- With the increase of capital in Silicon Valley, venture firms are bringing on more partners.
- Some entrepreneurs say that the process of raising capital from bigger firms has grown increasingly bureaucratic.
There’s an increase in the number of venture firms making new hires, and it’s having a ripple effect on how entrepreneurs raise capital.
A new report from compensation data firm J.Thelander Consulting shows that 80% of venture capital and private equity firms brought on new members in 2018, a 14% uptick from last year. Much of this has to do with the amount of money flooding Silicon Valley’s funds, as a vanguard of established firms rake in several billions to be deployed over the course of the next few years.
With more money to manage comes an often necessary obligation: more people to manage it. For founders, the addition of more partners to venture firms often means more opportunities to pitch their fledgling businesses. One founder who declined to be named told Business Insider that he had pitched a top tier firm multiple times in the hopes of securing funding. Even after facing rounds of rejection from the same firm, there was still plenty of reason to persist.
“As an entrepreneur, you’re literally talking to one person who might be interested in the company, and the rest of the partners will have no idea,” the founder said. “If one partner said no and they pass on you, you just have to find another way in. That’s how big these VC firms have gotten.”
The sentiment is echoed by investors, who report that there’s often a lack of coherence within established firms. “You’re seeing less and less communication across partnerships,” one investor said.
More money, more politics
Another venture capitalist who heads up a small fund said that they’d invited a bigger firm to join a deal multiple times, and each time, the various partners passed. As the round was about to close, however, the same firm suggested interest – this time by a different partner: “It was just that the right partner hadn’t seen the deal.”
When founders seek out top tier firms, many express that raising money is only one part of the goal. Almost as significant is the coveted endorsement and connections a blue chip firm like Sequoia, Andreeseen Horowitz, Kleiner Perkins, Softbank, or NEA can offer.
But many founders say that dealing with bigger firms when they are in the early stages of building a company brings headaches of its own. “With more people comes more politics,” an early stage entrepreneur pointed out. Another founder compared working with a bigger firm to “dealing with congress,” where conflicting personalities often come into play.
“Venture is becoming more and more commoditized as capital is becoming more commoditized,” said one founder. “More money means more hires, and an increase in bureaucracy.”