VCs are like marketplaces

VCs must strike a fine balance between their LPs and the startups they fund.

In July, news came out that Polychain was dumping their Celestia ($TIA) staking rewards on the market to the tune of $242M in profit.

Many people in the VC space defended the move, saying, "So what? A VC's job is to make money for their LPs."

That's true, but it's not that simple.

VCs are akin to a marketplace - like AirBNB - between Limited Partners (who have capital to invest) and startups (who need funding).

LPs are the suppliers of capital, just like property owners on AirBNB. And startups are the “guests” looking for the capital to grow.

First, VCs need to balance the marketplace by raising enough capital from LPs, and finding enough startups to deploy these funds into.

More relevant to the Polychain / Celestia story is the second balancing act - how VCs serve LPs and portfolio companies.

VCs serve LPs by making them money - bottom line. But they achieve this by funding the best startups and helping them grow.

Polychain served their LPs (and themselves) masterfully and made them a ton of money by dumping $TIA.

But they did Celestia a disservice and hurt their community of token holders by selling so much and tanking the price.

Polychain did not balance their marketplace well.

Polychain is one of the most prominent VC firms in the crypto space with billions of dollars under management, and their reputation will be just fine. Celestia is a great project with long-term minded founders, and they will be fine too.

But founders who are fundraising - you should take note of this situation.

You get to choose your investors as much as investors choose you.

You should choose investors who align with your long-term vision and will support you through thick and thin.

Of course, there will be a time where crypto VCs will have to take profit by selling their tokens. But make sure that you have proper lines of communication open. Ask these VCs to communicate to you when token sales might happen so you can find the best way to execute this with minimal price impact.

Lots of lessons here.