From the Editor: Instant Karma –

Two weeks before Christmas, Benchmark Capital did something classy and smart: It let the people in the side fund to its 1999 $1 billion fund opt out of making a capital call. With the implosion of the Nasdaq changing the fortunes of so many individuals, Benchmark couldn’t bring itself to force those people to stick to their contractual obligation. These are largely entrepreneurs in current and past Benchmark portfolio companies. If they could make the call, great. But if they couldn’t, Benchmark didn’t penalize them. It allowed the individuals to keep their stakes in the fund from its inception till the week of the capital call.

This goes right to the heart of venture capital. It is a relationship business. It’s about treating people fairly, not simply sticking to the letter of a contract.

On a similar note, four funds-Battery Ventures, Meritech Capital Partners, Spectrum Equity Investors and TA Associates-cut their fees or handed back money to LPs in 2002 in anticipation of clawbacks. They are to be commended for being forthright. Contractually, they could keep collecting fees at the regular rate and sit on the portion they expect to owe to LPs when they settle up at the end of a fund’s life. But to what end? It just makes sense-and creates goodwill-for GPs to address a clawback situation as soon as they’re aware of it. The LPs will certainly appreciate it, as Paul Yett of Hamilton Lane tells me.

These gestures of goodwill are not only the right thing to do-they make sense from a business perspective. An LP is going to remember if you cut the fees you charge when you go back out to raise your next fund. And the entrepreneurs who are in a bit of a financial jam now will certainly remember how Benchmark helped them when they’re back on top and have a great company to pitch.

Take a tip from these VCs and do everything you can to make sure your relationships with your entrepreneurs and LPs are on solid footing. Even if you don’t believe in Karma, I guarantee that any positive actions you take now will pay dividends down the road.