Why Top Venture Capitalists Are Jumping Ship from Major Firms!
December 25, 2024
0 4 minutes read
In the world of venture capital, being a partner used to mean job security for life—a rare and coveted position. But as we dive into 2024, a seismic shift is shaking the foundation of some of the most prestigious firms. The startup landscape is experiencing a prolonged downturn, and a wave of investors is either voluntarily exiting or being shown the door. What does this mean for the future of venture capital?
Recently, the exits have been notable. Just in the past month, Matt Miller bid farewell to Sequoia Capital after a decade of service. Bilal Zuberi, from Lux Capital, is off to launch a new fund, and Sriram Krishnan has left Andreessen Horowitz to advise the White House on artificial intelligence policies. This is not just a trend; it’s a phenomenon that could redefine the VC landscape.
Many former investors are now setting their sights on new ventures. Ethan Kurzweil, once with Bessemer Venture Partners, and Mike Volpi, previously of Index Ventures, are among those venturing into fresh territory. Additionally, some seasoned VCs are stepping back from the grind while others are making bold moves to new firms, like Keith Rabois at Khosla Ventures. The shake-up is palpable.
“Not a day goes by without hearing of departures from these multibillion-dollar funds,” remarks venture capitalist Rick Zullo, co-founder of Equal Ventures. This turnover is not just a flash in the pan; it has been rising since last year and has picked up speed recently, according to industry experts. Some investors held on through the worst of the downturn, but now, frustration is mounting as the constraints of large funds become more apparent. The harsh market conditions are making funding scarce and operations leaner.
“If a firm can’t raise a fund of similar size, it makes sense to streamline and employ fewer investors,” says Scott Sandell, executive chairman of NEA. “The fundraising landscape is undeniably tougher than it was in the 2021 boom.”
While it’s common for junior dealmakers to jump firms, senior investors typically cling to their roles for years, relishing the high pay and potential for massive returns. However, the current downturn has forced VC firms to make tough calls, parting ways with partners whose investments didn’t pan out. The landscape is changing, and it’s changing fast.
According to Zullo, departures can generally be categorized into two groups. The first group consists of “true home-run hitters, massive out-performers” who are simply fatigued by the evolution of venture capital into asset management. The second group includes those who began investing during the pandemic’s zero-interest climate and lacked substantial hands-on training—many of whom are now facing the harsh reality of the current market.
In the closely-knit VC community, the reasons behind an investor’s exit can often remain a mystery. Personality clashes and mounting tensions, exacerbated by market pressures, have led to some unexpected departures. With an election year adding to the mix, internal discord has become more prevalent.
“When the flow of money constricts, it inevitably tests the strength of partnerships,” states Eric Bahn, co-founder of Hustle Fund. And indeed, the industry is witnessing significant shifts.
The influx of departures could be a silver lining for emerging investors. New firms might reshape the industry, provided they can secure funding. “The industry’s structure has evolved, offering space for fresh managers,” says Ken Chenault Jr., a former partner at General Catalyst who recently launched a $62 million early-stage fund.
As mega-funds have proliferated, many investors are opting to establish smaller, agile firms that can focus more on nurturing nascent companies. The shift in priorities mimics the differences between startups and public companies, explains Zullo.
Volpi, one of the industry’s heavyweights, took a step back from Index last year. He’s now teaming up with fellow ex-Index colleagues Bryan Offutt and Ishani Thakur to co-found Hanabi Capital, an early-stage fund operating with his personal funds and support from close circles.
Earlier this year, Kurzweil joined forces with Kristina Shen and Mark Goldberg to kickstart Chemistry, a $350 million early-stage fund. Their mission? To outpace the legacy firms distracted by their own rapid growth.
Other notable exits include Miller, who is setting up a firm focused on European founders, and Zuberi, who is poised to raise a fund dedicated to AI investments. Meanwhile, Michael Gilroy has left Coatue Management to start Marathon with tech veteran Gokul Rajaram, aiming to raise between $400 million and $500 million.
The race to secure funding for new firms is heating up, with a growing list of contenders ready to vie for attention. Investors launching their first funds will soon discover that even with the backing of their former firms, the challenge of fundraising in 2025 will be steep.
“They may face a rude awakening,” warns Bahn. “Big institutions might not show much enthusiasm for backing new managers. It’s a challenging environment for any emerging player.”
Limited partners—those key institutions and affluent individuals that fuel venture funds—favor established firms with proven track records for capital returns. In 2024, only nine VC firms captured a staggering 50% of the total capital allocated to venture funds this year, while all emerging funds collectively secured just 14%.
“We’re navigating a complex landscape,” says John Monagle, co-founder of Benchstrength. “If funds are stagnating or downsizing, it complicates matters and can lead to layoffs.” The stakes are high, and the path forward is fraught with uncertainty.
