are the ones where actual cash comes back to LPs.
Everything else is just a story VCs tell themselves — and their investors.
