I’m not sure it impacts morale that much.
First, venture partnerships last 10–12–15–20 years. 10–12–15 years is how long funds last, and they typically raise multiple funds, which extends a partnership to 20+ years. And partners are sort of forced to stay together, to some extent, through thick-and-thin by LPs. No one wants to rock the boat so much that it’s harder to raise the next fund.
Second, everyone knows. Everyone knows, every week, whose companies are doing well and whose aren’t. Yes, startups take a long time to become unicorns. But at almost every firm, only 1 or 2 partners drive all the returns, have the best investments. Everyone knows. It is quite obvious which companies in the portfolio are outperforming the others. Especially when you review this every single Monday in partner reviews. At a VC firm, in the end, every partner is just a number. Her/his returns.
Third, hope springs eternal. Every fund has a story of late bloomers. You can always hope your struggling start-up blossoms later, as long as it doesn’t fail or run out of cash. In fact, the less successful the VC, the more sometimes they become irrational believers.
Fourth, even the train wrecks happen in slooooow motion. Funds again last for a decade or more. In venture, you fail very slowly in general.
Fifth, there is always The Next Fund. Most established VC funds have had at least one bad fund, that maybe even didn’t do 1.0x. LPs sort of expect it if they are making long-term, multi-fund commitments.
And finally, morale also suffers in good times. In good times, the partners with the big IPO, the big distribution, get even bigger egos. They become kings of the universe. That may not be that great for morale either. Even if the LPs are happier.
And VC firms are tiny, tiny institutions. It’s possible morale doesn’t even matter.