Mahendra Ramsinghani - The Business of Venture Capital

“Doing yet another deal will not help me grow. VC business is always there — it's not going away, and I can always come back to it,” says one investor, who walked away from an investment role after nine years to try something different, something new. Author and angel investor Tim Ferris stepped away, taking a hiatus investing, because the noise simply wasn't worth it. The cortisol-fueled, unnecessary hurrying associated with that culture was causing more harm than good. 1

Igor Taber left Intel Capital after a decade of making investments in Silicon Valley startups. “I loved to see multiple flowers bloom,” he said. Growing up in Ukraine, he was the first in his family to go to college and get a formal education in the United States. “I spent 10 years in Intel in a business development role and another 10 as investor in the VC arm — no one should stay in one company for 20 years — it feels like a lifetime,” he quips. “My transition out of venture was driven by a great CEO and a phenomenal opportunity — it was just too good to pass.” Igor had invested in a machine learning platform and served on the board for four years. “The CEO's determination, work ethic, vision, and importantly a team builder of giants got me excited,” and he joined Datarobot, heading up corporate strategy and acquisitions. At Intel Capital, Taber had funded and served on boards for more than 20 companies, but one caught his eye.

For Paul Holland, the role was reversed. He started his career in an operating role after a chance meeting with Reed Hastings, founder of Netflix. “It was at a hot tub party 30 years ago,” recalls Paul, and he ended up working with Reed, shaping the trajectory at Netflix. After eight years of investing at Foundation Capital, and as a GP for six funds, Paul plans to transition out of the fund. “The third generation of management is coming in at Foundation. We need to make it easy for them. Transitions need to be structured and respectful for both sides. At 35, you don't know what it is like to be 58,” he says. And on his way out, he did a parting favor to a junior partner. He helped shepherd a particularly risky seed investment that the junior partner would work on. As he heads off to his next phase in life, Paul has made some lasting contributions, not just to his LPs but to the industry as whole. He produced a documentary — Something Ventured — which memorialized the views of some of the legends of the first generation — these include Arthur Rock, Don Valentine, and even the late Tom Perkins, founder of Kleiner Perkins.

For some that got out, it was triggered by a life-event, for others, boredom. And we should ask of ourselves, as Don Valentine did, can we leave behind a better firm — a better society or a better tomorrow? Or did we try to enrich ourselves one last time as we head out that door? In one of the Silicon Valley firms, a retiring GP presented an elaborate NPV calculation and a payment stream that the junior partners had to commit to pay to the retiring GP. The departing partner planned to collect a “royalty for using his name” for several years, and after all that, he even retained a percentage of the GP. The new members of the firm were bonded labor, albeit Tesla-driving Stanford-graduates.

Paul Holland, who has designed his own transition at Foundation Capital, says, “As an industry, we can certainly do better — for the most part, it has not been done right.” To which we say, true, and read aloud, one more time Shakespeare's Sonnet 60:

“Like as the waves make towards the pebbl’d shore,

So do our minutes hasten to their end;

Each changing place with that which goes before,

In sequent toil all forwards do contend.”

1 1. The Tim Ferris Show #373: Interview with Jerry Colonna.

It's easy. It's not easy.

The hardest and the most humbling part of a VC's journey is often raising a venture fund. And in raising a fund, you make an explicit promise to serve your LPs. Whether you give them a ticket to the ringside view of the technology circus, or empower them to play an active role in shaping the future, as a fund manager, the first thing you do is serve your LPs. Bob Dylan's song “Gotta Serve Somebody” is a gentle reminder that no matter how high you go, there is always someone who we serve.

You may be a business man or some high-degree thief.

They may call you doctor or they may call you chief.

But you're gonna have to serve somebody…

So in this section, let's figure out the basics — who you serve, your fund strategy, targeting the right fund investors and LPs, the arcs of story-telling, decks and data rooms, road shows, and more.

Might I suggest that you wear that humble hat. Kneepads are optional but often recommended. Groveling may be required, and is often expected in the high corridors of power. Over some fine whiskey at the Battery Club in San Francisco, one LP humble-bragged that he has anchored many venture funds, being the first money in first-time funds. “I am the quintessential GP king maker,” he muttered. And then he continued with a pompous smirk, “I love it when they come begging to me. I own them.”

Just as smart founders select the right VCs on their board, the best fund managers are able to pick the LPs that matter, can add value, and shape their journey. Unfortunately, there are very few of these. Pick the wrong LP and you have a toxic problem. Some are like absent parents — who show up for an occasional annual sporting event. The best ones build rich, collaborative, two-way networks.

The business of VC is like a two-sided marketplace. On one side are the investors — your LPs and your shareholders. On the other side are your founders. You cannot serve just one side well — you have to ensure both sides get some love, respect, and, above all, performance. You want LPs for life — not just for one fund. But it's often the first fund that counts — if you do well, the rest becomes easier.

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