# Grove Network Mechanics – Eliminating Adverse Selection

Grove recognizes that, even with strict entrance criteria, the median founder will fail.{^1} Grove therefore needs to actively engineer out adverse selection and ensure perpetual network quality. To do this, Grove limits the percentage of in-network failed founders to 30% by using a participant exit mechanism. Over time as new founders join Grove some share of existing founders will inevitably fail. To ensure perpetual network quality, failed founders move, upon closing down their business {^2}, to a first-in-first-out (FIFO) exit queue in which they will remain until 30% of the network fails after them. During their time in the queue, founders are still entitled to all distributions from Grove, and are allowed to rejoin the network with a new company, if the new company meets the entrance criteria. This has several positive implications for all network participants. First, capping the number of non-performing founders means that the majority of founders who fail will, for those years they are building, and for the time they’re in the exit queue, be collecting distributions. In other words, failed founders are monetizing the value of their cap table wealth in a way that’s been impossible until today – they are collecting cash flow for the years they are building and for some period of time after. Second, it means Grove can cast a wide net to capture VC-backed companies, while ensuring the network is never compromised by non-performing founders.{^3} Third, capping the number of failed founders to 30% is extraordinarily accretive to the returns generated by the network, as is discussed in the economics section