How to hang onto a rising star

When Dan Chaplin joined Dawn Capital as an associate in January 2018, he was a newbie to venture capital. Before then he had advised companies on real estate-related M&A deals at JPMorgan. Within 15 months at Dawn, which invests in B2B software start-ups, Chaplin was appointed a director at portfolio company OpenGamma.

By the time he became Dawn’s youngest partner at 29 last March, Chaplin had deployed nearly $300 million to start-ups across Europe. It was his third promotion in five years at the firm.

Dawn is very deliberate about recruiting people at the most junior level and having them prove themselves as they work their way up over four or five years, Joshua Bell, a partner at Dawn, tells affiliate title Venture Capital Journal. Bell is co-head of fintech and digital assets with Chaplin at the London-based firm.

“Mentoring is very important. Without the mentoring, essentially, we’d just have people who’d never really worked in venture capital before,” he says. “Joining us at the junior level and working alongside us on deal teams is how they learn to do the trade of venture capital.”

Some rookie VCs advance more quickly than others, often recognized for their initiative. At Seven Seven Six Ventures, Cristina Apple Georgoulakis was promoted to partner just a year after joining the Alexis Ohanian-founded firm as one of three operators-in-residence in January 2021. She says the senior partners liked her work, which included creating the Founders Outcomes program to get founders of portfolio companies the resources they need not only to improve in their business roles but also in their personal development.

Starting as a board observer at one portfolio company right from the start, Georgoulakis nabbed her first full board seat just eight months later and two more director seats in 2023.

‘Apprenticeship business’

As the venture capital ecosystem matures and firms take a more thoughtful approach to their company cultures, more general partners are thinking about how to best mentor younger professionals. Even amid fundraising challenges that have driven layoffs across the tech industry, retaining rising stars within a firm is more critical than ever, lest they leave to join a competitor or start their own fund.

“Everyone talks about venture capital being an apprenticeship business, which it absolutely is,” Jon Biggs, a partner at Top Tier Capital Partners, tells VCJ. “It’s why it takes many years for individuals, when they’re hired as analysts or associates, to rise to the top and become check writers, because they need to learn their craft.”

Before becoming a limited partner two years ago, Biggs spent 20 years at Accel in London, where he was one of the earliest hires and eventually became the firm’s chief operating officer.

To be prepared to write checks, junior team members need to learn how to source investments and to refine their filters. That requires them to have “a voice around the table” as early as possible, Biggs says. Senior partners “need to be able to hear what [the junior staffers] are thinking about a particular opportunity they might have seen and why they think this is suitable for that particular fund’s strategy,” he notes. Giving those staffers a voice also allows them to demonstrate that they are “able to work the market and actually find interesting companies rather than boiling the ocean and finding a lot of uninteresting companies, which can often be the case.”

Learning the intricacies of investing and building strong relationships with entrepreneurs can take years for junior team members.

At Dawn, a junior staffer is paired with a senior partner who teaches them the ropes at every company the firm invests in. Besides the value of having a second pair of eyes, much of the analytical support for each company is done by the more junior members of the team. “So, they need that exposure,” says Bell. “It’s ideal that they and I sit together with the founder when we work with them.”

Energize Capital in Chicago prefers to hire junior talent that has been working in some aspect of industry for part of their career and to teach them how Energize invests in climate management software start-ups, says partner John Tough.

Because the digital side of climate management is a market that was born recently, “The habits or lessons that you learned elsewhere are probably not relevant for today,” he says. Almost immediately, new recruits at Energize lead deep dives into research and become board observers within their first few quarters, where they can sit in on board meetings and learn from partners, entrepreneurs and co-investors.

As a board observer, a junior team member is taught how to go through a board deck days before a meeting and highlight the key areas they think are important, listing the top three positives and the top three concerns. “The board member is meant to teach the new observer how to identify the most relevant parts of the business, and specifically to make sure that the business is tracking to our investment thesis,” says Tough. “It’s all about tying the historical to the present and understanding priority.”

At most firms, an investor originates a deal and sits on the board until the company sells. But Energize sometimes passes the board seat to another team member if that person is believed to be a better fit for the company, creating the opportunity to bring in a promising junior person. “We get the company’s entrepreneurs to buy into it, but they look at it as a favorable way to refresh the boardroom as well,” says Tough.

“Passing the ball,” as Tough calls it, accelerated the progress of Tyler Lancaster, who joined Energize five years ago as a principal. “He had sourced a few great investments with the team, and we had passed him the ball through some board seats, and he kept performing well,” Tough explains. “Every time we gave him new responsibility, he would up-level and accept it.” Lancaster is now a partner and co-head of Energize’s ventures program “with a tremendous amount of respect from our LPs and from our network,” Tough says. “That’s an example of where the team all rose together to help him accelerate his career.”

“Part of continuing to evolve the firm is creating opportunity for more people and for talented folks who join us to see opportunities for themselves to run more meaningful parts [of the business]”

Dana Settle
Greycroft

Greycroft also uses board seats to develop its emerging stars. When firm co-founder and managing partner Dana Settle invested in Scopely, an entertainment platform, she took a seat on the board. After Mark Terbeek joined Greycroft about a year later, Settle sensed that he would be a good fit for Scopely’s board, so she eventually gave him her seat. It was a gradual process. It started with Settle suggesting that Terbeek “spend time with them because I think you’ll connect with the founder [and CEO Walter Driver],” she says. “And he did, and it’s been one of our top companies and just sold for almost $5 billion.”

Settle believes Greycroft’s future depends on senior staffers helping new team members to grow. She notes that the firm’s new Consumer Products Fund I, which focuses on pre-seed and seed-stage start-ups and began fundraising in late 2022, is managed by Alaina Hartley, a principal who joined Greycroft in 2018, and Katherine Power, a serial entrepreneur who joined the firm as a partner in that strategy.

“Part of continuing to evolve the firm is creating opportunity for more people and for talented folks who join us to see opportunities for themselves to run more meaningful parts” of the business, Settle says.

Junior team members at Alumni Ventures are mentored across multiple departments. In addition to learning from a more senior person in their own department, they can request a second mentor in another department. Having a second mentor gives a young professional an opportunity to discuss matters they may not feel comfortable broaching with their boss, co-founder and chief executive Mike Collins tells VCJ.

A working mother, for example, may prefer to talk to a mother in another department about how she manages work/life balance. Or someone who’s thinking about going to graduate school for an operator job may not want to get advice on that from their boss, Collins says.

Spreading their wings

If they aren’t committed to mentoring young talent, VCs risk losing their rising stars to other shops that offer them better prospects. Hoxton Ventures in London recently hired Bryan Gartner from Khosla Ventures as a partner to help find and scale start-ups in the UK and Europe. Before his two years as a partner at Khosla, Gartner was a vice president at Insight Venture Partners and a partner at Sidewalk Infrastructure Partners.

“For a young rising star, which is what we would describe Bryan as, this was a chance to put his imprint on a firm and to get an equal share of the profits that the firm generates,” says Hoxton co-founder and partner Hussein Kanji. “There aren’t that many venture firms that allow someone to back themselves and build a great venture firm internally. You are kind of stuck in a hierarchy that’s been far more established.”

Firms are also more likely to reduce attrition when senior partners are willing to expand their investment thesis to engage the interests of junior team members. SJF Ventures’ sector focus has evolved over the past 20 years. One of the earliest investors in climate technology, SJF began investing in “govtech” companies (which create technology to make governments more efficient) after Dan Geballe joined the firm as an associate 10 years ago straight out of Stanford’s MBA program.

Geballe is passionate about govtech and “over time he has built out a really exciting portfolio,” notes Dave Kirkpatrick, co-founder and managing partner at SJF. “Within the broad framework of positive impact venture capital, mostly in the US, we’ve given people flexibility to build themes within the fund and put their own stamp on it.”

The youngest of SJF’s managing directors, Geballe, 40, led two of the four deals that the firm completed in 2023. “He’s empowered to lead now in a way that if he had joined a big private equity fund, it might have taken him 20 years to get to that point,” says Kirkpatrick.

Energize, meanwhile, had no experience in the circular economy until it hired a young professional who wanted to work in that space. Eileen Waris joined the firm as an associate in 2021 after completing her MBA and master’s in environmental science at Stanford University.

“We did a research report based on her ambition,” says Tough. “We also made an investment with a firm called SourceMap, which focuses on supply chain visibility for the circular economy. So, we’ve really gotten involved there.” He believes it is healthy for younger team members to challenge the scope of a firm’s portfolio every six to 12 months.

At Dawn Capital, all team members are responsible for researching and developing new investment themes. Bell says that every three to six months the firm’s most junior associates present new ideas, including which early-stage start-ups they think Dawn should back. Among the investment areas initiated by junior team members is new applications for verticals within artificial intelligence.

Bell says Dawn’s “thesis-led investing is driven by junior team members working on new areas,” which accounts for a major portion of its deal sourcing.

Mentoring of SJF Ventures’ emerging talent is available not only through daily workflows, but also through Impact Capital Managers, a trade association that SJF founded along with several other firms and that now includes about 120 funds.

“There’s various programming around dealflow, portfolio management, impact management, etcetera,” notes Kirkpatrick. “Through ICM, we started the Mosaic Fellowship for people of color or women who want to work in venture capital. It helps to get them internships at member funds. They work at them all summer and many of them end up working in the field.”

“I want to see those members [who are adding the most value] get enough incentive in the economics to stay with the firm”

Sophia Tsai
Trinity Church Wall Street

Dividing carry

Venture firms that are serious about hanging onto talented team members cannot forget about economics. Most firms do not split carry equally among investment team members, even when they are rising stars who are generating sizable returns, says Hoxton’s Kanji. Offering equal carry to all partners is among the ways that Hoxton has been able to attract talent with extensive experience in Silicon Valley, he notes.

The lack of equally distributed profits has “effectively disenfranchised young, talented people,” motivating many to start their own funds, Kanji adds. “Equal carry works from a multi-generation perspective as you think about building a firm.”

Energize divides distributions not only among investment team members but also among its operating team, which is instrumental in creating value after an investment is made. “These are smart individuals who join investment firms,” says Tough. “They understand dollars and cents, and when you can share with them long-term alignment, which is the financial alignment, plus share with them an HR plan of a well-run firm, they see you’re investing in their career and for us that’s been very helpful.” That financial alignment is a big reason Energize hasn’t involuntarily lost an investment professional in nearly five years, he notes.

In addition to sharing carry and giving rising stars promotions that come with more responsibility, SFJ retains talent by virtue of its mission as an impact investor. “Some of our team members could have gone to XYZ private equity firm, but they care about inequality and climate and that’s why they’re here,” Kirkpatrick notes. “That’s what they’re passionate about.”

LP scrutiny

How venture firms incentivize emerging talent to stay is of increasing importance to limited partners. When Sophia Tsai, managing director at Trinity Church Wall Street, considers allocating to a venture fund, she wants to know the economic distribution across the team and the rationale for it. Tsai says she doesn’t see one formula as better than others, but she wants “to understand how that economic distribution works in the amount of capital they want to raise in that fund and the size of the team.”

When a firm has multiple partners, Tsai seeks to learn which investments can be attributed to individual partners. “I often call founders and CEOs of [portfolio] companies to see who originated the deal, who they are most in contact with and who’s adding the most value. And I want to see those members get enough incentive in the economics to stay with the firm.”

“Most people want to be part of a company where they believe in the work at some level and that they’re a contributor to that”

Mike Collins
Alumni Ventures

That process will reveal whether a rising star at a firm is doing much of the heavy lifting but not being rewarded. These employees can more easily be poached by another firm, ultimately hurting the performance of the fund they left.

Compensation is certainly one factor that motivates younger talent, but opportunities to form relationships with other people are equally important, says Collins at Alumni. “Most people in our business want to be developing a career, learning and enjoying the people they work with,” he notes. So, just fulfilling certain tasks in return for a paycheck won’t motivate most people over the long term, he notes.

“Most people want to be part of a company where they believe in the work at some level and that they’re a contributor to that,” he says. “They feel success when the team succeeds.”

Tough at Energize agrees that younger professionals want to take pride in their company’s mission and regard it as equally important as financial returns. “If you can get great returns and great impact, that’s a plus,” he says. “People love telling their parents what they’re doing.”