Startable – Healy Jones’ & Prasad Thammineni’s Blog

TechCrunch is reporting on thefunded.com’s most liked VCs from 2009. While I’m happy to see some of my coworkers from Atlas on the list, it was another point that jumped out at me:

…there was a lot of turnover in VC firms in 2009.  When TheFunded sent emails to all the investment pros in its directory, 38 percent either bounced back or replied with an automated message saying they’ve left their firms.  None of those people are on this list.  And about one or two firms a week became inactive, or 9 percent of the 4,005 firms listed in its directory.

As a means of comparison, I recently sent out a large scale email (several thousand addresses) that had a 19.3% bounce rate. So, I believe that the bounce rate experienced by thefunded is statistically significant, which means that this is yet another clear indication that the venture capital industry is shrinking pretty aggressively.

What does this mean for entrepreneurs? Well, once again, it is important to find a fund where you will have a stable funding base + a partner who doesn’t leave. (Per an earlier post, here is what to do if the partner who is on your board leaves the VC – a summary: freak out.)

Some quick tips to make sure you are “picking” a funding group and partner that are stable.

• Look for funds that have raised capital in the past one to two years. If the new fund is a ton smaller than the previous, you may want to wait a few months to see if the partnership adjusts its roster as a result. If the fund is getting bigger this is a sign of a more stable partnership.
• Figure out if you partner is a decision maker or a junior partner who is wearing training wheels. Decision makers are harder to jettison from a fund.
• If the partner has had a recent success, they are more likely to have real authority within their partnership, so are less likely to leave (i.e. get forced out) in the near term. Awesome IPOs or M&A from his/her individual investments at the fund are great indications of a partner who is important to the fund.
• Ask. If you are getting really serious (i.e. the fund is giving you a term sheet or has just done so) you are within your rights to ask how stable the partnership is and how likely the partner is to stick around. Just ask politely, perhaps something like “I see this as a long term partnership with you and the fund; it is important to know that you are going to be here for the long haul over the next few years…”