It comes from a concern that VC backed investments demand a constant level of revenue growth, causing a company to add features or integrations that do not improve the base product. Organic growth is usually insufficient for stockholders, whose demands become a priority over stakeholders.
If the user base does not increase at some rate determined by the investor, then growth comes in the form of advertising, partnerships, or similar that negatively affect the _product_ existing customers signed up for.
This does not stem from VC but from the “C” itself - capital. In order to function in capitalism, production must facilitate the creation of surplus value that can then be appropriated. Over time, with the tendency of the rate of profit to fall and with inflation of prices, you will see a race to the bottom.
The issue is that there are a large number of products/companies (I think the vast, vast majority) whose addressable market size isn't that big, but when they take VC money they do all types of unnatural things to try to grow instead of focusing on the couple things they were really good at. Couple cases in point:
1. Totally agree with the comments that VC funding absolutely killed LastPass.
2. Twitter is probably another good example. Twitter was a really large business, but they were constantly wringing their hands about what they could do to get as big as Facebook or Instagram. What if the answer was always just "No, you'll never be that big, just don't even try". So instead of improving their core bread-and-butter (and fine, easy to argue they didn't even do that super well), they wasted a ton trying to get users who were never going to use Twitter in the first place.
3. Very closely related to this idea about "When large sums of money become toxic", the private equity consolidation in US health care is another ongoing disaster. PE comes in with the promise of "streamlining operations", but instead they are just vampires, cutting stuff to the bone so that the health care system isn't able to respond to spikes in demand (e.g. Covid): https://www.statnews.com/2022/12/14/moodys-private-equity-he...
craigslist famously rejected taking outside money for years.
But more importantly, I don't think VC or VC money is always bad, but I get extremely wary when a relatively small company gets a shitload of money that they'll then be forced to grow into a way that means they'll lose focus on their core product.
I remember when I told a friend of mine that Postman raised nearly half a billion dollars in total funding, and his jaw dropped "You mean that browser plugin that allows you to make REST calls???" And sure enough, postman got filled with more and more "enterprise-y uselessness" to the point that I just stopped using it.
> but I get extremely wary when a relatively small company gets a shitload of money that they'll then be forced to grow into a way that means they'll lose focus on their core product.
Irrationally so. That's my point. There isn't a strong indicator that correlates to a company being a craigslist vs a company being a Postman. The median is somewhere in between and its not as dire as you pose it to be.
Or it could be that the probability of having to do anti user things to earn an ROI for a $100M investment into a password manager is too high.
$100M to develop a new processor or phone or vaccine or search engine or social network that delivers video to everyone worldwide is different than $100M to a password manager or other “simpler” project.
If the user base does not increase at some rate determined by the investor, then growth comes in the form of advertising, partnerships, or similar that negatively affect the _product_ existing customers signed up for.