As a venture capitalist, would you quit your job if you became ultra wealthy?

If you squint at “generational change” in venture, you can see it is fairly common that the super successful VCs transition out well before retirement age:

  • John Doerr semi-retired at the peak of his game, the best investor ever or at least of his time, only coming out to try to right the ship.
  • Matt Cohler (super rich already from Facebook) and other partners moved on from Benchmark, one of the best funds of all time: Benchmark raising ninth fund, Cohler and Lasky step back
  • Jim Breyer, for whatever reasons, moved on from Accel to manage his own money.
  • Joe Lacob left Kleiner Perkins to buy and run the Warriors.
  • Chamath from Social Capital, already ultra wealthy, decided managing a traditional venture fund just wasn’t worth the relatively modest returns.

There are a number of reasons for this. The game doesn’t get easier in some ways — venture is very competitive. After an amazing / epic fund, it can be hard to see yourself doing the same again. And funds last 10–13 years!

Crazy math: Assume a $250m fund that does 15x net (after fees). Like Benchmark’s last fund. That’s once in a generation or so though — it’s very rare. But it does happen. Benchmark Capital Stays Lean, Even After $14 Billion Bonanza. That’s maybe $3.5b in total gains. 20%-25% of that might go to the partners, let’s assume $800m total to the partners, across 4 partners. That’s $200m each. Incredible! Not as rich as many of your CEOs — interesting and important to note — but that’s serious, generational money.

Now: say you do 15x in the current fund, but the next fund struggles to do 2x, and it doesn’t feel “easier”. That’s not that uncommon. Yes 2x is $250m in gains on a $250m fund, and with say 20% to the partners ($50m to partners), divided by 4 partners, that $15m each. But that’s usually over 10 years, or $1.5m a year. A lot, but nothing like the prior fund. If the partners made $200m each already, and now are working every day, managing their own investors (LPs), dealing with CEO headaches, and more … to make $1.5m a year when they already made $200m. Doesn’t really make sense …

A mediocre VC, by contrast, likely has many incentives to hang on as long as possible.

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Published on October 31, 2018

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