Sequioa, who invested in FTX quite loudly, reported to their LPs that they only lost 150MM in their fund that had 7.5B in realized gains. Going off their letter they took 5B and turned it into 12.5B for a return of 150%[0].
After this spectacular blowup barely put a dent in their returns, why would LPs demand anything? Sequioa will just tell them "hey it's the name of the game, there are some losers who go bankrupt and winners who return the entire fund several times over".
If Sequioa took a massive markdown on FTX that would be a different story. However they came out unscathed and looks like they are managed well despite fellating SBF quite openly. What would you even demand of them given that they didn't lose much money? They probably lose even more money on companies that end up just not being successful in the first place. You can't ask them to not invest in risky business, thats the whole point of VC.
[0] Could be misinterpreting the letter, they said FTX was 3% of commited capital, 150M / 3% = 5B, and they had 7.5B of realized and unrealized gains.
I generally agree, but it's not "people," it's institutional funds (endowments, pension funds, etc). The way venture returns are distributed is that a small number of funds (of which Sequioia has historically been one) stand out from the rest in terms of returns. With the lengthy bull market that we have had until this year, VC was a high-performing asset class. Pension fund and endowment managers felt they needed to be in the asset class, which really meant being in those top 10 or so funds that were generating outsized returns. When LPs are competing to get into a few top funds, the funds have all the leverage. My sense is that LPs don't feel like they can make any kind of demands on the VC funds, for fear of being blocked out of investing.
Now we have a market turn and VC is unlikely to sustain the returns of the past decade. That may shift the leverage, but history suggests that LPs will still not put any kind of meaningful pressure on the top funds to do anything different.
I mentioned this is another reply, so sorry for anyone who reads both.
I would read Mallaby's history of the VC industry to see why this isn't possible. Around 1997 the balance of power shifted heavily in favour of founders (this is when dual-share class) started, and they stopped demanding seats on the board.
Iirc, Sequoia was a firm that held out (along with other old-style funds), they missed out on a lot of companies over the next ten years so ended up racing to the bottom...this is how we got here.
Btw, just on corporate governance...it is the most important factor for a company. A lot of the issues with corporates we have today are due to poor oversight from shareholders (not helped by passive). If corporate governance isn't working, capitalism won't work either.
After this spectacular blowup barely put a dent in their returns, why would LPs demand anything? Sequioa will just tell them "hey it's the name of the game, there are some losers who go bankrupt and winners who return the entire fund several times over".
If Sequioa took a massive markdown on FTX that would be a different story. However they came out unscathed and looks like they are managed well despite fellating SBF quite openly. What would you even demand of them given that they didn't lose much money? They probably lose even more money on companies that end up just not being successful in the first place. You can't ask them to not invest in risky business, thats the whole point of VC.
[0] Could be misinterpreting the letter, they said FTX was 3% of commited capital, 150M / 3% = 5B, and they had 7.5B of realized and unrealized gains.