Over the years, partners at FLAG Capital Management have spent a lot of time looking at how top-tier VCs approach succession planning. Now it’s time for the venture fund-of-funds firm to apply those lessons to itself.
FLAG recently disclosed that Diana Frazier will step down from her role as co-head of U.S. venture capital, nearly 20 years after co-founding the firm.
Partner Peter Denious, who formerly headed the firm’s emerging markets efforts and relocated not long ago to Stamford, Conn., from Asia, will take on Frazier’s former role.
The move comes as FLAG is reportedly preparing to begin raising its ninth fund of funds this year. FLAG closed its last fund at $180 million in 2012.
In addition to prepping for a new fund, the firm continues to broaden its geographic footprint and focus areas. Last year, it completed the acquisition of Squadron Asia (now FLAG Squadron Asia), a Hong Kong–based private equity manager. Total client commitments exceed $6 billion, according to the firm, with funds dedicated to real estate, energy and international private equity, along with U.S. venture.
VCJ, a peHUB affiliate publication, caught up with Denious recently to talk a bit more about succession plans and other matters.
Q: Both for the venture firms you invest and for FLAG itself, what kind of succession planning do you like to see?
A: We focus outwardly with managers on this question. And then inwardly at FLAG we’ve been wrestling with the same issue. To tie the two together, we think of this as a multi-generational business. So if you don’t have multiple generations around the table, you’re setting yourself out for a real problem. The most successful firms have gotten way in front of that issue with five years or a decade or more of incubating talent and bringing people on board.
At FLAG, we talk about a first, second, third, even fourth generation. We want to see senior members of the management team sharing the spotlight, empowering the next generation, sharing the wealth, and building an institution. If a firm has to invoke a key person provision, that generally means you haven’t thought about it properly.
Q: Venture hasn’t been the most popular asset class among limited partners in recent years. Any thoughts on whether that’s changing?
A: Venture’s definitely finally back. And it’s been a tortuous decade and half, so I think venture’s due to be back. Some people worry about bubbles and sustainability, but I’m not one of them. The (improved) performance hasn’t really rippled its way into the industry numbers, but that’s starting to change. It’s going to perform even better on the heels of the strong IPO market. You also have a lot of strategic buyers who are long on cash. And because it’s been a challenging decade and a half, we’ve been in a more normalized state of capital inflows.
Still, among LPs, I think you’re either a believer in venture or you’re not.
Q: How about emerging markets venture funds, particularly Asia, where you’ve focused a lot of effort?
A: There was tremendous early excitement on the back of early winners, and there has been a subsequent cooling off. I think that has been a good thing, because that’s setting up for a much more sustainable long term environment in Asian private equity and particularly in venture and growth.
Photo illustration of start new job from Shutterstock.
Photo of Peter Denious courtesy of FLAG Capital Management.