It's the Partnership, Stupid.

Image Credit: Dunechaser Over the years, I've learned a lot about Venture Capital and Venture Capitalists, and what I've learned is that a VC is only as good as his firm, and a firm is only as good as the health of its Partnership.

What do I know about VC? Certainly not as much as some, but VC is something I grew up around, and then as I got into startups it's something I've surrounded myself with, for better or worse, over the past 5 years. I've worked for two VCs, been backed by another, and through my closest friends have intimate working and specific knowledge about their experiences with many more. Lastly, let's not forget my personal relationships with VCs who I consider more friends than colleagues, but from whom I learn a great deal about VC as well.

So it with this experience I wanted to share one lesson that has become crystal clear to me in the past twelve months: The quality of a VC is not defined by the VC herself, but but by her Partnership.

What's a Partnership? A Partnership is not just the legal entity formed by a group of people -- that's the stupid details -- a Partnership is the dynamic among two or more people, created by working and living together.

And so, while there are a number of VCs I really like a lot on a individual level, for too many I don't believe their Partnership functions at a high enough degree of Integrity and Healthfulness, and so I wouldn't do business with them.

Now Integrity is an easy thing to look and do diligence on: all you need to do is ask around. Are these people honest? Do they believe in doing the "fair" thing over the short-term profitable thing?

Healthfulness, however, is a harder thing to look for and judge -- yet it's just as critical.

Let me tell you how I first started thinking about the concept of "VC Partnership Healthfulness":

Back in August, after attending about 8 months of Monday morning Partnership meetings at Flybridge, I was getting tea in New York with one of its Partners, David Aronoff, and brought up the issue.

"David," I said, "It's strange, but it's palpable how much you guys respect each other in these meetings."

I was serious. It seemed the Partners went out of their way to make sure everyone's voice was heard and that both dissension and support were heard with equally open minds and ears.

It was eerily straight out of my Quaker upbringing.

And so, David's reply to my observation was both surprising and obvious:

"It's because we work very hard on it."

If you want to learn more about how Flybridge "works on it," read this great post by Jeff Bussgang called "Stop Avoiding Conflict" -- it's an important read for people in any kind of partnership, business or otherwise.

But what I want to highlight is the effect -- or lack of effects -- this has on the startups in the portfolios of Partnerships who operate this way.

In Partnerships where they don't "work on it," by the time that Monday morning Partnership Meeting rolls around -- where they could be voting on a Big Decision about your company (whether to invest in the first place is a small one, the biggest are whether or not to continue investing, to sell, or how to deal with other mid-stage startup quandaries) -- it really matters whether or not that Partnership is making life and death decisions about your company with a clean, healthy slate, or if a Partnership's toxicity, usually unseen by an entrepreneur working with a single Partner he or she likes, is making that Monday morning's decisions less about the specific company being talked about, and more about how one Partner may or may not have voted the week before on another Partner's portfolio company, how your company is doing relative to other companies in the portfolio, or other petty-yet-dangerous issues that do not either have to do with 1) Your company; or 2) Fund-specific reserve policies.

Let's just said I found this out the hard way.

So, as folks head out to raise funds in 2011, I advise you to add a new Checkbox to your VC diligence list: "Is the Partnership -- not just the Partner -- good enough for me." "When the going gets tough, will the firm be lock-step if figuring out what's best for me and my company, or will there be other politics at play?"

Sadly, you may find a lot of the Partners you love ending up on the cutting room floor.