Whose Fund is it Anyway?

The “secret” way to find out who is really making investment decisions at your firm

Browsing venture capital funds websites including your own firm’s, you’ll often notice what feels like a million “partners.”  The larger the firm’s assets under management, the more people with the partner title.  What are these partners’ relationship to the firm?  How much power do they really all have?  And how do you tell who’s who?  Read on for an explanation and for a “secret” tip.

At the so-called partner level, there is typically a range of external partner titles: managing partner, general partner, venture partner, operating partner, etc., along with just partner.  The truth is that various titles do correlate to differing influence and power, but it’s not direct.  Confusion is natural, as many firms are actually intending to obscure reality with their partner titles.  After all, titles are outwardly-facing signifiers used to establish credibility with third parties, as well as milestone markers for those working on the inside.

In reality, there are three distinct tiers of partners at a venture capital firm.  The first is a partner in name only, or what we at NextView tongue-in-cheek call “small p partners.”  They aren’t a true equity partner in the firm in that they aren’t paying into the capital base of the most recent fund nor are they true decision-makers in the fund’s governance.  Instead, these partners are partners in name only — they’re at-will employees who can easily be let go for underperformance.  That’s hardly a strong “partner” relationship!  

The funny thing is, especially at many larger firms, most partners are actually of this “small p” profile.  The venture capital industry used to have titled Partners only be actual partners in the sense that they were owners in the business.  Then title creep happened, along with the desire to signal importance (read: ego) of other individuals but without the mutual commitment, so the concept of small p partners was created.  Next, title inflation unfolded, and now at some firms everyone who is on the investing team has become a partner.  

Like titles in parts of other financial and client-service industries, title-inflation develops to convince the customer (in our case the founder) that they’re speaking to a relevant decision-maker with organizational leverage.  Ironically, inflation has diluted that very intent.  I have a friend who has been a very high profile small p partner at a notable profile firm for over six(!) years now, who is only now graduating up the next level.

That next level is sometimes externally referred to as a General Partner.  Derived from the legal term of the same moniker, these individuals are a partner in a specific fund.  They are true owners in the sense that they own a piece of the carried interest, or the profits for each fund.  And they actually first pay into the investment capital base for this privilege.  Every three years the firm raises a new fund, so usually the only time a small p partner can become a General Partner is when the next fund is raised.  So not only do they receive the vast majority of the carried interest profits of a successful fund, but they also control the governance and are making the true decisions about what investments are made.  The governance and the economics here can, but do not always, move in lock-step. 

So, if General Partners are clearly the more influential decision makers at the fund, how do you figure out who they are?  That’s where the “secret” tip comes in, thanks to our friends at the SEC. This strategy is not pervasively known, at least to non-partner VC professionals.  Anyone can search for formation details of every new US venture capital fund, as they need to publicly file with the SEC a document called a Form D upon closing.  These filings reveal who the “Related Persons” are in the fund; or in other words, the individuals who are promoters or are the company’s executive officers & directors.  These key people are easily identified by:

  1. Going to the SEC’s EDGAR search site

  2. Entering the recent fund in the Company Name field and hit Search

  3. Click into “Form D”

  4. Scroll down to Section 3 “Related Persons.”*  

Voila!  If you go through the above steps for your firm (or any firm, actually), you can see who are the true partner owners in a specific venture capital fund.  And surprise!  Most likely there are fewer people listed on the SEC’s EDGAR search site than there are listed “partners” listed on your firm’s website.

For my first few years in venture capital, I didn’t understand the distinction between partners and General Partners.  And more importantly, I didn’t appreciate the implications; the real General Partners in the most recent fund were the ones calling the shots, particularly on investment decisions, even though they weren’t necessarily overtly titled as such.  These title and power structures have implications for how junior VCs navigate the politics of their firms to create more leverage — from who they politically align with, to how they build consensus around getting the deals they’re advocating for done.

In subsequent posts, we’ll dig deeper into an even more opaque aspect of the legal organization (power) of a VC firm, exploring the management company entity and how it’s related to the third and final tier of partner typically called “Managing Partner” or similar, as well as discuss building leverage for succeeding in your VC career.

* Notes: non-U.S. based, corporate, and atypically structured venture firms (e.g. those creating one-off special purpose vehicles) will not necessarily have the same organizational registration requirements.  Additionally, sometimes Related Persons listings here are obscured further by another LLC entity, but more often than not, the key individuals in a firm are listed front & center.  Lastly, I am not a lawyer, and the language used herein is not intended to be legally precise, but rather business descriptively accurate.