Dear SaaStr: Why Do VCs Leave Their Firms to Start Their Own Funds?

Let’s step back a minute.

Most VC firms aren’t equal. Usually, the founding partners or the more senior partners control both (1) most of the profits, the “carry” and (2) own the management company, and keep more of the “fees”.

Even VC firms that say they have equal partnerships often aren’t truly equal. First, they often set aside some carry for the original partners, and then split the rest. Second, the management company is often still not owned equally.

First, if a newer partner breaks out, and is successful, they may quickly see they can get a better deal if they are able to strike out on their own.

Instead of say getting 10% of the profits and not owning any of the fees, they could own 50% (with 1 partner) or 100% of the profits and all the surplus fees. At least on paper, this can be a much better deal.

Additionally, you become the boss. Many folks are “general partners” but the founding investors still run the place. Usually only the “managing general partners” really have a say in truly running the place, and in owning the management company.

Second, also, if a newer partner does OK but not great, they may get passed over for leadership.

Not always pushed out,. but not included in management. This can lead to frictions.

And finally, folks get pushed out. Even if it looks like they’ve done well on paper.

Someone else may have sourced their top deals for them. Or their best days may be behind them. Or they may do so well, they are a threat to the existing partners and leadership.

VC moved fairly slow, as funds last 10–14 years. But they do evolve. And usually, just 1 or 2 people run each fund.

(my time image from here)

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