Thoughts on motivation, talent, fund spinouts, and “the chip”

“If you can’t join them, beat them” is a phrase I think about a lot. Motivation can come from a lot of places, and I don’t think there’s anything wrong with going through life with a big chip on your shoulder, as long as it doesn’t cause you to work towards the wrong goal.   

Last week, I had the opportunity to catch up with someone I hadn’t chatted with much in a couple years. I’m not sure he quite knows how much I respect him (or why). He’s a pretty senior executive at a well-known company in his space. But that’s not just why I think so highly of him – I’ve worked with enough of his former and current co-workers to know what he’s meant to his teams, not just because he is great at his job, but he helped build up many others along the way. So when he got passed over for a partner promotion, he waited out his non-compete, and then built the business up at a competing firm, to the point where they went from an afterthought to a strong contender in the space. Talk about what ended up becoming a penny-wise, pound-foolish talent decision by his former employer, and a killer next move after what I’m sure was a very tough period in his life. We haven’t talked about this, but we don’t need to for me to feel a strong pull towards him and his teams.

Sadly, in professional services, it can be rarer than it should be to find senior people who are excellent in their roles and have also built a strong team and positive culture. In a perfect world, leaders coming up the ladder at these kind of firms (think banking, law, investing, consulting) would realize that enabling a strong pyramid underneath them is great for their long-term success. Intellectually, everyone knows that having a trusted and capable team is important, but delegating and giving people the opportunities to learn under pressure takes significant trust. And without the reps under pressure, it’s really hard to build a strong team. As I’ve been in those shoes, I’ve learned it’s often a sign of insecurity when the opposite occurs – think about the VP who won’t let the associate run the model independently and end up doing it themselves, because they’re trying to stay in the zone where things are safe and they know they can deliver.

While I’m sure there are plenty of examples outside of finance where this “if you can’t join them, beat them” phenomenon has borne out (and I’d love to learn more about them – let me know some examples!), I’m curious about it in the context of fund spinouts, particularly when it’s junior partners and principals leaving, or when the spinout has ambitions to directly compete with their prior employer (as opposed to competing down market, as often happens). I admit that I don’t understand the mindset of an allocator / LP well enough generally, but this is one specific area where I’m especially curious to understand how they think. First-time funds aren’t easy to raise – investing track record and deep expertise within a niche presumably counts for a lot with LPs, but if that’s all it took, there would probably be more spinouts. With that in mind, there’s got to be a group of limited partners who are effectively betting that post-breakup, their chosen investor has zeroed in their focus, doubled down on BD, and written fair partnership docs (or as reddit might say post-breakup, deleted facebook, hit the gym, and lawyered up).

Arcline comes to mind – limited partners who bet on the ex-Golden Gate industrial team’s Fund I appeared to be quite prescient – and they’ve continued to earn the respect of LP’s and raise bigger funds in quick succession. I’m sure some institutional LP has a giant “tree diagram” in their office somewhere, mapping the funds that spun out of Bain Capital (like Golden Gate), and the funds that spun out of those funds (Sycamore, Percheron, Altamont, Arcline, etc.) like it’s the Bill Belichick coaching tree (as an aside, trying to get AI image generators to make this for me was an utter fail, even without asking it to research the spinouts).

I’m going to try harder to scan for this “chip on the shoulder” and I might suggest you do the same. Offline, I’m happy to point out my decision-making errors when I didn’t. It’s relevant when deciding whether or not to take a job (does your boss have the “chip”? does the CEO?), in backing a company as an investor.

Every day, we’re confronted with reasons to take it easy or quit. In some organizations, mission orientation is why people avoid falling into that trap – but that’s a lot easier for a safety net hospital (i.e. where my wife works) than for most other people I’m around, particularly in the private investing ecosystem, including their vendors. Unless you’re going to get particularly meta about ensuring efficient capital markets and the important missions pensions and university endowments are carrying out with their investment returns¹, that’s probably not going to be the thing to keep teams running during tough times.

So – I go back to the “chip”, and the desire to utterly beat another team over a real or perceived slight (think about the “Nobody Believes in Us” messaging that seemingly every football coach uses, even when heavily-favored) – when combined with other elements of a good work environment including fair compensation and real learning opportunity – just might be the thing to push a leader and an organization into the next gear.

1) I believe this loosely, but a) it’s more than a little abstract for most investors, particularly junior investors who have much more limited (ha!) contact with limited partners than with their internal teams, management teams, consultants, bankers, etc. and b) starts to fall down unless you want investment teams to be examining the motives and morals of all of their sources of capital, which sounds like an unmitigated disaster given differing opinions on local and global politics.