VC firm leadership transitions: The secrets of success

Succession, Sand Hill Road-style

Generational transitions are not easy to pull off at venture firms, which are typically small, boutique partnerships built on the individual relationships between a small number of players. Transitioning between one or more leaders to the next generation can be fraught. There are the big (yet humble! always humble) personalities involved, egos to manage and, of course, the economics.

But it’s a necessary process, if a firm wants to last and stay on top in an intensely competitive industry. Sequoia this week named Roelof Botha, whom Biz profiled in depth recently, as the firm’s senior steward, taking over from Doug Leone.

Venture funds take years, so firms need to plan early. With funds lasting a decade or more and firms typically raising new funds every two or three years, that can be tricky.

• Firms need to identify new leaders and give them more control as early as possible. Otherwise up-and-coming investors will leave and form their own firms, something that happens more and more often these days.
• It’s crucial to keep LPs in the loop. Investors should hear about succession plans when a firm is raising the fund prior to the one where the transition occurs, so they can evaluate and adjust, according to Top Tier Capital Partners, a fund of funds.
• Venture firms also vary dramatically in their structures. Some have fairly evenly distributed economics and control, while others operate more like a company with a CEO at the top. And you’ll find everything in between. The particular structure of a firm has a huge effect on transition planning.

Sequoia is known for handling the generational transitions well. It’s been a key part of its success.

• Founder Don Valentine passed the baton to Doug Leone and Michael Moritz in 1996. Then in 2012 Moritz stepped back from operational management and Leone became senior steward, with Neil Shen and Jim Goetz becoming stewards. In 2017 Goetz stepped back and Botha became a steward. Shen remains a steward and leads Sequoia China.
• The work of mentoring the next generation has to be a continuous process so that when the transition happens, the firm doesn’t miss a beat, Leone has said. “Changes should happen in a way that nobody notices,” Leone told TechCrunch in 2013.
• Another firm that has a well known transition process is NEA, which transitioned from Dick Kramlich to Peter Barris, then to Scott Sandell.
• Benchmark is well known for its prior transition from its founders to a new generation of leadership. Bill Gurley announced he was stepping back in 2020, leaving Peter Fenton as the longest-tenured partner.

There are many ways these transitions can fall apart. The most-cited recent example is Kleiner Perkins.

• After legendary investor John Doerr stepped back from day-to-day management, the firm brought in two new partners: Mamoon Hamid and Ilya Fushman. But that didn’t hold things together: Mary Meeker departed to start a new firm, Bond Capital.
• Another firm that saw big changes was DFJ. It dropped its founders’ initials and is now known as Threshold Ventures.

VC leaders need different skills than ordinary investors. This is not just about company-picking or -building.

• The leader of the firm needs to be a great investor so that they are respected by other partners, but that’s not enough, investors tell me.
• The leader needs to build consensus when partners disagree. They need to manage relationships with limited partners and rally the firm when needed.
• They also need to deal with the nitty-gritty of operations, like LP distributions.

Then there’s the matter of firm names. Sequoia wasn’t named Valentine Ventures for a reason. Meeker, despite her fame, didn’t go the partner-name route. But some more recently formed firms have gone with the classic naming structure. Maybe it’s too early to be talking about Haun Ventures’ succession plans. But given how quickly Web3 moves, perhaps we should?

Overheard

“I dropped the ball on replying to an intro email from a founder. To spite me, he sends me metrics every month, with insane growth numbers and rocketship emojis. I marked it as spam so he now uses a different email address on every update.” — Nikita Bier, who has a founder spam problem.