One of the toughest things in venture capital is the termination of a business relationship. Recently, a good friend and partner of mine decided to break our partnership together. This was initiated on his part due to the dissatisfaction he recently had with the direction of the business. Our goals were aligned at the beginning of the endeavor, but over the years began to diverge. We did make some good money, but not that far into the partnership I became frustrated and told the partner that the business needed to become a higher priority or that we should just bag it and put our energies into other opportunities.
So in some sense I was relieved. At the end of every year I always conduct an end of year review of all of my portfolio companies and my own personal finances. For the past two years, this company and partnership remained stagnant while my other companies were moving strongly forward. This never makes me happy when I am a part of something that is not moving in the right direction. So, without resistance, I agreed to termination of the partnership.
There are many lessons to be learned. First, like any business endeavor, you must have an exit strategy. This means an exit strategy in the case of success and also in the case of failure or in the case that the principal's goals change. Second, when they say, never do business with good friends, it is not necessarily true. Communication styles are important to consider. The main problem with our partnership was that communication did not flow freely back and forth due to different communication styles. It has nothing to do with the fact that we were friends as well as partners. I am a direct communicator who states his likes and dislikes with the situation. My partner had difficulty expressing his likes and dislikes. He was more the type of person who would never want to disappoint and thus would agree to many ideas that he was not excited about but then would not follow through. This is a more indirect style of communication.
The last lesson is this - successfull business relationships are those that really do not ever end. Whether you fund a company or decline to fund, whether you begin or end a partnership, you must remember that there is always tomorrow and the chance that you will do business again with that person. Or perhaps he will be a reference to other prospective entrepreneurs or partners that are checking back channels on you. So know that if you must "break up", do it well, treat the person with respect, and always leave the door open for another go around down the road.
