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Weekend Analysis

How to fire a VC

‘Elegant exits’ and passive-aggressive signals trump layoffs in VC land.

Venture firms are feeling bloated these days.

Years of ballooning assets prompted investment firms to grow their headcount, and many now want to slim down. This week, The Information reported that several Tiger Global employees who focused on raising capital have left the firm, and that startup accelerator Techstars shed 7% of its staff, primarily in support and operations roles.

When it comes to investment professionals, rarely are partners laid off directly. The exception is when a firm shuts down, as was the case with OpenView last month, when senior partners let go of most of the firm’s employees.

“In venture, you’re rarely fired on the spot in the way you would be in an operating company,” said a founder of a prominent venture firm who asked to remain anonymous.

This VC chief has been having conversations about finding what he called an ‘elegant exit’ for several of the firm’s investors. He has told them that they won’t be principals or partners on the firm’s next fund and that they should take the next six months or so to figure out what they’ll do next.

“We’re a high enough margin business with a small enough headcount that we can be super gracious,” he said.

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But not all investors are asked to leave in this direct, albeit gentle, manner.

Hunter Walk, a partner at Homebrew, said that sometimes people receive passive-aggressive signals from their senior partners.

Mid-level and junior partners may find their deals stop getting approved by their firm’s investment committee. In venture, careers are built on doing deals, and when an investor is stymied, it’s often a strong sign that the person’s future in the firm is limited.

Another subtle way to push an investor out of the firm is to reduce their fund ownership.

“Ultimately, every time you raise a fund, you reset the partnership percentages,” explained Chris Dovous, a managing director at Ahoy Capital, which invests in funds and startups. “In good times, there’s a bigger pie to share. In bad times, the pie is shrinking.”

And boy, is that pie shrinking. Overall US VC fundraising fell to its lowest level since 2017 last year. For successful funds, the median increase in fund size was about 18%—in four of the last five years, that figure topped 40%.

People who get frustrated that they are not rewarded for their work may leave a firm. That, of course, is often the outcome senior partners are hoping for. Smaller funds mean they’ll be doing fewer deals and collecting fewer fees. There’s no need for as many investors in these leaner times.

Firms also appear ready to bid farewell to marquee investors who are focused on sectors that have fallen out of favor. This week, Connie Chan, a longtime general partner at Andreessen Horowitz, left the firm amid its shift to AI. Her departure follows that of other senior consumer-focused a16z investors including Jeff Jordan, who backed Airbnb, Instacart and Pinterest.

Although some investors may feel that they’ve been given the cold shoulder, most senior partners strive to find a way to make separations amicable.

Some departed investors will go on to found startups, which VC firms may want to back. Or they may join another venture firm, and the two firms will invest alongside each other.

Then there is the question of preserving relationships with portfolio companies. Sometimes, investors continue with their old firm in a board partner capacity. This is the case with Jordan who is maintaining his board positions with at least seven companies.

These dynamics have been taking place in the VC world for nearly a year, and it’s not always known to outsiders who has left, since firms don’t rush to update their websites.

This may all seem like dark times. But the right-sizing of the industry, as one LP called it, could help to weed out people who are not as passionate about investing—which is turning out to be a more difficult business than it seemed during the boom days.

Featured image by Mara Potter/PitchBook News

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