[nmfisher]

> How? The startup still need VCs for funding.

For precisely the reason you set out in your second paragraph.

Assuming your startup is in the VC bucket to begin with, you have two choices when you start floundering. Either ask for more money, or shut it down.

The latter practically guarantees you leave with nothing, so naturally, you prefer the former. This means VCs are almost always in a position of leverage to extract a larger share/more onerous terms/etc.

With a stake in a founder pool, "walking away" becomes a much more attractive option. You already have some baseline value that makes you far less reliant on whatever opportunistic VC you're in bed with.

[geoburke]

Here, walking away doesn't leave the entrepreneur wealthy, but we hope, covers some opportunity cost. A safety net. This can provide a source of strength in VC negotiations as well as a foundation for the founder to make calm, rational decisions rooted in long term success.

[geoburke]

Interesting take. Makes sense if the timeframe for startup success (profitable exit) was as truncated as startup death. Startups either die, show signs of dying, or get acqui-hired much more quickly than the startups that guarantee's (practically speaking) successful exit.