What causes venture capital partnerships to break down?

Hunter Walk · Jan 30, 2023

Long-lasting partnerships stay conflict-free not because they start in a charmed place but because the partners commit to continually reexamining and understanding the relationship

Speed bumps always occur; they used externally-led 360 feedback from founders and co-investors every other year, plus therapy, to keep meeting each other as who they are now rather than who they were a decade earlier

11:38 20VC: Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed Strategy Today | Why They Decided not to Raise New External Funds | Where Are We in the Cycle & What is Truly F***** | Why Founders Should Take Secondaries Earlier

Satya Patel · Jan 30, 2023

Because people and circumstances change, partners must actively invest in the health of the relationship, including regular structured check-ins on how happy each partner is

It is like a marriage — the relationship needs maintenance as the people change

13:54 20VC: Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed Strategy Today | Why They Decided not to Raise New External Funds | Where Are We in the Cycle & What is Truly F***** | Why Founders Should Take Secondaries Earlier

Hunter Walk · Jan 30, 2023

Starting a firm later in one's career, past a personal financial threshold, allows partners to defer short-term economic optimization and play a long-term game

Having already been paid millions and lived below their means in their mid-to-late thirties meant they didn't need to hit an income number each year, so they could maximize for time together and the people they work with instead of dollars

Scope: depends on partners being at the same life stage with the same material goals

15:01 20VC: Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed Strategy Today | Why They Decided not to Raise New External Funds | Where Are We in the Cycle & What is Truly F***** | Why Founders Should Take Secondaries Earlier

Rob Go · Jun 23, 2023

An equal partnership across carry, salary, ownership and governance is highly valuable because unequal splits create incentives to renegotiate as fund performance shifts

If economics weren't equal there'd be too much incentive to renegotiate depending on how things went in the fund; equality reinforced a long-term shared commitment

Scope: worked because partners were aligned on life and career goals

12:55 20VC: How to Raise a Venture Fund from Deck to First Meetings to Final Close, Why Venture is a Young Person's Game and Why Multi-Stage Funds Have Not Ruined Seed with Rob Go, Co-Founder @ Nextview

Michael Eisenberg · Dec 6, 2021

Equal partnerships make a venture firm a safer, more collaborative space, and most partnerships are not in fact safe spaces when times get hard

In equal partnerships you aren't subconsciously negotiating your economics; but information disparity between the board member and the partnership room is inevitable, and with inexperienced or junior investors deploying capital it becomes even less safe, which damages calm decision making

32:08 Equal partnerships create a safer more collaborative firm culture especially tested in hard times

Harry Stebbings · Jan 30, 2023

One of the biggest reasons venture funds fail is that the partnership breaks down

5:47 Partnership breakdown is the primary driver of fund failure

Satya Patel · Jan 30, 2023

Before forming a fund partnership, GPs should align not just on a shared vision of success but on what energizes versus drains each person day to day, and on explicit role clarity about what each is willing and unwilling to do

Many aspects of managing and building a fund are things not everyone is suited to or excited about, so comfort with the division of labor has to be established up front

6:17 Explicit role clarity and shared energizers before formation prevents breakdown

Hunter Walk · Jan 30, 2023

Partnerships with large age gaps or unequal economics tend to have money become a source of conflict; similar age, goals, economics and values are what make a partnership work

Observation of other partnerships — wherever there's a difference in age or unequal distribution of economics, money becomes an issue

54:30 Age and economic disparity between partners causes conflict similarity sustains partnership

Jason Lemkin · May 27, 2024 · speculative

Outlier windfalls destroy GP motivation: after a partner personally makes hundreds of millions from one exit, grinding through a harder vintage at high entry prices for a couple of million in carry isn't worth it

The math no longer works — a partner who made ~$300M+ off Datadog faces fourteen more years for near-zero carry, so unless you truly love it you hang up your hat

67:14 Outlier windfall from one exit kills motivation to grind through a harder vintage

Harry Stebbings · Apr 28, 2023

Most venture firms deliberately shield their junior investors from LP relationships to stop talented people leaving with a ready-made LP network

Exposure to LPs gives a departing investor the network needed to raise their own fund

38:34 Shielding juniors from lp relationships prevents them leaving with a ready made lp network

Byron Deeter · Aug 25, 2025

The recent wave of VC spinouts was a point-in-time reset rather than a new normal, and partners left seeking a better environment or structure rather than better economics

The best firms are already pretty flat at the top economically, so departures were about wanting a fresh start, running from or toward something, not carry

64:58 Spinout wave was partners seeking fresh start not better economics

Michael Eisenberg · Jun 19, 2024

The first funds to go out of business will be three-to-five-partner firms where only one partner is actually good

The good partner gets tired of carrying everyone on their shoulders, leaves to set up their own thing, and everyone knows it

41:02 Single strong partner firms collapse first as that partner exits to solo

Peter Singlehurst · Mar 19, 2025

Baillie Gifford's retention comes from its structure as an intergenerational unlimited liability partnership where carry accrues to the firm, creating stewardship obligations to clients and to future partners

Partners see themselves as a continuous chain responsible for handing the firm on in better shape, which produces deep care rather than individual mobility

64:09 Unlimited liability intergenerational partnership structure with firm level carry produces stewardship and retention

Miles Dieffenbach · Aug 4, 2025

Incentives are the number one reason venture partnerships break down

28:18 Misaligned incentives are the primary cause of partnership breakdown

Harry Stebbings · Aug 4, 2025

Partnerships break down for two reasons every time: incentives and disagreement over who is working the hardest

28:19 Incentives and disputes over who works hardest are the two recurring causes

Miles Dieffenbach · Aug 4, 2025

The last two years have seen more partnership turnover at venture firms than the prior six years combined

Partners who already made money don't want the grind of no liquidity, broken cap tables and founder transitions; newer GPs saw promised carry evaporate as performance fell, so they'd rather start a fresh book or their own firm

28:28 Carry evaporation and liquidity crunch drove a recent surge in partner turnover

Jake Saper · Mar 10, 2025

Venture firms retain partners by growing them from within and running a genuinely equal partnership, rather than hiring ex-CEOs or armies of junior investors

The standard model gives junior investors two years and a checkbook, which incentivizes writing as many checks as possible and is never enough time to judge outcomes, so they either get pushed out or leave once they realize they will never be equal partners

60:33 Grow partners from within with genuine equal partnership to retain talent

Jake Saper · Mar 10, 2025

Retired firm founders retaining a meaningful share of the firm's carry creates bad incentives and drives high performers to leave and start their own funds

If you're a top performer with no path to real ownership, you'd go start your own thing — which explains the proliferation of new funds; Emergence's founders forfeited their carry on retirement, which is why he has no reason to leave and can credibly promise a principal equal partnership

81:25 Retired founders retaining carry drives high performers to spin out