From what I’m told by my more senior Partners, the venture and private equity business used to be clubby. That is to say that business between firms was done on the basis of relationships and repeat interactions. Bad behavior was held in check by the small size of the industry. Financings and co-investment relationships got done on the basis of a handshake.
In pockets, that dynamic surely still exists, but with the industry having expanded so greatly both in terms of the number of firms and the number of professionals in the late ’90s, it has been harder to find. Two recessions in ten years hasn’t helped, nor has the dismal ten-year returns of the VC an PE asset classes, which has caused firms to scratch and claw for every ounce of return they can extract. All of this has caused the sharp elbows to come out. As my Partner Jack likes to say:
There is alot of schoolyard thuggery. The seventh graders think it is their right to beat up on the fourth grader. No matter what grade you are in, there is always someone bigger than you on the playground.
It is worth calling out when a transaction doesn’t turn into a knife fight. Without naming names (saving that for later), we recently brought a new investor into one of our companies. I have personally worked with this firm before. We don’t just have a relationship, we have a repeat relationship. While there were terms to be negotiated, the process was filled with a couple of key ingredients; trust, respect, admiration and an understanding that our work together is multi-threaded and won’t end at this transaction.
The result: A speedy and fair transaction that everyone around the table is happy with and where everyone left a little something on the table. No sharp elbows; no fighting over nickels and dimes; the way it should be. It is the repeat relationship that made all the difference.
Filed under: Uncategorized
