I think that there should be an exit clause for VC backed businesses along the lines of, 'well, we were all morons to think this would make everyone wildly rich, but this can be an ongoing business, so lets not shut it down.'
Because investors are paid for taking risk, that decision has to happen at the point of investment. Or, the entrepreneurs would have to be willing to massively sacrifice their upside for their vision.
The exit clause is "don't take VC money if you want to run an ongoing business". Otherwise, the buoyancy of a somewhat profitable business is sunk by the history of leverage, debt, and expectation.
I don't completely understand the logic. After all, if they shut down, the VCs won't get anything, either. So why not keep it running and reap at least little rewards.
Once you take the funding, you have to spend it all on expanding operations, new staff, marketing, promotions etc. If you then can't generate a profit, unless you raise more rounds the increased expenses are going to kill your business. So in this case the VCs cut their losses instead of giving them more money.
