17. Large-scale investors care about their portfolio, not any individual company.

The reason startups work so well is that everyone with power also has equity. The only way any of them can succeed is if they all do. This makes everyone naturally pull in the same direction, subject to differences of opinion about tactics.

The problem is, larger scale investors don't have exactly the same motivation. Close, but not identical. They don't need any given startup to succeed, like founders do, just their portfolio as a whole to. So in borderline cases the rational thing for them to do is to sacrifice unpromising startups.

Large-scale investors tend to put startups in three categories: successes, failures, and the "living dead"—companies that are plugging along but don't seem likely in the immediate future to get bought or go public. To the founders, "living dead" sounds harsh. These companies may be far from failures by ordinary standards. But they might as well be from a venture investor's point of view, and they suck up just as much time and attention as the successes. So if such a company has two possible strategies, a conservative one that's slightly more likely to work in the end, or a risky one that within a short time will either yield a giant success or kill the company, VCs will push for the kill-or-cure option. To them the company is already a write-off. Better to have resolution, one way or the other, as soon as possible.

If a startup gets into real trouble, instead of trying to save it VCs may just sell it at a low price to another of their portfolio companies. Philip Greenspun said in ^{Founders at Work} that Ars Digita's VCs did this to them.