Throughout my career, I’ve had a variety of relationships with venture capitalists. As an entrepreneur, I’ve asked them for money and worked along side of them after their investment. As a Limited Partner (LP) investor, I’ve been a (minor and unreliable) source of capital for them. And as a corporate executive, I’ve been a co-investor in and buyer of their portfolio companies.
But, I’ve never been a general partner. So when a few opportunities arose to become a GP at a couple of premier funds, I jumped at the chance to learn more. I’ve always thought of this as my ideal career path and considered a GP gig at top quartile fund to be a dream job. I literally felt like a ball player about to be drafted into the big leagues.
After all, the VC life can be sweet. No pressure to hit quarterly numbers or get product shipped. Pretty flexible schedule. Continual exposure to brilliant business minds, engaging ideas, and passionate entrepreneurs. And a compensation package which generally invokes industry wide jealousy.
What I learned, however, is that not everything is perfect in Oz. Many VC’s confided they spend most of their time with troubled portfolio companies. The next large block of time is with prospective portfolio companies they ultimately won’t fund. And those fantastic companies lighting the world on fire which will return your fund and make your career? Well, they often don’t need much more than your checkbook and your attendance at board meetings. And while all the websites depict a collegial collaboration amongst equal partners, the reality is that many VC’s are siloed practitioners, sometimes with vastly different compensation arrangements.
There is also much talk about how the VC model is broken. Capital efficiency has created structural challenges for many firms. Demand for capital (esp. per company) has gone down while the supply of capital (esp. per partner) has gone up. As a result of this structural dislocation, there have been a number of reactions. Some firms have become private equity or cross-over funds. Some firms have disbanded. Some firms have raised smaller funds. Some firms are just in denial. And for some firms, a very select few firms, it probably won’t matter – they are just that good.
So the VC life isn’t necessarily as it appears. It sure seems like there is still too much money chasing too few deals. My guess is that the GP winnowing will continue. Ultimately, I decided it wasn’t right for me. I didn’t get the draft day phone call (no tears, please) and decided to seek my adventures in capitalism elsewhere.
