A Precursor Ventures YouTube segment discussing whether venture capital firms can merge successfully. The speaker argues that long-lived management fee streams and strong partner egos make mergers difficult; combining two struggling firms rarely creates a winner, and failed small funds often spawn multiple new firms as partners strike out on their own.
One, once you raise a fund, you have a fee stream that lasts you essentially for the life of that fund. Could be 10 years, could be 12 years, could be 15 years. But you, you have a fee stream that can keep you in business even if you're unable to raise your next fund for a really long time in a way that few other businesses allow you to do. Second, I think the egos involved in this business oftentimes make it difficult to merge firms. And also I often question if you have one firm that couldn't raise money or was having challenges and another firm that was having challenges. Putting those two firms together is unlikely to produce a new winner. If you have a firm that's doing well and a firm that isn't doing well, the firm that's doing well is like, well, why would I want to acquire the assets of a. There's no real aqua hires in venture, maybe occasionally, but like not like there are in startups where like, oh, this person has talent. Because in venture, the output of your talent is the decision making and the companies you get into. And if that's not good, I'm not sure what you're really acquiring. And I think the other thing that's worth remembering is you can have a three person venture fund that fails where each of those people independently goes off and starts his or her own venture firm. So one venture firm that fails can actually create three brand new venture firms. So it's not like failure always reduces the number of firms in the industry. Not.
