Union Square Ventures (USV) has been one of the most successful venture capital firms of the past 10–15 years and continues to be a leader in our industry. Recently the firms two founding partners (and also Managing Partners) — Fred Wilson and Brad Burnham — decided to transition management of the firm to Andy Weissman (who joined in 2012) and Albert Wenger (joined in 2008 and writes one of the most thoughtful blogs in our industry). Fred & Brad aren’t leaving but wanted Andy & Albert to take over management.
Transitions do happen in VC funds but many fail to make the move in a timely fashion and lose key younger personnel who break off and do their own funds or else the strong personalities of senior partners make it harder for new partners to flourish.
So it was a timely conversation at this year’s Upfront Summit because the week of the Summit, Sequoia had announced that it was transitioning leadership from Jim Goetz to Roelof Botha (and US operations to Alfred Lin). This followed the firms founder Don Valentine handing leadership early to Mike Moritz and Doug Leone who then entrusted Jim Goetz. And so it goes. The great firms transition day-to-day leadership and often those who don’t fail to protect their “franchise value.”
Many readers know that at Upfront Ventures that’s precisely what happened at our own firm in 2011 when our founding partner and my co-Managing Partner, Yves Sisteron, asked me to lead the daily management of our firm. Yves didn’t want to step down — he is still as active as any partner on our team — but he wanted me to take responsibility for: Strategy, recruiting, team development, LP relations, financial planning, etc. This has worked out tremendously well for us as I still have my mentor guiding the firm and he gets to look for deals that can have a massive impact on society and on returns for our LPs. Essentially we run the firm together but play different roles.
Lindel Eakman led the discussion with Fred and Andy. Lindel is heading Foundry Group Next, which is a Foundry Group fund that invests in both venture capital funds as well as directly in startups at later stages in their cycles than Foundry Group’s core fund would typically do. Lindel is no stranger to thorny venture capital issues — he was arguably amongst the most successful LPs of his generation. At UTIMCO (University of Texas’s endowment fund) he eschewed some of the older VC “access brands” and instead invested in funds few had heard of at the time like: USV, Foundry Group, Spark Capital, True Ventures and Upfront Ventures — and when you’re an early “anchor” in a fund, you end up with a relatively large percentage of each fund.
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In my years of meeting Lindel before he invested in Upfront he seemed to focus more on one component of future venture capital returns than other LPs did — team dynamics.
He did what every LP did, looked at returns, talked to portfolio companies, talked with our competitors and so forth. But he seemed to really want to dig deep in the fabric of the human relationships across partners and the role that Managing Partners played.
I think this is why he was so successful as an LP and why the interview below is so worth watching (but I provide written notes below, t00).
The full video is embedded and you should watch the video as you could learn a lot. It’s classic Lindel & Fred with insights on what Andy Weissman has brought to USV (apparently he’s a lot nicer than the other guys 🙂 which I can tell you from first-hand experience they’re all pretty nice, but perhaps he’s more approachable). I love the way my partner Kara Nortman phrases it with respect to Upfront Ventures, “We all have the same back-end, you just have to deal with different UI’s to experience that.” Maybe that’s USV, too.
So what is the importance of succession planning in VC? Fred started …
“Particularly, in Silicon Valley, there are a handful of firms that have stayed in the top tier for 2, 3, 4 generations and those franchises are really powerful franchises as a result… And every LP would want to be an investor in those funds and those firms.”
“It may not be a lot that you can say have done it well but I think we can say that the ones who have done it well have seen a massive benefit from doing it well.” — Fred Wilson
Lindel then went on to read a quote from the Sequoia transition announcement…
“Disruption is at the heart of our business. It’s what creates opportunities for the entrepreneurs and it’s what helps them produce great returns for the LPs. Ironically it’s also the force that many venture capital firms resist — often contributing to their own decline”
They talk about a ton of other hard topics that would be relevant for any venture capital fund to watch and learn but may also be interesting for entrepreneurs to better understand the worlds of those who invest in them. Issues they discussed:
- How economics across partners at a VC work and how the skewing of economics can cause firms not to function properly long term (generally more even economics builds better long-term firms)
- When and why are the “hard decisions” in a venture firm actually made? (often it’s driven around fundraising)
- How should a VC firm communicate with its LPs that it is considering change and equally importantly how should they communicate to portfolio companies/CEOs!
- How can high profile VC personalities best transition to younger partners? One way is by learning not to dominate meetings given their personalities and successes to date.
- More broadly the historic partners of a franchise need to let newer partners establish and set their own cultures as distinct from the older personalities.
[This post by Mark Suster first appeared here[question][/question] and has been reproduced with permission.]