Rebuilding Venture Capital: A focus on Enduring Value

Guest contribution

Dan Winter

Founding Partner, Arbor Capital

Dan Winter, Arbor Capital

After nearly a decade of investing in venture capital and critically observing its evolving dynamics over the last five years, a growing conviction has emerged that the traditional venture capital model is fundamentally flawed.

The critique of the traditional venture capital model is not aimed at its ambition but rather at the funding structure itself, which often misaligns incentives and leads to unintended consequences. The "growth at all costs" approach can result in broken companies, disillusioned entrepreneurs, and an underperforming asset class—all in pursuit of a single multi-billion-dollar outcome.

Years of observing the venture capital landscape revealed a system ripe for disruption. While traditional VC has fueled remarkable innovation, it often prioritizes rapid scaling toward an eventual exit. This emphasis has led to businesses designed to scale quickly rather than businesses built to endure.

One of the core issues lies in the typical venture fund structure. Limited Partners (LPs) invest with expectations of significant returns within a fixed 10-year period, encouraging fund managers to make numerous high-risk bets in hopes of securing one major winner. This pressure cascades down to portfolio companies, pushing them toward rapid growth regardless of the capital required or its impact on shareholder value.

My recent discussions on this topic, including a series titled "Rethinking Venture", delve deeper into why the traditional venture capital approach is fundamentally flawed. Two key issues stand out:

• Misaligned Timelines: The 10-year fund lifecycle imposes artificial deadlines on companies that may need more time to reach their full potential. Founders are often pressured into decisions that prioritise short-term gains over long-term value creation.

• Focus on "Unicorns": The fixation on identifying billion-dollar "unicorns" leads to neglecting solid, profitable businesses that may lack explosive growth potential but offer steady, sustainable returns.

The next unicorn is unlikely to be an overnight success - it takes time, and extremely patient capital. Image Credit: Google/Gemini Image Generation

In response to these systemic flaws, an alternative approach has emerged with a focus on building enduring companies—businesses designed to last. This philosophy advocates for founders and companies committed to long-term growth with financial and economic sensibility in mind. Ironically, this mindset can also lead to higher investment returns.

Several core principles define this approach:

• Patient Capital: A long-term perspective that avoids artificial timelines. This allows support for companies across different stages of growth and market cycles.

• Profitability & Sustainability: While backing companies with true outlier potential remains possible, the focus is on businesses with strong fundamentals and a clear path to profitability rather than solely chasing explosive growth.

• True Partnership: Interests are aligned with founders by providing strategic guidance and operational support alongside capital. The emphasis is on shared success rather than rushing toward an exit.

• Alignment Within Backers: Traditional dynamics such as fund manager fees are reimagined to ensure alignment between investors and portfolio companies.

This approach represents a deliberate departure from the constraints of the 10-year venture model. It is not merely "patient capital" but aligned capital—designed to provide a different pathway for high-growth technology businesses.

By focusing on enduring value, this strategy aims to generate strong returns while fostering a more sustainable early-stage technology investment ecosystem. It reflects a return to the first principles of venture investing: creating value, solving real problems, and building businesses capable of standing the test of time.

This article is an extract of a series of articles from Arbor Capital that can be found on their Dan's LinkedIn page. Click HERE to access.

Dan Winter is a Founding Partner at Arbor Capital - an evergreen technology investment fund based in Australia, and a guest contributor to Canopy East.