But this:
"First, the Chief Partner cannot be fired without his/her consent. Every other partner at a VC firm can be, including the ones who have worked hard to earn pieces of the management company. So, a partner at a venture firm is usually an employee-at-will. They can be fired at any time."
and this:
"I want to point out that this type of ownership structure is usually the norm in other asset classes."
But then they do it this way (edit: pitched as "why we are better for you"):
"when Eric joined the management company, he received his shares for free. So, we are equal partners and equal owners."
What is lacking here is some data highlighting how typical the practice is of partners being able to be fired "at will" edit: and how many firms deviate from the practice of "every other partner can be fired". How often does that happen? The OP points out that they don't do it that way (at least not with the two partners mentioned). So what percentage of VC firms operate in a similar way?
Also, how typical is it even if it is this way for a partner to get fired because business is bad? If you were from Mars and learned about speed limits you would think you get a ticket for going 56 mph in a 55 zone. But of course that is accepted to be a rare event.
(I mean I was probably 10 when I found out that at a bank everyone is a Vice President.)
1. Investing in the best funds is competitive for LPs. Top funds often have more demand for investment than the fund will accept, so the partners have greater leverage to dictate terms. It's like an entrepreneur having multiple term sheets.
2. The big bucks come from fund returns, not management fees. In this sense, LPs and partners are highly aligned, since 80% of those returns go to LPs (assuming a 20% carried interest fee - obviously this varies by fund).
Kauffman's portfolio included Bessemer, Benchmark, and General Atlantic, among others. They weren't talking about shady funds.
If you really are expecting to get a giant locked-in chunk of your return from fees, than the interests of partners and the "chief partner" are not necessarily aligned.
The 2-and-20 structure is well known, but the management company details were fresh for me.
[1] http://jtangovc.com/vc-economics-and-control-unveiled-on-the... [2] http://www.latimes.com/news/opinion/opinion-la/la-ol-mitt-ro...
