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LPs must understand a Venture Capital firm's long-term viability, by looking beyond returns, and focusing on organizational behavior.
In other words, to understand a VC firm’s endurance, Limited Partners must evaluate how a firm is built and run as an organization, not just how it performs financially. VC is fundamentally a people-driven business, and the sustainability of a firm depends on e.g. partner dynamics, governance, and team-building discipline.
Here is a high-level, must-have checklist for LPs to assess multi-partner dynamics:
LPs are evaluating GPs on two critical fronts: their investment skill AND how good they are at picking other people and building their team. Cohesion is paramount, and success depends heavily on interpersonals. Firms are vulnerable to collapse if the firm's strength relies solely on one person driving all returns, the 'single rainmaker'.
Predicting partners rotation is critical too. LPs must anticipate future partner changes, especially when one person seems to be 'swimming over here' while the rest of the team is and 'swimming in this way'.
Also, in a cohesive partnership, value extends far beyond simple $ attribution. Partner contributions are often qualitative, including high-value board seat work, providing strong advice, training, or the skill to mentor, for the sake of generational transition.
While 'consensual' investment committees may have their obvious pros, such as reducing individual biases and identifying blind spots, kind of a decentralized power is needed too. LPs should look for structures where the partnership is deliberate. Why? Because in the most effective VC team models, every partner has the ability to vouch for something and write the check, even in the face of internal disagreement, pushing decision-making to the edge.
Eventually, and not the least, a diverse team helps manage bandwidth and mental load, ensuring that if one partner is mentally drained, another can be fresh or bring curiosity from a different angle.
LPs must understand a VC firm's long-term viability and endurance, by looking beyond returns, and focusing on organizational behavior. 0 reply
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