Over the last decade or so, many venture capitalists have built vast personal fortunes. Some of the money has been made through investments in companies that have outperformed. But much of their wealth traces to management fees that added up quickly as fund sizes — raised in faster succession than ever in history — ballooned to unprecedented levels.
Given that the market has changed — and will likely remain a tougher environment for everyone for at least the next year or two — an obvious question is what happens now. Will the industry’s limited partners — the “money behind the money” — demand better terms from their venture managers, just as VCs are right now demanding better terms from their founders?
If ever there was a moment for the institutions that fund VCs to use their leverage and push back — on how fast funds are raised, or the industry’s lack of diversity, or the hurdles that must be reached before profits can be divided — now would seemingly be the time. Yet in numerous conversations with LPs this week, the message to this editor was the same. LPs aren’t interested in rocking the boat and putting their allocation in so-called top tier funds at risk after years of solid returns.