The Paradox of the Junior VC Partner
One of the frequent debates around fundraising is whether or not founders should talk to associates at VC firms or exclusively aim for partners. But there’s another, more subtle dynamic at play that most founders are completely unaware of: the dynamic between partners.
I’m not talking about differences in expertise (it’s usually obvious when one partner is an expert in enterprise software while another specializes in consumer products). What I’m referring to is the different levels of seniority within VC partnerships and the impact that has on fundraising and long-term support.
Let’s start with partner titles:
VC Partner Titles
There are a number of different partner-level titles at VC firms. Let’s look at how each role relates to a VC fund.
(Note: there are additional nuances that come into play with regard to a VC firm’s management company and the fact that roles and responsibilities can change between funds. I’m going to steer clear of those and focus on how each title relates to the decisions made within the context of a single fund — which is what matters to founders.)
General Partner
A General Partner (GP) is a part-owner of the entity that oversees a VC fund. They are signatories to the Limited Partner Agreement (LPA) that governs the fund and have also invested personally in the fund. GPs are able to lead new deals and vote as part of the Investment Committee (IC) on which new companies to invest in.
Managing Partner
A Managing Partner (MP) is a GP who acts as the CEO of the fund. An MP’s vote typically has the same weight as a GP’s vote, however, their standing in the organization may lead to more soft influence over the outcomes.
Note that many VCs do not have a Managing Partner (Panache Ventures, for example, has 4 GPs and no MP).
Founding Partner
A Founding Partner is a GP who was a cofounder of the firm (the title is shorthand for “General Partner and Cofounder”). As with Managing Partners, a Founding Partner’s vote typically carries the same official weight as that of other GPs, however, their opinion and soft influence can have more of an impact.
Partner
A Partner is a senior person on the investment team who is able to lead deals and who typically has a vote on the Investment Committee. However, they are not signatories to the LPA, nor are they typically owners of the entity that oversees the fund. At most firms, a Partner’s vote carries the same official weight as that of General Partners, however, they are usually subservient in soft influence to the GPs (except in areas of subject matter expertise).
Other Senior Titles
There are a few other titles you may come across that are given to senior individuals who are not on the investment team (that is, they are senior in the firm’s overall hierarchy, but don’t make investments and are typically not on the Investment Committee):
Operating Partner
A partner-level individual who leads one or more non-investment functions of the business. Founders will often encounter Operating Partners when engaging with a VC’s platform, portfolio support and finance functions.
Vice President
While it sounds senior and influential, a Vice President is typically the non-investing equivalent of a Principal or Senior Associate (so it’s actually a fairly junior title in most firms).
Partner
What…what?
Yeah…this is where things start to go off the rails. Some VC firms *cough, cough* a16z, throw around “Partner” titles like they’re going out of style. At these firms, you can’t actually tell if a “Partner” is on the investment team or not, based solely on their title. You can’t even tell if they’re an actual partner-level individual. That is…annoying.
How Deals Get Done
Every good founder knows that one of the first questions to ask a prospective investor is, “How do deals get done at your firm?” (“What’s your investment process?”). The answer usually sounds something like this:
“We try to keep our process fast and efficient (to be respectful of founders’ time).”
“You will have X meetings with Y individuals.”
“We usually take Z days/weeks to perform diligence (please send us your data room if it’s ready).”
“We are a [majority/consensus] firm, so every deal takes X/Y votes to pass.”
Conventional wisdom says that the last point tells you all you need to know: do you need to win over all of all partners or just a majority?
Straight-forward, right?
Not so fast…
How Voting Works (Officially)
To understand how voting works, you need to understand the structure of a VC’s Investment Committee (IC). This is the group of partners who vote on a deal. There are four common structures:
Solo GP - There is only one person on the Investment Committee. Assuming that they don’t get into arguments with themselves, it’s a pretty straightforward process.
Multiple GPs - There are multiple people on the Investment Committee. All of them are GPs and each vote carries equal weight.
GPs + Partners, Simple Vote - The Investment Committee includes GPs and non-GP Partners. Each vote carries equal weight.
GPs + Partners, Formulaic Vote - The Investment Committee includes GPs and non-GP Partners. The voting structure is not a simple vote but is based on a more complicated formula.
In the first three cases, each person’s “official” vote carries equal weight. In the fourth case (which is usually found at larger, multi-stage funds), the voting process can be far more complicated. Some examples include:
Partners are split into teams (e.g. “enterprise” vs. “consumer”, “early-stage” vs. “later-stage”, etc.). The vote must be unanimous for the partners whose area of responsibility the company falls into and a simple majority for other teams.
Votes do not carry equal weight but are adjusted based on seniority, area of expertise, etc.
Votes carry equal weight, but certain partners have veto rights (based on their seniority, area of expertise, etc.)
Wildcards
Many funds also have processes that allow partners to do deals despite the objections of their peers. This is to provide a mechanism for partners to make a certain number of “contrarian” investments in situations where they have strong conviction but haven’t been able to win over the rest of the Investment Committee.
At Panache, each partner has a set number of wildcards over the life of each fund that they can deploy at any time. A wildcard can be used to lead a deal that is rejected by the Investment Committee, so long as it meets certain set-in-stone requirements (e.g. a wildcard cannot be used to invest in a company that is out of thesis for the fund).
Actual footage of a Panache partner about to play a wildcard
How Voting Works (Unofficially)
At smaller funds — where everyone on the Investment Committee is a GP — voting on deals is relatively straight-forward. This is because everyone on the IC is an owner of the fund. That implies a baseline level of trust in and economic alignment with each other — i.e. they are truly partners.
At Panache, for example, we have 4 GPs on the Investment Committee. We’ve worked with each other long enough to be comfortable deferring to each other on all manner of situations. We know which partner is the subject-matter expert on any given industry and partner’s opinion will carry a lot of weight when looking at a company in their area of expertise. We’re also comfortable deferring to each other when it comes to evaluating the subjective potential of a founding team (though we have checks-and-balances in place to ensure that we don’t defer too easily or get caught behind rose-colored glasses).
As a result, votes are rarely contentious at smaller funds. At Panache, successful outcomes almost always reflect one of the following situations:
Unanimous: All partners enthusiastically vote yes
Unanimous by deference: All partners vote yes, but one or more partners defers to the judgement of the others on one or more aspects of the deal
3/4: 3 partners enthusiastically vote yes while one votes no in order to document their objection for future learnings (this is typically not contentious but, rather, expresses a perspective of “I’m on board, but I still disagree with you on X”)
Similarly, unsuccessful outcomes are generally unanimous or near-unanimous (I can’t for the life of me recall a situation where we were split 2 vs. 2 on a vote).
Of course, that leaves the case of the “wildcard”. It might surprise you to know that even those are generally not contentious. We go into wildcard situations knowing that (a) each partner has a certain number of wildcards to use, and (b) the only reason to use a wildcard is because you have extremely high conviction that we should do the deal. All GPs are owners of the fund, so our economic interests are fully aligned even when our individual opinions diverge. There’s no reason to do a deal out of spite, so there’s no need to ever question the underlying motivations of a partner using a wildcard.
Getting deals done at larger firms — where the Investment Committee consists of both GPs and non-GP partners — is far more nuanced, specifically because the level of trust in and economic alignment between partners varies across the different levels of seniority. Which leads us to the paradox of the junior VC partner.
Choose Your Fighter
One of the most significant decision points in a fundraising process comes long before the first meeting: when you identify which specific partner at each target fund you want to reach out to. At a smaller fund, it’s usually pretty obvious: more often than not, a single person led all of the deals in given industry.
But at larger funds, you’ll frequently find that multiple partners have led investments into similar companies. Often these partners have different levels of seniority at the firm, varying degrees of operator experience and a mix of “big wins” and up-and-coming investments.
How do you choose who to reach out to? Let’s consider two options:
Option 1: The Big Cheese
The default option for many founders is to go with the biggest name: the most senior partner familiar with your industry. The person who’s led the most prominent investments. The “a” in a16z. The partner with the Midas (list) touch.
Pros: As a senior GP, they hold considerable sway in the voting process. If you win them over, they can often influence the rest of the partnership to follow suit. They bring with them considerable experience and first-hand knowledge of what it takes to build successful companies. Moreover, given that the big cheese is usually one of the most prominent names at the firm, there’s bragging rights that come along with that person leading your round. All things equal, having a more senior partner in your corner is better.
Cons: Senior GPs at large firms are typically being pulled in a dozen directions at any given time. Not only does this mean it’s harder to get their attention, but they’re often less inclined to dig deep into “non-obvious” opportunities. Post-investment, they might not have the bandwidth to spend considerable time with you (so while their name can open a lot of doors, you might not get as much individual attention from them as you might hope for).
Option 2: The Rookie
In the other corner, we have the up-and-comer. The eager new arrival at the firm who’s trying to build a name for themself. The rookie of the year.
Pros: Junior partners at VC firms are hungry. Really hungry. While their parents and B-school friends are busy bragging that they’re a partner at Big Name Ventures, in reality they’re getting a fraction of a percent of carry (upside), are the only person on the investment committee without a dedicated EA, and are last in line when someone brings donuts to the office. Junior partners are in search of their signature investment — the unpolished gem whose discovery will make them a household name (even if they won’t get the full economics when it IPOs). Post-investment, junior partners are typically far more hands-on than their senior teammates, due to both available bandwidth and their drive to see these first few investments succeed.
Cons: Junior partners rarely have the gravitas to push a controversial investment through. Given that VC is supposedly about making contrarian bets, this dynamic alone can make it challenging to win over a big name firm if you don’t have mind-blowing traction or a rock star, pedigreed team. As a result, they will often hesitate when faced with questions from more senior partners for fear of wanting to be wrong with their early investments.
Do you really want to do this deal..?
A Real-Life Tale
Back in 2013, I was raising DataHero’s Seed round. One of the firms we were in diligence with was a top tier, multi-billion dollar Silicon Valley firm that I’ll refer to as Acme Ventures. We met Acme through a warm introduction by one of our Pre-Seed investors. The partner we were introduced to at Acme had an extensive background in our space. He immediately understood what we were trying to do and was eager to move into diligence with us. Let’s refer to him as Jim.
Within the first week, we met with Jim multiple times at Palo Alto coffee shops and at Acme’s Sand Hill Road office. We poured through details of our customer analytics and unit economics. We discussed at length what we had learned over the course of our first year of commercial activity and how that might influence our strategy going forward. We debated the pros and cons of the bottoms-up strategy we were employing (the term “product-led growth” hadn’t been coined yet) and how we might tweak our go-to-market with an additional injection of capital. Everything about our engagement with Jim filled us with optimism.
What we didn’t realize at the time was that Jim was brand new to Acme. And he had never led a single deal.
Over the course of the next few weeks, we had nearly a dozen meetings with Acme. Jim was eager to fill the role of champion, coaching us on the process and telling us what to expect at every step along the way. We met with partner after partner. Then teams of partners. Then teams of teams of partners (Acme had a lot of partners). Jim was enthusiastic at every step of the process. We had countless conversations and even began discussing the areas Jim felt that he could help us post-investment.
After three weeks of meetings, we went to Acme’s office for a final presentation to the full partnership. Jim advised us that this was a formality, given that the subset of partners responsible for enterprise deals had already given the thumbs up. So long as we didn’t completely fall on our faces, it was a done deal.
And then it wasn’t.
Two days after that meeting, Jim emailed us to say that Acme wouldn’t be investing. We were dumbfounded.
We subsequently spoke with Jim and he gave us an explanation which was…pardon my French…complete horseshit. It was an obvious cowardly copout.
It wasn’t until years later that I found out what actually happened. After that final meeting, one of the firm’s senior-most partners asked Jim a straightforward question:
“Do you believe in this company enough to make it your first investment at Acme?”
Jim waffled. And the deal collapsed.
A year later, Jim was out at Acme. In the time he was there, he never led a single Seed or Series A deal.
So…What’s the Lesson Here?
I wrote this post not to provide specific advice. This isn’t a case of “you should always do X” or “you should never do Y”.
Rather, my intention is to make you aware of the subtle dynamics at play within VC firms when it comes to getting deals done. As those of us old enough to remember the 80s learned, “The More You Know…”
Here are my observations on deal dynamics after nearly 20 years in the startup world:
All things equal, it is easier to secure investment from smaller funds where all of the partners are peers (GPs) than at larger funds with more complicated structures.
All things equal, a GP who has conviction in your company is more likely to get the deal done than a junior Partner.
All things equal, a junior Partner is going to have more enthusiasm and be more willing to put in work to help you succeed than a GP who has already “made it”.
Bottom line: if you have a junior VC partner who’s enthusiastic about your company, they will likely put more work into supporting you after the deal gets done than a more successful, senior GP will. But getting the deal across the line is going to take more work on your part.
So who should you pick: the Big Cheese or the Rookie?
