‘Free Agent’ Venture Capitalists

I’m increasingly seeing some very good VCs invest on their own.

Perhaps they’re tired of the challenges of fundraising, or the politics that can happen when a VC firm becomes large and has multiple partners in multiple cities across multiple generations investing in multiple sectors across multiple stages. Or, perhaps they just want to retire but continue to invest as angels to stay connected.

So, I am seeing some of them say they’re out, or cutting deals whereby they can invest on their own.

The math for doing so, if you have the personal capital and don’t need the salary from a VC fund’s fees, is pretty compelling. For example, if a VC spearheads an investment and gets his 20% or so ownership on behalf of a fund, his personal stake is a fraction of that. His investors get 80% of the gains. The VC and his partners then share the remaining 20 pct.

Let’s say this VC is at a large firm and is one of 10 partners. Let’s say that they’re equal. His stake is then 0.4%, or 20% of the 20% ownership divided among the 10 partners.

So, can a VC, as an angel investing his own money, get more than 0.4% ownership? Very likely. And, if the VC as an individual adds a lot of value as opposed to the VC firm as a whole, why wouldn’t the entrepreneurs pick the 0.4% of dilution vs. the 20%? I am seeing this more and more.

I think this is a trend worth watching.

So, in such difficult times, why do VC firms stay together? I think the reasons vary. For me, I think it is about “business love.”

Do I not just like my partners but do I love working with them and do I love them as people? Do I love my investors and feel loyalty to them? Do I love my entrepreneurs and believe value to them is best delivered when VCs come together as a true team?

The day I lose business love is the day I retire. Thankfully, I feel that day is far away.


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