What's worse, it might provide other incentives. If you know that you can always negotiate a soft landing, you're not as maniacally driven towards that unicorn status, which is required to make VC economics work.

Do you think that closing the business and distributing exactly $0 in assets is a preferable outcome?

Because that's what happens for most startups.

I don't understand the point you're trying to make here.

Failing a VC-funded startup is an expected outcome (statistically). What difference does it make whether the founder ended with nothing (the typical scenario) vs. a lifestyle business? VCs get nothing either way.

VCs aren't screwed because they already accounted for the risk of failure. That's kind of their job.

Incentive alignment.

Target smashes damaged goods instead of selling them at a discount so employees or customers don't purposefully cosmetically damage things they want to buy.

If the failure state of a business is "the founder can buy it for pennies and try to make something of it", then why wouldn't all lifestyle businesses pitch themselves as VC-backed growth businesses and then use up all that money and settle as a lifestyle business?