On Equal Partnership

Posted on September 30, 2018. Filed under: Uncategorized |

1992 USA Basketball “Dream Team”

I’ve had a lot of discussion recently about the concept of equal partnership in a venture firm. Most venture firms you have heard of are NOT equal partnerships. There are degrees of partners, uneven economics, small groups within larger groups that suck up excess fees and carried interest, and bright distinctions as to which partners do and do not control the firm. These inequities lead to politics and over a long enough arc tend to be cancerous.

Benchmark Capital is the most visible example of a firm who insists on equality in their partnership. Whether you just got there or you’ve been there forever, if your a GP you are equal. In some ways this is counterintuitive. Most compensation and responsibility in an organization tends to flow to the people who got there first or who have been there the longest. In startups, for example, founders keep most of the equity for themselves and the nth executive, irrespective of their impact and responsibility, is granted a fraction of what a founder grant would look like. There’s been a fair amount of ink spilled about the misalignment this causes in startups, but this is not a post about that.

I understand why the partners who have their name on the door at venture capital firm xyz don’t cede their power and economics to the rest of the GP, but to me this is not the way to build an enduring and leading firm. A venture firm wins if it’s able to attract and retain the best talent in perpetuity. An uneven partnership, by definition, creates a ceiling on the new talent you can attract to your platform. Sure, with a fancy brand and a bunch of money, you can get good people to come work “with you” but where the rubber hits the road, actually “for you.” But you’re never gonna get the BEST people with that architecture. And even if you do manage to trick the best talent into your hierarchal structure, as their success unfolds, good luck retaining them in anything other than an equal structure.

Beyond talent attraction/retention, an equal partnership is a choice to practice venture capital as a team. It’s a structure that creates alignment to work as a group and offer the full resource of the firm to any founder in the portfolio, regardless of who holds her board seat. Not everyone in venture capital is collaborative, or likes to work as a team. A common criticism of even some of the best firms, is that they are a loose federation of individual practitioners sharing a brand and capital base. I think on this axis, it’s different strokes for different folks, but if you don’t believe you can be greater than the sum of your parts as a GP, than your working with the wrong people.

There’s short term orientation and long term orientation when it comes to building a firm. If you are a founding GP who’s in it for the next 10 years, wants to pull out $100M and go sail around on your yacht, you’re not going to strive for equality within your firm. You’re gonna suck up the economics as much as possible and leave whoever is left when you’re gone holding the bag of tier 2 or 3 talent you leave behind. But if you’re a 30 something who wants to spend the next 30+ years building the firm where you end your career, and if you aspire to have your firm endure even beyond your tenure, I believe equality is a requirement.

Lastly, if you’re a founder thinking about with whom to partner, selecting a GP from an equal partnership is advantageous. There are politics in every firm, but if you want to minimize the likelihood that internal firm politics will adversely affect you and your company, choosing a firm that is most aligned is the way to go. Even beyond the politics risk, when a firm tells you everyone in the partnership is there to help you succeed, that’s way more believable when they are economically and emotionally compensated to behave that way.

I think I’ve always held these beliefs about how to build a winning firm, but the more I think about it and talk about it, the more I believe in the power of an equal partnership. If you get the people in that structure right, there’s no reason to be greedy or controlling…everything that you want will organically follow.