Dell Larcen knows more about what’s going on in Silicon Valley than most people. The Los Altos, Calif.-based specialist has been catering to the emotional lives of venture capitalists and their portfolio companies for years. At venture firms, Larcen is often brought in to help with leadership transitions, or communication breakdowns, or to work out fights over business judgment. (Work is brisk, as you might imagine.) Larcen also parachutes into plenty of portfolio companies. Typically, she’s brought aboard because investors decide that they’re unhappy with the CEO heading the startup. It’s her job to either fine-tune the CEO’s performance, or, if that doesn’t work, ease him or her out the door.
Yesterday, as Larcen piloted her car through Menlo Park, toward yet another fire needing to be extinguished, she told me of a new issue she’s tackling: VCs with conflicting agendas on the boards of the startups they’ve backed. The problem? Some VCs have grown desperate for exits, while others have not. “I’m seeing healthy firms with big funds and long-term strategies” sitting a few seats down the conference table from VCs that are “smaller, they’re out raising another fund, they don’t have a stellar track record and they need some short-term wins,” she said over the phone.
The tension doesn’t come as a surprise. A whole lot of firms are in deep doodoo because of the billions of dollars deployed 1998 and 2002. In 1999 alone, 96 new funds locked down $8.5 billion in capital, according to the National Venture Capital Association. That was a huge increase from five years earlier, when 22 new funds raised a combined $1.7 billion.
As those funds near the end of their 10-year investment periods, panic is setting in at the firms that haven’t produced results necessary to raise fresh capital. A stunning 210 dot-com era venture firms haven’t raised new funds since 2000, according to Thomson Reuters (which pays the bills at PEHub). “By last year, our commitments to a number of venture funds of those vintage years had already dragged out much longer than we cared for them to,” said one head of alternative investments who asked me not to name him.
Though not the most meaningful sample statistically, Larcen is right now working with at least five startups where she’s seeing “very ineffective board governance because of the board members’ passive-aggressive behavior.” Said Larcen, “There’s just enormous underlying tension and frustration that isn’t getting overtly expressed, and it’s evolved to where the VCs are unhappy and think there are performance issues, but they aren’t labeling what the real problem is, themselves.” You have to feel for the CEOs of these companies. Larcen said that in each case, the board is either complaining that the CEO isn’t performing, or doesn’t have a strategy, or isn’t hiring the right people, when board dynamics are really to blame.
So what to do with firms, working side by side, whose goals are not aligned? For now, Larcen is turning to personality tests, anonymous feedback loops, conversations framed in the VCs’ own words, and other qualitative and quantitative tools that she has used to pull off hat tricks in the past. No doubt that a couple, if not all, of the VC board members will also wind up at off-site workshops as Larcen teases out for them what they do well, what that they don’t do well, and what they should stop doing, pronto.
If those measures don’t work, and it’s hard to imagine that they will? “They will,” said Larcen, sounding confident through an increasing bit of static on the line. “I’m very actively engaged.”