How To Manage Your Own Transition –

After 20 years of watching pitches, Andy Rachleff will try his hand at throwing them. A co-founder of Benchmark Capital, Rachleff, 45, will go part-time with the firm’s new $400 million fund, giving him more time to do things with his family, such as pitching for his 9-year-old son’s Little League team. With so many high-profile GPs going part-time these days, we sat down with Rachleff to get his perspective on the phenomenon.

Q. It seems like more 40-something VCs are stepping back and trying to decide if they should continue going 100%. Do you expect more of it?

A. I do expect more of it.

Q. Why?

A. I think the magnitude of the wealth created in this last cycle was greater than anyone could have ever imagined, and that leads one to ask oneself a bunch of philosophical questions. [The issue of whether all of a fund’s GPs will continue in a new fund] is one of the most frequently asked questions from the limited partner community.

Q. How concerned are LPs?

A. They’re just concerned about whether the firms that they back will continue to have a number of partners with many years of experience. They would like the firms to maintain their database of wisdom.

Q. As someone going part-time, how do you do that without alienating your LPs or fellow GPs?

A. We’re in the fortunate position [at Benchmark] in that we have a lot of very capable and experienced people who are continuing on full-time.

Q. How do you go about reaching the decision to go part-time? Do you sound things out with another GP you’re close with?

A. I think it’s more a matter of you make up your own mind and then state your intention to your partners.

Q. Do you do that at a partners meeting or one-on-one?

A. I did it individually.

Q. Was that difficult?

A. Reaching the decision was more difficult [because it needs to be final]. I think that it’s potentially harmful to the cohesiveness and spirit of a group if someone says that they’re thinking about leaving. Because once someone says they’re thinking about it, it’s only a matter of time before it happens, even if it doesn’t happen in the current fund. And if it doesn’t happen in the current fund, then everybody will always have in their mind, Is that individual really focused on making this fund a great one?’ That’s why you really need to have your thoughts together and make your decision before you inform your partners. When one of my CEOs says, I’m thinking about stepping down,’ they’ve told me that they have decided.

Q. Once you talk to your partners, how do you talk to your LPs?

A. Each of us is a point person for a set of limited partners. I don’t know how other firms are structured, but because we’re an equal partnership we just divvy up the limited partners, and Steve Spurlock [the COO] has responsibility for all of them. Because this was timed with the raising of the new fund, we called our limited partners and told them that we were raising a new fund and that I was not going to be a full-time general partner in the new fund.

Q. How did they respond to that?

A. Interestingly enough, they congratulated me and said, We’ll be sorry to see you [going part-time].

Q. Any other advice to VCs about potential issues regarding going part-time?

A. I’m in the fortunate position that my decision to go part time doesn’t really affect our firm because we have such a great array of talent. That’s the beauty of the equal partnership.

Q. What about things like carried interest and fees? I would imagine at some firms that that could lead to a negotiation.

A. Not here. Again, forgive me for promoting our equal partnership, but the beauty of it is that we don’t spend any time talking about economics because we just share everything. When we got started we decided that having seen other firms go through generational transitions that we were going to do it differently. We told all of our limited partners when we got going that we were going to share everything equally, and even as we brought in new partners they were going to be equal. But when the time came for someone to step aside, they were going to replace their equity with cash. So, I’m going to return in Benchmark V as an investor.

Q. How much will you invest?

A. I will be a sizable investor. I will continue to earn a return on the firm’s success, but I pay for that right.

Q. That’s enough reason to give you pause about going part-time.

A. Exactly. But I think it’s the right thing to do. The beauty of this system is that it eliminates the hanger-on syndrome. You don’t have guys who are working part-time and drawing a carried interest based on the fact that they were founders. It’s very clean and crisp.

Q. Is being a venture capitalist still fun?

A. Absolutely.

Q. Why?

A. Because innovation continues unabated.

Q. Can you elaborate?

A. When I joined the industry full-time in 1984, we had just gone through a long, receptive market for technology companies, with phenomenal returns and incredible amounts of fund-raising, then we went into a downturn. It was perceived that the good times were over and unlikely to ever come back to that magnitude. Therefore, when I joined, I did it because I thought it was going to be fun, not because I thought it was going to be hugely financially rewarding.

Q. Has it been as fun as you expected?

A. God, yes. It really is an honor to be associated with a lot of these entrepreneurs.

Q. It seems like the job would be more difficult than it would be fun.

A. You know what the hard job is? Running one of these companies. That’s a much harder job than ours. People are all depending on you. We get to act as a sounding board to these folks, but they’re making the decisions. That’s much harder.

Andy Rachleff

New Role: Will go part-time as a “Partner” in Fund V. Will maintain all board seats.

Work History: Co-founded Benchmark Capital as a General Partner in 1995. Previosly spent 10 years as a GP with Merrill, Pickard, Anderson & Eyre. Got his start as a financial analyst at Blyth Eastman Paine Webber.

Sample Hits: America Online (bought by Time Warner), C-Port (bout by Motorola), Juniper Netwoks (went public), Legato Systems (bought by EMC), Pure Software (went public and later acquired), and Shasta Networks (bought by Nortel).

Board Seats: Include public companies Blue Coat Systems, Equinix, Opsware (formerly LoudCloud) and SecureAll Systems.

Personal: Married with two kids. Recent shoulder surgery will let him play tennis and pitch to his son’s Little League team.

On Going Part-Time: “I feel like I’ve earned the right to play.”

Email: lawrence.aragon@thomson.com