We Need a VC Prenup: Creating Off-Ramps for Tech Businesses

Our industry has a blind spot when it comes to exit planning.

Take marriage as an example. If it was truly permanent, with absolutely no option for divorce, how many people would still confidently say “I do”?

Probably not many.

In fact, many people feel secure in choosing marriage precisely because they understand that if things don’t work out, there’s an established (albeit difficult) legal framework for moving on. Society has broadly accepted the idea of protecting pre-marriage assets, preparing for a variety of possible outcomes—both good and bad. We accept that not everything goes as planned.

Venture capital, on the other hand, has ignored this truth for too long. And it’s hurting both startups and investors.

The 50% Reality

As we embark on raising our third fund at Edited Capital, the question we hear most from investors and founders is:

“If these previously VC-backed companies are truly promising, why can’t they successfully raise further capital?”

The answer is not always straightforward, but the pattern is clear: founders accepted initial investments at extremely high valuations they simply cannot fulfill. Now they’re stuck beneath massive preference stacks—often amounting to tens of millions of dollars—that make it nearly impossible to raise more funding. Fixing this problem requires painful, high-stakes restructuring that often drags on for months.

We already know that about 50% of companies don’t make it from one funding round to the next, even under typical market conditions—and today’s economic environment is anything but. Yet somehow, despite the data, we keep building our investment structures as if every company is destined for greatness right away.

We don’t build in mechanisms for what happens if (and when) they stall.

The Case for an Off-Ramp

It’s time for a VC prenup. Or, put a different way, a VC off-ramp.

We need structured, pre-negotiated frameworks that acknowledge not every startup is going to rocket to a unicorn outcome. Call it a down-case exit plan. A restructuring playbook. An off-ramp that lets founders and investors exit the VC highway gracefully when the path ahead is no longer viable.

The current system exacts a devastating toll that extends far beyond balance sheets. When promising companies hit funding walls due to preference stacks or valuation mismatches, we’re not just losing businesses—we’re destroying accumulated knowledge, dispersing talented teams, abandoning loyal customers, and squandering years of innovation and effort. The psychological impact on founders who’ve dedicated their lives to these ventures is immeasurable, often leaving deep scars that discourage future entrepreneurship.

Meanwhile, investors face total losses instead of modest returns, employees lose jobs and equity they’ve worked years to earn, and communities lose economic engines. All because we lack structured pathways for companies that are viable but don’t fit the unicorn trajectory. The venture capital model wasn’t designed with graceful exits in mind—it was built for moonshots, with little consideration for the majority who won’t reach escape velocity.

But this isn’t just about cleaning up bad deals. It’s also about doing good. As Catherine Bracy writes in World Eaters, the venture model optimizes for outsized returns—and that optimization leaves behind thousands of businesses that are still worth building. Exit planning by building in a VC off-ramp could be a way to reclaim some of that middle ground. To support founders whose businesses are growing, profitable, and creating real value, even if they don’t fit the venture scale mold.

The Hard Questions

Of course, this raises some hard questions:

How do we create off-ramps without misaligning incentives?

How do we make sure founders don’t take VC money with the intention of simply opting out later?

That’s the challenge. But that doesn’t mean it’s not worth solving.

Addressing this issue won’t be entirely painless—much like divorce itself—but surely the brilliant and resourceful legal minds in our industry could design a “VC prenup” framework that works better than what we’re using now.

This would be a pre-negotiated, structured approach or down-case restructuring plan established from the outset. It would offer founders and investors alike a realistic pathway to claw back control, reduce overwhelming financial preferences, and create conditions that enable companies to accept new funding without endless, complicated negotiations.

Private Equity: A Soft Landing

The venture capital on-ramp is well-marked: seed funding, Series A, explosive growth, unicorn status. But what about the off-ramp for the 99% of companies that won’t become unicorns?

Small tech private equity offers that missing exit.

Not as a consolation prize, but as a purposeful continuation of your company’s journey. PE provides businesses with a level of hands-on operational support and a laser-focus on sustainable growth that the VC world simply isn’t set up to provide.

Maybe this is one way to give back. To widen the aperture of what success looks like. To make room for good businesses, not just great ones. Because like a prenup, exit planning doesn’t mean you expect failure. It means you’re honest about the risks, and committed to finding a responsible path forward—no matter how the story ends.

The core principles that govern our industry haven’t changed meaningfully since 1975. It’s now 2025. It’s time for us to normalize structured frameworks that transparently acknowledge different possible outcomes from the start—providing founders with clear, dignified paths forward when initial projections don’t materialize.