Decomposing Venture: Competitive Rivalry
Competitive tensions behind the VC curtain, from carry to politics, impact decisions and founder trust.
Force Five
This week, we're concluding our series on Porter’s Five Forces. It has been a few weeks since we last visited this topic, so here’s a recap of what we've covered:
This week, we wrap up the series with Force Five: Competitive Rivalry. However, instead of revisiting firm-to-firm competition, which we’ve already explored through new entrants, LP pressure, and founder dynamics, I want to take a more nuanced approach. Today, we’re turning the lens inward to examine the rivalries within venture firms themselves, from LP dynamics to GP politics to the quiet power struggles between principals and analysts.
Credit, Carry, and Clout
The allocation of carry and credit can be a sensitive topic. It touches on the fundamental human desire for recognition and reward. When these aren’t perceived as fair or transparent, they can breed resentment and undermine team alignment.
Legacy, negotiation power at the outset, or even simply being in the right place at the right time can influence individual stakes. This can lead to quiet dissatisfaction, especially when junior team members feel their contributions don't align with their economic upside.
Who sourced the deal? Who led it? Who gets the credit for the unicorn?
Talented individuals, particularly those who feel consistently overlooked, are more likely to seek opportunities where their contributions are better recognized and rewarded. This churn can be costly in terms of lost expertise and institutional knowledge.
The Deal Funnel Is a Zero-Sum Game
The internal competition for resources, attention, and ultimately, the firm's capital can be intense.
At some firms, partners or principals first have to “sell” deals to their own team. Winning over colleagues, managers, and other stakeholders adds a layer of complexity and competition inside a firm.
Competing investment theses can collide: one partner’s AI bet may contradict another’s climate strategy.
Consensus-driven investment committees (ICs), while designed to provide rigor and diverse perspectives, also can become sites of internal gatekeeping, where personal biases or competing agendas can kill promising deals before they even see the light of day. This can be particularly frustrating for those who sourced the deal and believe in its potential.
Rising Stars vs. Legacy Partners
Up-and-coming associates or principals are eager to prove themselves but may face resistance from senior partners. In addition, competition between associates and principals can be steep and can discourage collaboration.
Talent churn happens not just from burnout but also because people feel blocked from advancing or getting meaningful carry.
Soft Power and Politics
Not all power in a VC firm is formal; some comes from LP relationships, media clout, or founder loyalty. Some individuals may not always have the most formal authority but can sway decisions and shape the firm's direction through their network and reputation.
Internal competition may not be open conflict but rather involve influence games, back-channel alignment, and strategic alliances.
Impacts on Founders
Internal disagreements and power struggles can lead to delays in investment decisions and inconsistent communication with founders. This can erode trust and make founders question the firm's conviction.
Founders are often astute observers of interpersonal dynamics. If there's underlying tension or a lack of alignment among the partners they interact with, they will likely pick up on it.
When internal dynamics are toxic, founders may walk (and word gets around).
Conclusion
Venture capital may be portrayed as a team sport, and when all the players have the same goal in mind and are incentivized to win, they have a shot at taking home the gold. But internal competition over credit, deals, and influence can significantly undermine a firm's effectiveness. When partners are misaligned or distracted by power struggles behind the curtain, it can lead to slower decision-making, mixed signals for founders, and ultimately, missed opportunities. Firms that cultivate a strong internal culture and transparent economics are better positioned to attract and retain top talent, provide consistent support to their portfolio companies, and achieve long-term success in the competitive venture landscape.
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