Are venture capitalists more loyal to their entrepreneurs or limited partners?

Over the last few weeks I’ve had a number of conversations with VCs about which is more important, their duty to founders they invest in or their limited partners (investors in VC funds).

The two things that prompted these recent discussions: Twitter’s Innovator’s Patent Agreement (which we supported) and Andreessen Horowitz decision to give half of their income to charity.

Some of the VCs opposed to the Twitter IPA, share the view offered by Venky Ganeson who is a partner at Globespan, via pehub:

Regardless of your political beliefs, fundamentally, VCs have a fiduciary duty to our investors, and this structure does not enhance shareholder value,” says Ganesan. In the end, he adds, “My LPs don’t fund me to create change; they fund me to create returns

I think this is a false choice.

One of the several benefits of the IPA is that the best engineers will insist on companies adopting the IPA. And the best companies will want the best engineers. The more we (startups and VCs) impact change for the better, the more value we will all create for the world and that will lead to better returns to our limited partners.

Separately, I’ve also heard some priviate rumblings about AH’s charity pledge decision. The sentiment goes something like, “why are they taking so much management fees and carry if they are just giving it away. it’s not in the interest of their limited partners (some of them are endowments and foundations)”

My response is relatively straightforward: their fees and carry are their income. They can choose whatever they want to do with their income. And the fact that they are able to give so much is simply wonderful and should be admired. Further, I’m sure there are a number of awesome founders that support AH’s commitment to charity and social good and will want to work with AH in the future (which, by the way, is good for LPs as well).

I’ll bring this post home with a quote from my friend Fred Wilson who has taught me a lot about this business. I like how he thinks about a venture capitalists relationship with founders and limited partners (via):

The entrepreneur is the customer and the LP is the shareholder. That’s the only way to think about the venture capital business that makes sense to me.

I love that perspective. It keeps the important things in check.