Succession Planning in VC

Planning and executing the transfer of power from one generation of VC managers to the next, a process known as succession, has been described as one of the biggest problems confronting VC firms today. Many of the leaders in this industry have spent years, if not decades, at their firms, building important relationships and drawing on their own extensive knowledge and expertise to make wise investment decisions. This often makes it extremely difficult to pass the proverbial baton to the next generation of managers, who do not have the same professional connections or the same level of business acumen that is only earned over the course of a lengthy VC career. In recent years, though, a number of VC firms have successfully made it through the succession process by following a similar model for passing the reins on to the next generation of leadership. Here are three rules to abide by to make this process as seamless as possible.

1) Don’t Leave – Just Step Back: Because veterans of VC management have spent their whole careers accruing a vast wealth of knowledge and insight into the industry, and because they are the most well-versed in the best VC practices for their particular company, it is advantageous for former managers to stay on at their firm in another capacity after passing off managerial control. Such was the case at Polaris Partners, a venture capital firm based in Boston whose founders, Jonathan Flint and Terrance McGuire, stepped down from their executive leadership positions in 2013. Instead of leaving Polaris entirely, which could have damaged the reputation and good-standing of a company they’d spent twenty years building, they not only continued to work there as members of the investment team, but founded a new branch of the fund entirely. It’s called Polaris Founders Capital, and it is a related but separate entity of the organization that serves as a vehicle through which Flint and McGuire can invest their own capital into promising start-ups that Polaris would not traditionally take on (mostly because the companies are in industries that Polaris does not work with). Additionally, Flint and McGuire still actively seek out new businesses for greater Polaris to invest in, allowing them to serve not only as advisors to current management, but continue to grow the company they’ve built, just in a different way.

2) Accept That Change is Good: As Andy Grove, the former CEO of Intel & Leadership expert, wrote in his 1996 best-seller, Only the Paranoid Survive, “The person who is the star of a previous era is often the last one to adapt to change, the last one to yield to logic of a strategic inflection point, and tends to fall the hardest.”

These words of wisdom may be twenty years old, but more relevant now than ever, in a time when technology and investment models are evolving at what seems like warp speed. One investor who has demonstrated a profound understanding of the fact that VC succession is necessary to adapt to a changing landscape is John Doerr, formerly the most prominent and influential partner at Silicon Valley’s Kleiner Perkins Canfield and Byers. Doerr announced in April of this year that he would be leaving his managerial role at the firm to become its chairman, instead. As the Wall Street Journal explained, “this move strips [Doerr] of his vote on Kleiner’s investment committees for future funds, meaning that he will no longer be able to bet the firm’s money on startups, as he did with Google Inc. and” Even so, Doerr will continue to serve in an advisory capacity, recommending deals and holding a seat on various company boards. He  understands that in order to stay relevant, a company must be willing to try something new. It’s important to recognize when this opportunity presents itself, and not shy away from embracing change as a necessary part of both business and life.

3) Start Grooming New Management Today: Lastly, one of the best ways that a VC firm can ensure a smooth transition in management is by making sure  the next group of leaders has been adequately trained beforehand. Think of it like an apprenticeship: it is imperative for the next wave of managers to train at the heels of the employees they will be stepping in to long enough to be  prepared to take over when the time comes. If a VC firm wants to guarantee that the succession handoff goes well, the firm must invest its time, energy and money into grooming the next wave of managers. This investment must be made with as much lead time as possible.

As the world of venture capitalism continues to change, and as new technology continues to lower the barrier to entry for investors and startups, it will certainly be interesting to see which VC firms are able to undergo secession with facility and which have a more difficult time doing so.


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