The Hard Questions Most VCs Can’t Answer
And why founders should be concerned.
Venture capitalists love to say that vetting is important—that founders should ask them questions before taking investment. That the relationship between VC and founder is a partnership.
The most commonly suggested question? "How do you add value?" But this is the wrong question. Smart founders need to rethink how they evaluate VCs. The right questions aren’t about vague value-add claims—they’re about measurable performance.
The Real Question: How Much Does a VC Actually Care About Your Startup?
VCs are incentivized to invest in as many startups as possible, at the lowest valuation possible, to maximize their chances of betting on a 10x outlier (unicorn).
So what you as a founder need to unpack is:
How much—or how little—does your fund actually care about my startup as an individual investment?
The Questions Founders Should Be Asking:
- "When you make an investment, how often are you right? What is your win rate?"
- "What is your fund's win rate?
- Of the total number of investments you've made, how many are still alive?"
- "Do you measure your portfolio support and added value? How have you proven that you can help me?"
- "How do you allocate portfolio support resources? Do you have an internal portfolio ranking system, and do the top performers get 90% of your firm's attention?
- "How many founders have you helped exit in a way that was financially significant?"
- "How many of your seed investments go on to raise a Series A?"
But founders—be careful. The template VC boilerplate answers will tell you a lot, but even more is left unsaid.
The Typical VC Conversation
Founder: What’s your win rate?
VC: We invested in [big-name startup].
Founder: That’s not an answer. How many of your companies succeed?
VC: We have [X] unicorns.
Founder: But what about the rest?
For an industry built on evaluating risk and giving founders feedback, it's telling how few VCs can confidently answer these critical questions. If they can’t justify their track record, should they really be managing your future?
Why Does Venture Capital Ignore the Most Important Metric?
Venture capital is obsessed with the number of unicorns and major exits a firm has. When evaluating a VC, we ask: How many billion-dollar companies have they backed? How many IPOs or acquisitions have they secured?
But here’s the strange part—we rarely ask how often they actually succeed relative to their total investments. The metric that matters most in nearly every other form of investing—win rate—is almost completely ignored in venture capital.
Why This Double Standard Exists
If you were assessing a hedge fund, you wouldn’t just ask whether they made a few great bets—you’d ask what percentage of their portfolio generated returns. In private equity, fund performance is judged on IRR (internal rate of return) and MOIC (multiple on invested capital), which inherently factor in the entire portfolio’s performance.
Yet in venture capital, we celebrate firms with a handful of huge wins, even if the vast majority of their investments fail. A fund with three unicorns and 97 failed startups looks better on paper than a fund with a 25% exit rate but no billion-dollar companies.
The Problem with Ignoring Success Rate
This approach creates skewed incentives:
Encouraging spray-and-pray investing –
If only outliers matter, firms are incentivized to invest in as many startups as possible, hoping for a few mega-wins rather than supporting a portfolio built for sustainable success.
Overlooking strong but “boring” outcomes –
A $300M acquisition might be a massive win for founders and LPs, but it doesn’t move the needle on a VC firm’s reputation compared to a unicorn, even if it produces a better return on capital.
Misrepresenting actual skill –
Is a VC firm good at picking winners, or did they just happen to back a single generational company? A high success rate suggests strong investment judgment, while a single big win could be luck.
A Better Way to Measure VC Performance
The real question should be:
What percentage of a VC’s portfolio companies reach meaningful outcomes—profitable growth, strategic acquisitions, IPOs, or sustainable scale?
At Founder VC, we aim for a 25%+ exit rate in our portfolio, meaning at least one in four of our investments should lead to an event where both founder and investor make money.
That’s not just a target—it’s an acknowledgment that VC should be about systematically building successful businesses, not just chasing the next unicorn.
That's not just a target - that is a true partnership.
I bet on you and you bet on me, because together we have a higher combined chance of winning.
The best-performing early-stage VC firms, such as GV Ventures (23.86% exit rate), Bessemer Venture Partners (22.92%), and Insight Partners (22.68%), maintain win rates significantly above the industry average. By contrast, many funds have win rates in the low teens—or worse, single digits.
A large portfolio does not mean a firm is effective; in fact, it often signals a mismanaged portfolio where investors take a scattershot approach, hoping a handful of companies will cover the rest. Sustainable success comes from disciplined investment selection and proactive portfolio support, not sheer volume.
Shifting the Power Dynamic: Taking Control of the Conversation
The power dynamic between founders and investors is out of balance. These questions are a way to balance the conversation and put yourself back in the driver’s seat.
VCs give feedback for a living but rarely take hard questions.
Maybe the number one indicator of how successful your 'partnership' will be is simply how well the VC you're talking to answers your hard questions and takes feedback.
Final Thought: What Founders Should Do Next
- Ask these hard questions in every VC meeting.
- Push for real answers—don’t accept vague responses.
- Look at a firm’s track record holistically, not just their headline wins.
- Prioritize investors who actually care about your success, not just their unicorn count.
If a VC can’t answer these questions, that tells you everything you need to know. If they get defensive? That tells you even more.
Sources:
OpenVC. "Top VC Firms Ranked by Investment-to-Exit Ratio." OpenVC
Financial News London. "The Best Performing Venture Capital Firms."
PitchBook. "Global Venture Capital Performance Report 2024."
Lane Litz is a proven startup founder, operator, and venture capitalist with a track record of building, scaling, and investing in high-potential startups. As employee #6 at VIPKID, she helped grow the company to a $3B valuation. Later, as the CEO and Co-founder of Speakia, she navigated challenging market conditions to lead the startup to acquisition. Her time in venture capital gave her a front-row seat to the systemic flaws in traditional VC, inspiring her to found Founder VC. Now, Lane is reshaping the venture landscape with a founder-first approach, focusing on sustainable investments that deliver measurable value for both founders and investors.
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