Authors: Jason Portnoy, Andrew Maguire
Danny Crichton and Arman Tabatabai published an article yesterday on TechCrunch about several VC firms that have failed or struggled over the last few years as a result of partner strife, sexual harassment, or outright fraud. It caught our attention at Oakhouse Partners and we think it’s important that they are shining light on these issues.
One of the authors’ conclusions is that these firms struggled because they were run by young and less experienced venture capitalists. While there is probably some truth in that sentiment, we believe they missed an opportunity to point to a more profound driver of the long term success of venture capital firms: the culture of the VC firm itself.
Setting high standards
We have a saying at Oakhouse Partners: “We can not hold other people to a higher standard than we hold ourselves.” We work with CEOs who are harnessing large amounts of financial and human capital to build massive companies that play on a global stage. CEOs who build and run companies like this demand a LOT: They expect a lot of themselves, they expect a lot from their teams, and they certainly expect a lot from their investment partners (as they should). They have incredibly high expectations, and we understand that we need to show up at that level every day when we work with them. In order to succeed, we need to hold ourselves and our conduct to as high of a standard as the CEOs in our portfolio. Our internal goal is to set the bar for ourselves even higher.
To set a tone of having high standards we’ve focused very deliberately on the culture we are building inside our firm. We make time to talk about it at every all-hands meeting, and we actively talk about the importance of firm culture when we communicate with our Limited Partners. One of the results of this focus is that we have a very “low-drama” culture at our firm. The stability that this radiates is appealing to the CEOs and teams we work with, and helps us quickly establish deep levels of trust and engagement with them. Having a low-drama culture also helps us avoid firm-level distractions of the type that befell the firms mentioned in the TechCrunch article, allowing us to stay more focused on our long-term ambitions and provide a more stable investment platform for our Limited Partners.
Articulating our full slate of core principles is out of scope for this post, but here’s one concrete example: At Oakhouse Partners, we work aggressively to remove distractions from our lives. These distractions can be basic things like television, video games, or social media. They can also be more subtle, like high-drama relationships that we encounter either personally or professionally. Systematically identifying and reducing distractions gives us time to focus on what really matters: health (physical and mental), family, and building a great firm. We do this because we understand that when these areas don’t receive sufficient attention, they start to break down and become the greatest distractions of all, impairing our ability to do our best work.
A new archetype
A focus on culture points to something far deeper than age or experience. Operating experience at a hyper successful startup or direct venture capital experience are, without question, highly valuable assets for a venture capitalist. However, experience alone won’t solve the culture problems in our industry. Highly experienced venture capitalists who don’t build a strong cultural foundation can suffer from firm-level dysfunctions just as easily as emerging managers.
On the emerging manager side, we believe the Kauffman Fellowship Program (Jason is a recent graduate) is doing an amazing job of supporting a new generation of venture capitalists who focus deeply on values and culture at the core of their firms. The program is also far more diverse in membership than the historical venture capital landscape, which we believe will go a long way towards helping build more stable, inclusive, and high integrity firms.
So in our opinion, the conclusion here isn’t necessarily that LPs should revert back to investing in the old guards of venture capital. The conclusion we draw is that LPs should invest in firms who, regardless of whether they are emerging managers or multi-decade stalwarts of the industry, are investing deeply in building their firm’s culture. As this transition starts to happen, and as we begin to recognize the perils of ignoring the importance of culture, we anticipate that a healthier venture capitalist archetype will emerge that leads to better firms, better stewardship, and better long-term returns.