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Venture Capital Partners Strike Out on Their Own

May 18, 2017

This article first appeared in Term Sheet, Fortune’s newsletter on deals and dealmakers. Sign up here.

It's fairly normal for successful venture capital pros to spend their careers building up a track record at a larger firm, and then "spin off" with their own firms. Lately, as limited partner interest in venture continues to grow, it feels like just about every partner who isn't listed on their firm's Form ADV is launching their own fund.

Another fairly normal thing: Lots of people who hold the "partner" title at venture capital firms don't actually have decision-making power. For years startup gurus like Paul Graham have told young founders not to waste time talking to venture associates. So now some firms give their associates the "external" title of partner.

But even many of the partners that do have decision-making power and influence over a firm's investments aren't on the Form ADV. These forms show which partners own the venture firm's management company (as opposed to the individual funds). The key distinction is that partners not listed on the ADV don't have influence over how the firm spends its fees.

In general venture firms make money via returns on the money they invest (carried interest), and via the fees they charge for managing the fund (usually 2%). Junior partners can get access to the returns, but they don't usually get to control what's done with the fees.

Those junior partners are increasingly realizing they have the track record and ability to raise their own funds, where they'll control the entire fee stream. Naturally, no venture capitalist would ever want to be seen as enriching themselves with fees - this is not about the fees, okay? - and so none were eager to discuss this aspect of the story. And to be sure, there are lots of reasons for spinning off. But total autonomy over the direction of the firm seems like a pretty compelling one to me.

Recently, a venture investor who is trying to add a new partner told me he keeps striking out because all the junior partners he wants to hire are planning to do their own thing. In some cases, the limited partners of their employers are even pledging support and encouraging the spin-offs.Here are a few recent examples of spin-offs:• Elephant Partners founders Jeremiah Daly and Andrew Hunt were previously at of Highland Capital Partners. They raised $156 million for their first fund.

  • Precursor Ventures founder Charles Hudson was formerly a partner at SoftTech VC. Precursor raised $15 million for its first fund.
  • Radian Capital founders Weston Gaddy and Jordan Bettman, formerly of Bain Capital Ventures, raised $150 million.
  • Goodwater Capital founders Chi-Hua Chien and Eric Kim come from Kleiner Perkins and Maverick Capital, respectively. They raised $130 million for their first fund.
  • Imaginary Ventures co-founder Nick Brown, formerly of 14W, is raising a fund, which sources say has a target of around $100 million.
  • Ilona Capital founders Michael Abdy and Noah Lowy, formerly of General Atlantic, have raised $75 million for their first fund. The firm will provide expansion capital for web and software companies, Term Sheet has learned. The Lowy Family of Westfield Corp. is the firm's anchor limited partner.
  • BlueYard Capital founders Ciaran O'Leary and Jason Whitmire, formerly of Earlybird Venture Capital, raised $120 million.
  • Afore Capital founders Anamitra Banerji and Gaurav Jain, formerly of Foundation Capital and Founder Collective, respectively, raised $46 million for their first fund.

Venture firms, lock in your junior partners.

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