What should I do when I’m raising venture (Series C) from a position of strength and want to work with a different partner than the one who is courting me?

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JASON LEMKIN

Let’s step back for a minute … why is it hard to “switch” partners in most (not all but most) venture firms? Yes it’s ego — but actually, it’s much more than that. Ego is just one piece:

  • Ego. Of course, being told by a founder they’d rather work with a different partner is tough in an ego-driven industry. But if that was all it was, it would be easier to carefully manage … like most ego issues. It’s more than that. It’s also
  • Attribution. This is a tough one. Almost all venture firms measure the partners on attribution. Who sourced, and who manages, each deal. Each partner is just a set of numbers — how they individually perform. It’s kind of brutal, in fact. Many firms claim they don’t do this, but they all do. Almost all. And even if they don’t … the LPs (the VC firms’ own investor) do. The LPs build their own attribution charts if the VC firm itself won’t. In fact, they put a ton of time into doing this. So if you give up a deal to another partner, you may partly or entirely lose attribution. And the partner that takes it over may not get full attribution (because she didn’t ‘source’ it). This is important. Who gets credit if it’s a winner? Or the debit if it’s a loser? plus
  • Dearth of >Great< Deals. Yes, there are 1000s of new startups and even Series C candidates a year. But no VC, even the greatest, is overloaded with Slacks and Facebooks. Not even the best VC. So, once a VC locks onto a deal, she’s reluctant to give it up, if for no other reason than it’s real work to find another deal that is as good or better. Especially once she’s decided to do the deal.

So switching partners is tough.

But it’s not impossible.

How to do it? A few thoughts:

  • Have an early stage investor already in the company socialize it to the new firm. If one of your existing VCs knows the new VC firm, have her talk to them. “Do you think Linda might be a better fit than Ron for this deal, just because of her domain expertise?” Your existing investors can do a better job at this than almost anyone. Backchanneling is a good strategy in this industry.
  • Get multiple term sheets and be nice but direct. Uber got who they wanted at Benchmark. Zuck got who he wanted at Accel. But if you do go this way, just be prepared to lose the deal or break glass at least.
  • Slow the deal down. This is the kinder, gentler version of the prior point. Just slow the deal down. Don’t sign the term sheet. Drag it out. The VC will ask why. You can say “it’s been amazing to work together, but I wonder how we can get Linda on the team too.” See what happens. This probably won’t work. But it sometimes does.
  • Ask for both partners to join the board / be in the deal. If you are OK with 2 board members, this approach works pretty well. The partner you want may say No. But it’s cool to ask. Done right, this doesn’t hurt anybody’s ego, or create too many other issues. I’ve been on several boards with 2 partners from the same firm. You get 2 bosses this way, so be thoughtful. But it’s not that uncommon.
  • Also note that newer and smaller firms are different. They will probably be fine with switching partners. In 2 partner firms, this is usually not a big deal. And in newer VC firms, often, ego and attribution are less important. It’s still all one team, and new firms just want the right deals going to the right partners.

The reality is, it’s easier to get a term sheet from another firm than to switch deal sponsor partners, 8.5 times out of 10.

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Published on December 11, 2017
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