You're raising from a partner *and* a firm

It’s common for young entrepreneurs to get excited about famous VC firm brands. Before even starting their companies, they’d heard of Sequoia and Benchmark, so they get starry-eyed about bringing those storied firms onboard. Later on, getting beers and attending dinners with other founders, you start to hear the real stories. Those stories are about people, not firms: People who kept their word when it was easier not to. People who dug in and helped in key moments. These are things humans do, not firms, and so as founders get more experience they start to target individuals they want to work with when they fundraise.

When a partner leaves a firm to join a new firm, or to start one of their own, they take their reputation with them. If their reputations are great, founders want to work with them just as much as before. Maybe even a little more, now that they have fresh capital to deploy or are no longer conflicted by some other partner’s bad investments.

The reality is, though, that the fund gets the shares, not the partner. The firm gets to appoint whoever it wants to the board seat. The firm may in all likelihood have an individual veto on M&A decisions. So it’s absolutely true that you are picking an individual person to build the company with. But it is equally true that you are legally married to the firm. You need to pick one whose decision-making process and culture you understand and respect.

Anyone who has had to raise an unpopular bridge round from their current capital partners knows this is not academic. Whether your partner is a true decision-maker at their firm matters a lot. (Their job title tells you nothing about this.) Their internal reputation at the firm also matters a lot. It’s not fatal if your partner isn’t a Made Person at the firm yet, but it will put you in the position of selling the other partners – the true deciders – yourself. 

Raising from the up-and-coming new partner is great for a few reasons. They might understand the technology better. They might speak your language more natively. It feels natural to build alongside them. But they might not have the political capital to persuade their senior partners to overcome qualms of throwing good money after bad on a deal they didn’t really understand in the first place. This doesn’t make raising from the up-and-comer a bad decision: Just a tradeoff that you should understand, and that you should manage by proactively building relationships with the other partners in case you need them.

The other situation that comes up more and more frequently is your partner leaving the firm. You have options in this situation, but here’s the truth: You will end up with a new partner from the firm who isn’t emotionally invested in you. Or you will keep your old partner, who is more excited about their new situation and can’t can’t go to bat for you with the old firm any more. Or both. Either way, when you need someone to dig in, when you need additional support if you stumble, if you need to take an outcome that’s “just okay” because your options are thinning – your ability to get that done is materially weaker than it was before.

The way to make the best of that situation is to understand the firm you’re married to. Have relationships with the other partners, and understand how those other partners fit into the whole. That way, when your partner tells you they’re leaving their firm, you can go to the firm’s deciders and say, “I want Sally.” And when Sally hears this, she knows who the hell you are and why she’d want to work with you.

The reality is that while you build the business alongside the partner, you are legally and financially married to the firm. It’s the partner who matters 95% of the time. But in key moments, it can be the firm as a whole that’s decisive. It’s worth understanding who they are, how they make decisions, and if they have a culture of honorable behavior during tough moments. It’s worth understanding those things before you sign any documents with them.