Uneven pay, opacity and central shotcalling force VC partners to strike out on their own

Around a decade ago, VC firm Helion Ventures, for instance, was hit by a slew of top-level exits, including Kanwaljit Singh, Sanjeev Aggarwal and Rahul Chandra. The top-deck executives all went on to set up their own VC funds, which have come into their own today. While Singh started Fireside Ventures, Aggarwal began Fundamentum and Chandra runs Arkam Ventures.

Similarly, even Rahul Chowdhri, Ritesh Banglani and Alok Goyal, who were all in the second line of command at Helion Ventures, quit and set up Stellaris Venture Partners.

Even former Sequoia Capital India (now Peak XV Partners) Managing Directors Abhay Pandey, VT Bharadwaj and Gautam Mago all quit to start A91 partners together.

“Partners being unhappy with the carry structure and allocations are some of the key reasons behind their exits. They also leave when there’s too much centralisation of power (with just one or two partners),” Chirantan Patnaik, Director, Venture Capital, British International Investment (BII) said.

Carry, or carried interest, is part of the compensation that Partners earn at VC firms. It is a percentage (typically 20 percent) from the total profits generated by the fund and is only paid out if the fund achieves a minimum rate of return or the hurdle rate. It is given to the General Partner (GP), who then distributes it among other managers. If executives are unhappy with that payout, they tend to leave.

“Partners will not leave just because they just want to strike out on their own. People wanting to do something on their own because their VC firm is not allowing them to do so is a very rare set. They usually leave because there is a lack of transparency from the top,” Patnaik added.

Patnaik has a ringside view of the VC ecosystem as BII is a limited partner (LP) in at least 10 VC funds in India, including Stellaris Venture Partners, Blume Ventures, Chiratae Ventures, India Quotient, Ankur Capital and Omnivore.

Many partners who left to start their own VC firms concur with Patnaik’s views and said that most departures are not amicable. “Partner exits are often shrouded in secrecy, especially those happening mid-cycle. These aren’t victory parades—they're potential red flags,” said Anup Jain,  who is setting up his own early-stage VC firm after quitting Orios Venture Partners in September 2023. Founders deserve transparency. They’ve entrusted their companies to these partners, and a sudden exit raises questions. Is the firm unstable? Did the partner lose faith in the vision? Founders shouldn't be left in the dark.”

Jain added that VC firms preach backing visionary founders, but when it comes to their own star players—the Managing Partners—it’s mostly a different story. “Partners are the engines driving deals, but neglecting clear communication around their exits hurts everyone, including the LPs,” Jain said.

Venturing out on their own is an uphill task for General Partners (GPs). "Who doesn't like being a GP? (But) being a solo GP has been both demanding and deeply fulfilling, pushing me to unlock my full potential in every area of my life. What I treasure most about leadership is that every success is tempered by the constant reminder of possible failure (which motivates) me to keep moving forward despite the uncertainties," said Navin Honagudi, Managing Partner, Elev8 Venture Partners.

Partner brand vs VC brand

The departure of some Partners is similar to that of top startup executives leaving to start their own companies, given the pedigree that comes with the company they have been associated with.

However, while the chances of operators being funded are higher, for VC Partners it is a little dicey and the process is much more elaborate.

In India, there is no institutional LP base that looks at emerging fund managers, so fundraising is not simple. Partners have to knock on the doors of ultra-high-net-worth individuals (UHNIs) because of which the process takes even longer, as per BII’s Patnaik.

“For LPs backing these Partners, it’s a bit of a leap of faith as well. Maybe, it’s a little easier for somebody who's come from a very large brand, and you know, talks about that. But we find it tricky, as LPs, to figure out the attribution, how much of that (success) was because of the brand and how much was because of personal calibre,” Patnaik said.

The divide between a Partner’s brand and the VC’s brand is even more pronounced among startup founders in the ecosystem. So much so, that founders say they’re fortunate to have been backed by a particular partner from a VC firm, instead of the particular VC fund itself.

“A friend told me a few years ago, that ‘you’re extremely fortunate to have Sameer Brij Verma investing in you.’ Since then, I’ve realised the meaning of this many times over the last 10 years. (Sameer) backed us at Runnr on day 0 and then on day 0 at Ultrahuman as well...” Mohit Kumar, founder and CEO of Ultrahuman, said in an X (formerly Twitter) post when Verma decided to move on from Nexus Venture Partners in March.

Ultrahuman is a company that sells wearables to track the fitness levels of individuals. It has raised over $60 million from Nexus Venture Partners, Blume Ventures, Nikhil Kamath, Deepinder Goyal, Balaji Srinivasan and several others.

The disconnect between a Partner’s personal brand and the VC firm’s brand notwithstanding, industry experts said that departing partners who had more face time and interacted more frequently with LPs or fund sponsors find it easier to raise money, thanks to their network.

“No matter what one says about data points, venture capital is ultimately driven by relationships. So, the best networker may not be the best fund manager but there’s a good chance they’ll be able to raise successive funds and stay in the industry for longer,” said Siddarth Pai, Founding Partner, 3one4 Capital and member of Indian Private Equity & Venture Capital Association (IVCA).

In fact, in some cases, the partner brand is so vital that if the top deck quits, fundraising comes to a grinding halt. In a situation where the number 2 or number 3 person leaves a VC firm, LPs are likely to pull out from the round, even if it's an ongoing one, said three LPs Moneycontrol spoke with. It is very rare for the top person—or the number 1—to leave the VC firm.

“The strength of your network and reputation will end up determining whether you can succeed in this industry or not. So, there may be fantastic fund managers who will fail as they’re unable to raise capital, manage investor relations or compliance. There may also be fund managers who struggle to build and manage portfolios, but who excel at raising capital; they do relatively better. Capital is a moat in this business, where success is more probabilistic than deterministic,” Pai added.

Succession planning

As VC firms continue to grow in size and become key players, in most cases, they have a succession plan in place and groom certain employees to take up key roles in the future. That allows all the stakeholders to cushion the blow, if any.

According to Kunal Sood, Managing Director of Pantheon’s Asia Investment team, key questions VCs should keep in mind while making succession plans are: What responsibilities and coverage is/was the person handling? How will that be transitioned between the remaining members of the team? What are the gaps and capabilities that the departure leaves?

“The way institutions are built goes much beyond a single partner. Yes, the partner will be frontending things, but there needs to be an institutional muscle memory as well, to say, look, if a partner steps away from the company, the firm continues to get support from the LPs. Because at the end of the day, LPs are the ones putting money into the firm. There are three or five partners and not just one person—that might be one way to look at it,” Sood, also a member of the Limited Partners Council, concluded.