What General Partners at VC Funds Really Do

What is the role of a “General Partner” at a VC Fund?

It can be frustrating in many ways to be part of a large venture firm, be the junior guy that “found”/sourced Facebook-Snapchat-Pinterest-Twilio-Zoom-WhateverUnicorn, convinced the founder to take the money … and then see the General Partner take all the credit.

Did they even do anything?  Well … yeah.  In fact, the managing general partners at a VC fund do a lot more than Zoom-ing into board meetings and meeting with new founders.

Remember. VC Firms are investment firms. Money managers.

GPs:

  • Raise the fund. Folks. This is hard for 80%+ of VC funds. Harder than it looks. Because of this, one rule controls: you raise the fund, you make the calls. And LPs not only want to invest in a relatively small group of VC funds, in particular, but they are also picking >specific< GPs at those funds to really back, in most cases.
  • Make the call. Yes, maybe as an associate, you sourced UiPath or Datadog or Facebook. But 1000 other deals were also sourced that year. Who makes the call at the end of the day which one to do? The ones that raised the fund.  The GP.
  • Close. A lot of times, only a brand-name GP can close a good deal. In competitive deals, closing is more important than sourcing. In non-competitive deals, the converse is true.
  • Structure and deploy the entire fund. In a big fund, even 2 or 3 unicorns sometimes aren’t even enough. You need decacorns, and you need to get enough money into your winners.  The GPs have to manage billions and turn those into more billions. It’s a big chess game, that unless you are in The Facebook Fund or The Zoom Fund, one deal alone won’t be enough. And even if you got into Coinbase or Okta or Snowflake, if you only bought 1% or 3% or whatever … that won’t move the needle for a larger fund. The GPs have to figure out how to deploy it all.
  • Build the team. This is very hard in partnerships.  It’s a lot of work, and a lot of risk, to bring in new investment professionals.  With more junior hires, it can take years to even see if they are any good.  With more senior hires, there is a ton of risk truly bringing them into a partnership as a true partner.  Will they be accretive?  Will they want to run the place?  Will they be OK if they don’t run the place?

The GP-Non GP relationship can be frustrating as the non-GP begins to win and spread her wings. The “part of the management company” vs. “not part of it” relationship can similarly create tensions.

But look at the above bullets. The “General Partner” that does all 5 of these bullet points runs the place. No matter how it may look on the website.

Published on April 29, 2021

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