Dealing With Generational Change at VC Firms

Dan Primack and Fred Wilson sat down for an interview last week at the Upfront Summit and the results were amazing. It’s 25 minutes and it’s both a pleasure to watch and is super insightful.

You can watch the interview embedded above of click on this link: Dan Primack interviews Fred Wilson at the Upfront Summit.

The interview was wide ranging and discussed everything from USVs investment thesis over the past 10 years to what some emerging themes are around blockchain and artificial intelligence.

As by now you likely know they had a brief discussion about public markets including about whether Uber should go public. But there was another element that was very subtle and nicely handled that I’d like to expand upon.

Dan asked Fred about “generational change” at USV and in the VC industry more broadly. Fred talked about places who had done this exceptionally well — like Benchmark and Sequoia — and how and why USV is thinking about it. Fred mentioned that in great investment firms the senior partners can continue investing for a long time without leaving the firm but eventually need to give more control to the younger partners. In firms where this transition doesn’t begin the talented younger partners splinter off and form their own firms.

We as an industry have seen this. And honestly it was the single biggest roadblock at Upfront when we raised out fourth fund in 2011. Many potential investors asked me, “Aren’t you just going to leave and form your own fund?” I told everybody I wasn’t going to and I meant it. The founding partner of Upfront, Yves Sisteron, has been a mentor for me since 1999 and was on the board of my first company. We don’t always see the world in the same way — and that’s a great thing. Plus, I’m a hot head and he’s calm, cool and collected. Those styles go well together.

When I brought the issue to Yves and he said, “I always expected you to run the firm one day. I just thought it might take you a little bit longer. But operationally and strategically you’ve already guided us for the past few years so why don’t we put it to a vote?” And we did. And thankfully I had the support of my peers. And Yves and I decided to share the Managing Partner responsibilities and to manage generational change over the course of two funds.

And to Fred’s point that he and Brad want to do this for a long time: Yves is only 60 and over the last several years has gotten even more passionate about investing in disruptive technologies than I’ve seen before. He’s leading the charge in our investments in agriculture technologies, for example. He led our investment in 6sensor Labs, which has patented techniques for screening food for gluten and peanut allergens. And he led what is currently our best performing company out of that 2012 fund — AdoreMe.

The model has worked very well for Upfront and has allowed a nice, smooth transition over time where the founding partner doesn’t have to see any end to his investment horizon and loves what he does but the younger partners, like me, can feel motivated that we get to shape the future.

And since Fred discusses economics in his video (and few VCs do) I will reciprocate. We have a very similar philosophy to Fred. We have an “on-boarding” philosophy for one fund where a new partner has a sort of apprenticeship or proving ground economically for a first fund and then very quickly gets moved to a much more even playing field whereas in the old model of VCs the founders often took disproportionate economics for many funds.

Even at 47 I’m trying to figure out the long-term future of Upfront. How do we continue to attract the most talented partners we can who also fit with our culture and values and support our investment theses? And with attracting talent — and I think we’ve done phenomenal in adding full time partners like Greg Bettinelli and Kara Nortman — you also have to allow them to challenge your views on the industry.

Greg joined a bit earlier so has had more time to start to shape our investment philosophies and the strong opinions, well-through-through positions have been a breath of fresh air and definitely started to make changes in our thinking. And I have no doubt that Kara — also no wallflower! — will also continue to shape our future firm.

Fred talked about Albert and Andy — his two non-founding partners, who now play an equal role in the firm and whom I guess are both starting to heavily influence future USV strategies. I hugely respect both Albert and Andy and have no doubt that their rise in prominence in the firm will be a huge net positive while allowing Fred and Brad to continue to do what they’ve obviously done so well over the past decade.

It’s a great interview. I’d love for you to hear directly what Fred has to say by watching for yourself.