Four Reasons People Leave Venture Firms

Every departure is unique but most fall into one of four categories

One of the most well-reported themes of 2023 and 2024 was the amount of turnover in the ranks of venture capital firms. So many of my favorite journalists covered this theme that I can’t point to all of their writings. But I wanted to flag a few articles covering this theme, including this one by Techcrunch and this article by the team at Bloomberg. If I missed any posts worth mentioning, please drop me a comment, and I will update this post to include them.

In the wake of this turnover, founders have to figure out what these changes mean for them going forward. Two of my favorite articles on this topic are a 2019 post by Hunter Walk and a 2019 post by David Beisel from Nextview. They are both worth reading if you are a founder whose initial VC backers are no longer at the firm on your cap table.

Most articles I’ve read about the rising level of VC departures tend to focus on two core reasons why people leave. The first is performance; people are pushed out based on expected or realized performance. The second is a desire to start a new fund that better reflects their image or interests; I get to have many conversations along these lines in my work at Screendoor. As someone who has navigated this process from both sides and talked to many people who have gone through a firm separation, I think there’s a bit more nuance to why people leave venture firms, whether voluntarily or involuntarily. By and large, there are four core thematic reasons why people leave venture firms.

Interpersonal Conflict

With the notable exception of megafunds, most venture capital funds are small partnerships with small teams. Sometimes, interpersonal conflict rises to the point where someone has to leave. VC firms have power struggles just like other professional services firms, and sometimes, the person who finds himself or herself on the wrong side of a power struggle cannot stay and be effective at the firm. In other cases, people are making money together and doing well but don’t like each other enough to stay together.

Unfortunately, our industry also has situations where interpersonal conflict has gone beyond personal disagreements or acrimony into harassment or abuse. These are clearly of a different magnitude of conflict than I mentioned in the first paragraph. Still, I did want to acknowledge that such cases have happened and are of a different caliber than simple personal disagreements.

Low Expected or Current Performance

Long performance feedback loops are both a feature and a bug in the venture business. While it can take 10 years or more for realized performance to generate cash to distribute back to limited partners (DPI), firms continuously evaluate their investing teams' performance to determine who is doing well and who might be underperforming. In my experience, expectations of future performance tend to impact termination or retention decisions more than realized performance. Venture firms typically have way more performance data about their portfolio companies than the public does, and they use that data to assess the likely future prospects for those companies and determine whether a given individual’s portfolio of companies is likely to make a substantial contribution to fund returns. Sometimes, the assessment is driven by the individual decisions that firms make about specific companies, and sometimes, it’s driven by the desire to pivot away from a given market or sector completely. In the latter case, investors investing in sectors that are now out of scope for the fund can find themselves in an awkward and untenable place.

Personal Advancement and Control

Separate from my comments about interpersonal conflict, one of the main drivers for voluntary departures is personal ambition or a desire for more control. There are certainly cases where people want to bet on themselves and believe they are capable of doing and achieving more than their role at their current firm (or that firm itself) thinks they can achieve; the only path for those folks is to leave and find a firm (one of their creation or someone else’s) where they can get more responsibility sooner. In other cases, people want to be at a firm that better reflects their values, personality, or worldview. At most venture firms, the person or people in charge are the ones whose values and worldview are reflected in the firm, and it can be hard to influence that if you are not part of the leadership team.

Financial Incentives

Financial incentives are an issue, but they are not always adequately put in context. People leave firms because they know what’s in the portfolio and can conclude the possibility of them making money is very low; this can be because they have a small piece of the fund economics (management fees and carried interest) or because they don’t believe the portfolio will generate meaningful returns overall. Other VCs are assessing whether their current firm can raise another fund and whether they are better off staying where they are or moving to a new firm with better prospects for future management fees and carried interest. And, at this moment, we have a handful of experienced VCs who did very well in the early 2020s, and the prospect of dealing with all of the work required to raise and run a venture capital fund and compete to win deals is less interesting than other things they can do with their time.

I used to advise founders that the safest path was to raise money from a fund where the person sponsoring your deal was either the firm's founder or the most senior person actively making new investments, as those folks were the most likely to be there for the long term. In this environment, I’m not sure that advice is as useful as it once was.