Nearly 10 years ago, in April 2015, I published a blog called “Confronting the ‘S’ word: Dealing with general partner succession.” As the founder and managing partner of Vintage, I wanted to ensure that Vintage would survive after I retire. Ensuring the survival of Vintage was a responsibility that I owed to our investors, portfolio funds, companies, and employees.
Venture funds take a long time to build and realize their investments — in many cases, more than a decade and a half. An engaged, energetic, committed, and hungry venture management team is as vital at the end of the fund as it is at the beginning. This is true for funds ending their lives and for the two to three additional funds raised along the way. Management team longevity is vital in challenged exit markets (as we are currently all experiencing). Succession management is more critical now than ever before.
Unfortunately, very few VC managers have managed succession well. So, in 2015, I decided to research the best practices in succession management and interviewed the managing partners of several of the world’s leading VCs to see what worked (and did not) in managing their succession processes.
[The succession process] requires an open and genuine dialogue between the senior retiring and incoming management teams.
At the time, I identified “six rules of succession”:
1. GPs must proactively manage and time succession: The worst thing a fund manager can do is deal with this issue during fundraising for a new fund. The process needs to be triggered by the GP’s recognition that a long-term team development plan is required, not due to LP questions during fundraising.
2. Implementing the succession process early: A fund management team needs to start the process and implement the mechanisms at least five to seven years before the current leadership team transitions out. It is common for the founding or the current managing partner to start phasing out in their late 50s or early 60s.
3. Gradually devolving management responsibilities to the younger partners: Fundraising and other firm management responsibilities should gradually be transferred to the junior team before the final transition date.