As a financial engineer, this makes my eyes bug out from the total lack of sense, innovation, and creativity in Startup funding. Using a one size fits all antiquated cap table strategy is nothing short of failed and broken. For all the possible strategies in deal structures to meet the challenges companies face, and ways to change things along the road to create advantages for the company and it's founders and ultimately that means success for the investors, team, and society, it sure is amazing how this cap table only method is stuck to. Why? because it gives all the advantages and money to the VCs at great expense to the founders, companies, and staff. Recently in the Snap IPO, Lightspeed investments made Billions off merely a $450,000 investment and managed to control everything superceding other investor's rights all the way through the IPO. Now, investors should get a great return on their investments, and I am not a fan of the snap business model nor investment like many others, but do they deserve 1,000x their money? Maybe, maybe not. I am not privy to what kind of work they actually did to make this happen. Maybe they drove it all and deserve it, maybe not. Regardless a one way cap table of pre-money invested, then post money sold values, and stuck to, doesn't make sense.
For example, lets say one company like a typical Silicon infotech company doesn't really have a hope in hell of going IPO for 5 years (as usual), as they slap together 3-6 strangers with nice fat looking corporate america CV's or silicon CV's or "social profile superstars" and like so many times we see they don't have the product down, the market fit isn't there yet, the engineering is still being done, the monetization is merely a who knows dream for future years, the business plan is still a work for years later, the marketing plan isn't set yet, they are burning cash like crazy and planning to go round to round "until this so called all star team figures it out one day." and as we so often see, they get tens of millions. They get the normal cap table rate. (this makes sense, maybe give em zero and give the money to mom and pop industry startup to expand makes more sense, your baseline would step up at least). Now, compare this to a Startup with for example a sole founder mission oriented family business that is heading direct to IPO, has everything planned and done and done, and needs one round max to go to IPO in 12-15 months. Should that company be on the normal cap table or should they be priced at the high end of stock market investments at IPO stage? You tell me? Look at the IPO valuations with snap in mind with zero profit and bleeding like a pig stuck by the entire tribe of hunters. If you have a quick to profit model, they should not be on the same cap table as a basic rule, and opening up the toolbox at the very least should be an option. Fact is to most VC it is not an option and they are out. This is how they rip more unfair free money from founders and companies. Many of them aim to use this table because the more established or likely a company will be successful and the more they have it planned out and ready to profit or close to profit, the more they can rip for free. Anyone not going along with this is just out and that's it. Of course smart dealmakers and investors will look at all options and VC like this likely exist but it's not the majority unless they are very creative thinkers and high quality investors.
The interest for VC should be in setting up success for the company and founders, but it's usually only setting up mega home runs for them and anything but is called "too founder friendly". However the right cap table structures and creativity for the stage of the company and track path it's on will ensure both great returns for the VC investors and not reduce the founders and company down to mere mcdonalds employees in the process, running for the hills to the next round of the competing startup or to make the next copy-startup in the process. This further reduces the risk for VC and treats the founders of proper business models with the Real kind of "we invest in people and we care about the world" as opposed to the rip as much as can shark on a wounded fish take advantage deals and models seen so often.
There is an incredible amount of cap table creativity not done and usually when done not disclosed as these are "trade secrets" of how VC companies rip off startups and if they do a generous deal once they may also not want to have everyone calling due to, as thinking by some VC is that it may limit their returns or cause founders to negotiate harder.