After twenty-three years of investing in a hundred VC funds and mentoring a good number of professionals who transitioned from principals to partners, I have seen many successful incorporations of new blood into the partnerships. Also, many who failed to stand the test of time.
I have witnessed quite a few very successful funds, some in which I was an investor, where the partners decided to split ways with no explanation other than partners wanting to go their own ways or stating they couldn’t agree on their next step in growing the firm. On other occasions, a new partner confided the disillusionment she/he had after joining the firm and realizing that, in fact, it wasn’t a partnership of equals and that there were a lot of nuances in the relationships among the other partners.
That grew my conviction that choosing new partners for a VC firm is an important decision that can impact your company for years to come. It takes more than several conversations and testing analytical and business skills. A deeper and smarter due diligence to gauge the potential partner’s emotional skills is in order.
So, here are my thoughts on choosing a new partner.
First, it’s all about timing. There is no specific timing to add partners to a VC firm. Some of the most common reasons to look for a partner are:
i) growth of the management firm: many VC funds start only with two co-founders, and as the management firm keeps growing the number of funds under administration, the partners may be looking for new people to cover different regions where they are investing;
ii) depth and variety of skills in the partnership: the co-founders see the need to add new partners with a different set of skills to show the growth of the firm;
iii) understanding diversification as a path to profitability: the original partners may want to make the firm more diversified to ensure better returns and to steer away from having a too homogeneous set of partners;
iv) talent retention: the partners may want to promote those in the firm that have shown the skills needed to become a partner, securing in this way that the best talents are kept in the firm; or
v) succession plan: some partners may want to begin to slow down from day-to-day involvement, or they are looking for the next generation of leaders for when the moment to step down arrives.
The best partnerships have some key elements:
- Partners who share a common vision to build a firm to last for decades to come;
- Partners who trust the partnership as a whole and keep an open flow of communication going among all partners, avoiding the creation of cliques;
- Partners who consider the others in the partnership as their equals, and from whom they are eager to learn, keeping a certain dose of admiration for what each achieved before coming to the firm or while building it;
- Partners who understand the value of other partners building ecosystems as a lever for success; and
- Partners who have had different professional paths, didn’t come from the same academic background, are not from the same age generation and each one contributes to the Partnership with diversified skills: entrepreneurial, consulting, financial, commercial and operational, as well as expertise on the sectors targeted by the fund.
The path to partnership is not a straight line in which you go from one position in the firm to the next, and then … you become a partner. To become one, you have to demonstrate that you have added value to the firm and that you live by the mission and values of the firm. I’ve known excellent investment professionals who were doing great deals, and yet failed to have the skills of a leader, and they never made it as partners.
So, when choosing a new partner, I would recommend developing a set of KPIs before the new partner is minted. And front and center is the Emotional Quotient (EQ), that is, emotional intelligence skills.
It’s important to understand that emotional skills (EQ) are as relevant -or more- than the IQ ones when choosing your next partner. There are a lot of people with excellent financial skills, industry knowledge, who lack the minimum abilities to become a leader and build a firm.
A few recommendations on how to test if your candidate is “partner-ready”:
- Test his/her trust with the rest of the partners: are there special relationships that would make him or her side with one partner and create impartiality in the partnership? Does he or she make sure that the rest of the partners and team can express themselves without fearing retaliation?
- Are respect and collaboration key features of his/her personality?These skills allow you to understand and manage your emotions, and are linked to academic achievement, decision-making abilities and overall success in life.
- Is she or he humble enough to acknowledge that she or he is entering into something built by others and that there is a lot to be learned and admired from those achievements?
- Is she or he quick to own mistakes and recognize others’ good work?
- Are his/her contributions well beyond the operational and technical spaces: what has she or he done to elevate the firm as a whole? Strategic thinking that has had a visible impact on the growth of the firm?
What does it take to be emotionally intelligent?
- Self-awareness, or the ability to recognize and understand your emotions and the effect of your actions, moods, and emotions on other people. Self-aware individuals recognize their own strengths and limitations, and are open to learning from their interactions with others.
- Social skills, being able to interact well with others, allow individuals to build meaningful relationships with others, resulting in a better understanding of self and others. Good sense of humor, knowing how to spend time with others in a relaxed way, sharing and building camaraderie, listening to others, being truly interested in others … It’s not all about work, it’s about excelling and mastering the art of relational capital. Nonverbal communication skills play an important role here: a look, body language, a certain kind of smile may reveal your thoughts, regardless of your words.
- Ability to regulate and manage your emotions in a way that respects others’ views and opinions, builds trust among the team, shows the ability to change. Those with this skill are good at managing conflict and diffusing tense situations.They are thoughtful and take responsibility for their own actions.
- Empathy: being empathetic allows you to understand the power dynamics that influence social relationships, especially in workplace settings. To be empathetic, you have to be willing to share your own feelings.
- Intrinsic motivation: People who are emotionally intelligent are motivated beyond external rewards like power, titles, money, recognition and acclaim.
Armed with these insights, now is the time to assess who can be your next partner.