Why 1 in 3 Fund Partnerships Fail: 3 Strategies to Survive
episode
Making Billions: The Private Equity Podcast for Fund Managers, Alternative Asset Managers, and Venture Capital Investors
25 min
1 speaker
8 chapters
transcribed 1 month ago
Transcript
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Why do most fund managers choose the wrong co‑GP and how does it lead to failure?
Most fund managers know that finding the right co-founder in fund management is absolutely key. Most advice from them on selecting a good partner is kind of surface level, and that is why they're completely wrong about one thing. And today you're gonna know where most managers go wrong when selecting a partner and how to fix it when launching your next fund. Here we go. Before we dive in, just a word from our sponsor. When doing deals, we all know that raising capital is the one thing that unlocks everything. That's why I've partnered with ReefPass investors that are actively funding deals right now. So if you're a deal syndicator or founder thinking about launching an M ⁇ A-focused buy and build platform, reach out to ReefPass Investors at reefpassinvestors.com.
They are one of the best investors in the game that are helping you launch a new long-term holding company. So here's what I want you to do. Click the description in the notes and contact them for a discovery call and potentially get an invite to pitch your next MA deal. Now let's get back to the show. And just a reminder, nothing in this episode is legal, financial, or tax or investment advice. Everything you see here is for entertainment purposes only and is not a solicitation for investment in any way. Always check with professionals before making any decision, especially off information that we talk about here. With that said, here we go. Pitch yourself 18 months into your fund. Your co GP hasn't made a capital call decision in three months.
You're covering every operational move yourself. The LPs are calling, asking why communication feels fractured. The fund is growing, the capital is there, the deal flow is there, but your most critical asset, your partner, is becoming a liability. You're managing a business and managing a broken relationship. This is the most expensive mistake in fund management. And it is entirely preventable. And here's what's interesting. One in three manager partnerships fail or fundamentally restructure within the first five years. Not because they ran out of deals. It's not because capital dried up. It's because the two people who built this thing together. Stop moving in the same direction. And by the time they realize it, they were locked into cap tables, LP relationships, and a five year commitment that turned every conversation into a negotiation.
See, I learned this the hard way. So here I was a few funds into my career, and I made this mistake that I'm about to talk about in this episode. So I'm going to show you exactly how to know before you partner up whether this person will still be in the foxhole with you in year five to year 10. It's not romantic, but it is not fun and is absolutely non-negotiable. So I want to talk about a partner paradox or why chemistry can potentially destroy. Partnerships. So here's what most GPs do wrong from day one. They optimize for chemistry instead of for complementarity. You meet someone, you've got great energy, you finish each other's sentences, you laugh at the same jokes. You both have deep operating expertise and strong investor networks.
You think, this is it, this is the person I want to build this fund with. And you're completely wrong. Chemistry can be a trap. You can have electric energy with someone and zero operational alignment. You can have great rapport and contradictory decision-making frameworks. You can genuinely like someone and discover after you're locked in together that they make decisions that are way different and they are ones you would never make. I call this the founder best friend effect. The people you most want to partner with, your peers, your friends, the people who make you feel validated, they're often the worst partners. It's because they don't challenge you. They amplify you. They make you feel right instead of making you better.
So here's what happens. You're both strong, confident operators. You're both used to being the smartest person in the room. And when you get together, You're not pushing back on each other's thinking.
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Chapters
8 chapters
1
Why do most fund managers choose the wrong co‑GP and how does it lead to failure?
0:00–3:43
2
What is the “Founder Best Friend Effect” and why is chemistry a partnership trap?
3:43–6:54
3
How can you test a potential partner’s integrity before signing a partnership agreement?
6:54–9:47
4
What are the three non‑negotiable criteria for a successful GP partnership?
9:47–12:23
5
How do you map complementary gaps and avoid redundant skill sets?
12:23–15:40
6
What is the “brutal alignment meeting” and how should it be structured?
15:40–19:46
7
How did the Berkshire Hathaway partnership survive 64 years and what can fund managers learn from it?
19:46–22:37
8
What practical steps and templates can fund managers use to lock in a partnership today?
22:37–25:15
Speakers
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