“Big firms have gotten much, much bigger,” said Alexandre Lazarow, managing partner of Fluent Ventures. “At the same time, there’s been an explosion of [small] venture capital firms … so I think we’ve seen the rise of specialization and the rise of regionalization in tech.”
Johnnygreig | E+ | Getty Images
The venture capital industry has been facing a great deal of churn at the senior level, with reports of many top-level executives leaving legacy firms.
In Silicon Valley, some high-profile departures include Matt Miller from Sequoia and Sriram Krishnan from Andreessen Horowitz. On the other side of the world, two senior executives Abheek Anand and Shailesh Lakhani announced their exits from Peak XV Partners — formerly Sequoia Capital India & SEA — in February.
Turnover is common among juniors in the industry, but it has been rarer to see senior venture capital partners leave their posts, as these high-level positions are often more lucrative and hard to come by, according to industry insiders.
I think we’ve seen a big sea change over the course of the last decade that has led to the venture [capital industry] turning into asset management more broadly, and I think that’s actually the crux of this issue.
Rick Zullo
Founder and managing partner, Equal Ventures
“More departures are definitely happening. I think many, still not yet to be announced, but many, very much in the works,” Rick Zullo, founder and managing partner of Equal Ventures, told CNBC.
CNBC takes a look at some of the reasons behind them.
Moving on for success
Reasons for these departures include a perception by some investors that decision-making at many large firms is slow, and funds are focused on increasing the pools of money they manage rather than working with promising founders.
Some investors in that camp also say they are capitalizing on big changes in the industry, leaving the drawbacks of big firms for the benefits of smaller ones.
Over the past decade, the venture capital industry transformed as big legacy firms attracted exponentially more dollars globally. In 2024, just nine venture capital firms raised $35 billion, or 50% of the total amount of capital collected by U.S. funds, according to PitchBook.
“I think we’ve seen a big sea change over the course of the last decade that has led to the venture [capital industry] turning into asset management more broadly, and I think that’s actually the crux of this issue,” said Zullo.
“[Venture capital firms] are now scaling to become more like a … Blackstone or Goldman Sachs … and that’s leading to some cultural dissonance between folks who want to be pure play venture capital and folks who want to become asset management firms,” said Zullo.
As the legacy firms have grown, some senior partners say it has brought them further away from their original passion for venture capital.
“Big firms have gotten much, much bigger,” said Alexandre Lazarow, managing partner of Fluent Ventures. “At the same time, there’s been an explosion of [small] venture capital firms … so I think we’ve seen the rise of specialization and the rise of regionalization in tech.”
On one hand, as more money becomes concentrated in a few elite firms in Silicon Valley, some established investors have chosen to branch off and start their own fund where they can have more control over their decisions, and invest in things that they have high conviction about, said Lazarow.
And with the rise of technology platforms such as AngelList and Carta, it’s become easier for individuals to start their own venture capital funds, he said. Notably, limited partners — or those who invest in venture capital funds — have also become “more comfortable” investing in solo managers today, he added.
“There’s a bunch of incredible venture capitalists at some of these very large scale firms that have had tremendous success, who are now deciding that they don’t want to be asset managers … they don’t want to deal with the bureaucracy or corporate structures,” said Zullo. “They just want to go back to the basics.”
Bilal Zuberi is one of them: He announced his departure from Lux Capital in December, after serving as a general partner in the firm for about 12 years. Today, he is starting his own venture fund called Red Glass Ventures, which is focused on investing in early-stage companies.
Then all of a sudden, musical chairs stopped. The IPO market closed, exits [went] down, M&A has decreased, and so I think that a lot of LPs [have] too much money on a relative basis in the category, [and] not enough liquidity to come back.
Alexandre Lazarow
Managing partner, Fluent Ventures
“When you’re a very large fund, it becomes very hard for the senior partners … to focus on early stage,” he said. Seed and series a startups are often left to younger team members, which is “not the best product for the founders,” Zuberi told CNBC.
“Founders would want to work with senior, experienced investors who could take board seats… and provide real advice … and frankly, that’s just hard to do in a bigger firm,” he added. “If I can write early conviction checks, I would have high ownership, and if … companies do well, that’s true alpha returns.”
Moving on from failure
But not all departures are voluntary.
“There’s plenty of folks who are simply being pushed out of these firms very silently … The consolation prize of not making general partner of those firms is for them to become an emerging manager and serve new firms,” said Zullo.
Seeing returns on venture capital investments in and beyond Silicon Valley has been more difficult, as the industry has been experiencing a major downturn, according to industry insiders.
That was largely fueled by the interest rate policy implemented by the U.S. Federal Reserve, most recently during the pandemic in 2020 — setting rates near zero — which made borrowing cheap and incentivized investors to deploy more funds into startups and other riskier assets.
As a result, the startup ecosystem saw a massive surge in venture investments during the Covid-19 pandemic years, but when interest rates went back up in 2022, investors became much more cautious and realized that some startups may have been overvalued.
“I think one of the challenges that’s happened over the last couple years for LPs (limited partners) … is that the velocity of returns was much higher in 2021, through a lot of IPOs. People got their money back,” said Lazarow.
“Then all of a sudden, musical chairs stopped. The IPO market closed, exits [went] down, M&A has decreased, and so I think that a lot of LPs [have] too much money on a relative basis in the category, [and] not enough liquidity to come back,” Lazarow added. As a result, the venture capital industry has taken a hit.
Impact on portfolio companies
An often unintended consequence of partners leaving their funds is that their portfolio companies can be affected. So how do these venture capital departures impact startups? The short answer is that it depends.
Senior partners will often take up board seats in their portfolio companies and become long-time mentors to founders, but this hasn’t been the case for some companies, according to industry insiders.
“Three of our portfolio companies have had at least one board member turn in, i.e. that person has left their firm, and we’ve had multiple companies that have lost multiple [board members],” said Zullo.
“I think the best way of doing it is being very thoughtful about the transition with the portfolio, CEO and founding team,” said Lazarow. “It’s important the company doesn’t become an orphan within the VC fund and has continuity.”
Departures can negatively affect portfolio companies when the startup had a strong champion on their board, who also had lots of sway at their firm. When those partners are replaced by someone more junior, it can disrupt board meetings and company decision-making, said industry insiders.
In addition, companies looking to raise more money through a follow-on round — when an existing investor makes a further investment into the company — can be affected when their original champion is no longer around to help vouch for them within the firm.
A startup’s maturity can also play a role in how the founders are affected.
“It depends on the stage of the company. The more late stage you are, the less likely you are going to need any guidance, because you are the subject matter expert,” said Aaron Tan, co-founder and CEO of Carro.
“Most of [the partners] are not exactly operators,” said Tan, so founders may not rely on them for guidance in the first place.
While early-stage companies can be affected as they usually need more guidance from their partners or board members, later-stage companies have founders who are more experienced, and often, many other board members to rely on, according to Tan.