In praise of VC partnerships
[Health warning — this is an article by a VC about VCs. It might only be interesting to other VCs].
Venture Capital is eating itself. In the 2010’s, VC disruption took the form of syndicates, crowdfunding and angel funds (think Ron Conway’s SV Angel, founded in 2009). In the 2020’s it’s rolling funds, scouting models, and now ‘solo-capitalists’ (SC’s?) have bombed into the venture pool.
The rise of the ‘solo-capitalist’
SC’s are individuals who start meaningfully-capitalized venture funds with external Limited Partners (i.e not just their own money), without the complexity and politics of having partners or a team. Dubbed ‘solo capitalists’ by Nikhil Basu Trivedi, this new generation of VCs aren’t pioneering a completely original concept (take Steve Anderson’s Baseline and Charles Hudson’s Pre-Cursor). But — spearheaded by Brianne Kimmel (Work Life Ventures), Josh Buckley, and Jeff Morris Jr (Chapter One) amongst others — the class of 2020 crop is different in one significant way — they leverage their personal brand to the hilt.
As Nikhil writes:
The importance of an individual’s brand has been steadily increasing in venture capital for quite some time. Founders are more often than not picking an individual partner who they want to work in a financing round, based on the relationship built with them, and based on their brand and expertise, instead of the firm’s. So it’s a logical next step that the firm is the individual, and the brand is the individual, which is the case with the solo capitalists.
I can see the advantages of the SC model. Firstly for the capitalists themselves staying true to their name: the economics are more favourable. As an SC, you get 100% of the management fee and the carried interest (the profit on the fund which is usually split between partners), there’s no need to create a separate brand, just enhance your own personal brand which is synonymous with that of the fund, simple decision-making, no investment papers to write, no fears about falling out with your partner.
I can also see the benefits for investors in funds (LPs). An LP recently told me that ‘partnership conflict’ was the number one risk in making an investment in a fund because of the minimum 10 year fund lifetime. She shared that her firm feels more comfortable investing in solo-GPs (solo-capitalists) because although there is key-person risk if they fall ill, the scenario of a partnership breakdown is more likely (and usually more acrimonious and drawn-out).
I can also see the upside of the SC model for founders, who are getting direct access to the decision-maker, rather than having to navigate gate-keepers, or build relationships with multiple partners.
However — there are significant downsides of being solo, which don’t seem to have been highlighted enough in the discussion about this rising trend.
In praise of partnerships
Here’s my view. Having a partner in such an all-consuming and intense job as raising and deploying a Venture Capital fund and supporting a portfolio of 30+ companies is both wonderful and essential.
A partnership is one of the very best parts of the Venture Capital fund infrastructure and I urge caution to any potential solo-capitalist who wants to do away with it too quickly. When a partnership is equal, complementary, diverse and kind, it is a massive net contributor to decisions, productivity and joy.
Data would argue, it also creates the conditions through which to achieve outstanding financial returns. I encourage everyone to learn about the great partnerships in Venture — that of Benchmark (as told in the fantastic book e-boys), Union Square Ventures, Foundry Group, Iris Choi and Mike Maples at Floodgate.
In the case of Ada Ventures, my partner Matt and I kept each other going through 17 months of fundraising and we have been doing so for over five years since starting to work together and two years as partners. We had a psychic ying and yang of positivity — when one of us felt hopeless, the other had a spring in their step, when one other lost their enthusiasm, the other was there with 10 more names to add to the Limited Partner prospect sheet.
We share both the successes and failures jointly. We’ve experienced both already and know there will be many more. We council each other like many co-founders, we fiercely debate decisions on which companies to invest in and how best to support them. We spur each other on by raising each other’s bars for quality of output and hold each other accountable for ways in which we’re trying to get better at our jobs. We enable each other to switch off and have a break without the business grinding to a halt.
Venture doesn’t scale
There’s also the practical reality of how many things there are to do in a fund — from hiring and managing a team, to fund administration, to sourcing, diligence, portfolio support, fundraising, reporting, building relationships with co-investors, supporting on M&A, events and brand building. A partner, or several, can share the load across all of these areas. I don’t know how either of us would manage as solo-capitalists. Whilst fundraising Matt and divided responsibilities and reported to each other via daily checkins and monthly board meetings. Nikhil notes the risks here:
As it is, venture capital is a very difficult business to scale. When you’re operating on your own, it’s even harder. It will be fascinating to watch how many funds and how many portfolio companies the solo capitalists can manage before they run into bottlenecks.
A further practical consideration for partnerships is what happens when one of the partners, particularly a woman, takes parental leave, has mental health issues or has a family member who becomes ill, or worse. Without a partner, it would be extremely difficult to keep all of the operations of the fund going during these times.
“Shared joy is double joy. Shared sorrow is half sorrow” according to the Swedish proverb. This rings true in relation to VC.
Aside from all the esoteric and practical considerations above, Matt and I have a lot of fun together. I know this would be hugely diminished if we were alone.
Whether walking through Gatwick Airport terminal at 1am after flying back from a long-shot LP meeting, or celebrating Ada Lovelace Day together with our founders, Scouts and LPs, we feel lucky not to be on this journey solo.