Why 1 in 3 Fund Partnerships Fail: 3 Strategies to Survive

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Capital raising in private equity starts with one decision most fund managers get wrong: who you choose as your co-GP.

 One in three GP partnerships fail or fundamentally restructure within the first five years; not because capital dried up or deal flow collapsed, but because two people who built something together stopped moving in the same direction. 

In this episode of Making Billions with Ryan Miller, he reveals the most expensive mistake in fund management: optimizing for chemistry instead of complementarity. 

The "Founder Best Friend Effect" — partnering with peers who validate you instead of challenge you — is the silent killer of co-GP relationships that look perfect on day one and implode by year three.

 Ryan delivers three non-negotiables every fund manager must verify before signing a partnership agreement.

[THE HOST]: Ryan Miller is a fund manager, capital strategist, and former CFO turned angel investor in technology and energy. He is the founder of Fund Raise Capital and Aequor Capital Partners, and has mentored over 1,000 fund managers across private equity, private credit, venture capital, real estate, and alternative assets globally.

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Transcript

Ryan Miller

Most fund managers know that finding the right co-founder in fund management is absolutely key. Most advice from them on selecting a good partner is kind of surface level, and that is why they're completely wrong about one thing. And today you're gonna know where most managers go wrong when selecting a partner and how to fix it when launching your next fund. Here we go.

Ryan Miller

Before we dive in, just a word from our sponsor. When doing deals, we all know that raising capital is the one thing that unlocks everything. That's why I've partnered with Reef Pass Investors that are actively funding deals right now. So if you're a deal syndicator or founder thinking about launching an M&A focused buy and build platform, reach out to Reef Pass Investors at reefpassInvestors.com.  They are one of the best investors in the game that are helping you launch a new long-term holding company. So here's what I want you to do: click the description in the notes and contact them for a discovery call and potentially get an invite to pitch your next M&A deal. Now, let's get back to the show. 

Ryan Miller

And just a reminder, nothing in this episode is legal, financial, or tax or investment advice. Everything you see here is for entertainment purposes only and is not a solicitation for investment in any way. Always check with professionals before making any decision, especially off information that we talk about here. With that said, here we go. 

Ryan Miller

Picture yourself 18 months into your fund. Your co-GP hasn't made a capital call decision in three months. You're covering every operational move yourself. The LPs are calling, asking why communication feels fractured. The fund is growing, the capital is there, the deal flow is there, but your most critical asset, your partner, it's becoming a liability. You're managing a business and managing a broken relationship. This is the most expensive mistake in fund management, and it is entirely preventable. And here's what's interesting: one in three manager partnerships fail or fundamentally restructure within the first five years. Not because they ran out of deals, not because capital dried up, it's because the two people who built this thing together stopped moving in the same direction. And by the time they realize it, they were locked into cap tables, LP relationships, and a five-year commitment that turned every conversation into a negotiation. See, I learned this the hard way. So here I was, a few funds into my career, and I made this mistake that I'm about to talk about in this episode. So I'm going to show you exactly how to know before you partner up whether this person will still be in the foxhole with you in year five to year 10. It's not romantic, but it is not fun and is absolutely non-negotiable. 

Ryan Miller

So I want to talk about a partner paradox or why chemistry can potentially destroy partnerships. So here's what most GPs do wrong from day one. They optimize for chemistry instead of for complementarity. You meet someone, you've got great energy, you finish each other's sentences, you laugh at the same jokes. You both have deep operating expertise and strong investor networks. You think, this is it, this is the person I want to build this fund with. And you're completely wrong. Chemistry can be a trap. You can have electric energy with someone and zero operational alignment. You can have great rapport and contradictory decision-making frameworks. You can genuinely like someone and discover after you're locked in together that they make decisions that are way different and they are ones you would never make. I call this the founder best friend effect. The people you most want to partner with, your peers, your friends, the people who make you feel validated, they're often the worst partners. It's because they don't challenge you. They amplify you, they make you feel right instead of making you better. So here's what happens: you're both strong, confident operators. You're both used to being the smartest person in the room. And when you get together, you're not pushing back on each other's thinking. You're nodding, you're saying, yeah, that's the move. You're building in an echo chamber with really good credentials. Then your two hits. You face your first real crisis. Maybe a deal underperforms, maybe an LP relationship starts to go off the rails. Maybe you disagree on how to handle founder risk in the portfolio. And suddenly you realize we never actually really talked about how to handle this. We never asked the hard questions of each other. We just assumed that we were on the same page because we liked each other and laughed at the same jokes. Let that sink in. 

Ryan Miller

Most failures don't happen because GPs optimize for competence. They happen because GPs optimize for compatibility. The fix is brutal in its simplicity. Separate someone I want to drink a beer with from someone I trust to make the hard call, opposite of me. And here's the interview test. You sit down with someone, you ask them, so tell me about a time when you made a decision that hurt you. And I don't mean financially. I mean a decision where you had to say no to something you wanted because the principles demanded it. Now listen for the pattern. The right answer sounds like I cut a co-founder out of a deal because he was underperforming, and I knew it would damage our relationship. It did. We haven't spoken in three years. But the decision was still right, and I would make it again. The wrong answer sounds like I learned the hard way that next time I'll set clear expectations up front. That's not integrity. That's optimization. That's someone who is trying to get better at managing around their weakness instead of someone who built integrity into their operating system. Do you see the difference? So the partner you need doesn't need to be your best friend. The partner you need is someone that will make the right call even when the right call costs them everything. That is the trust that will survive any crisis, and that's what you want in a partner. 

Ryan Miller

So let's talk about non-negotiable number one. That is integrity under pressure. Now I need to be clear about something first. Integrity is not just about honesty. Honesty is not hard in this business. You can tell the truth and still be a snake. Integrity is standing firm when the stand costs you something. There are three tests, and you need to see all three before you partner up. Test number one, can they name a failure? Not a learning moment, not a pivot, a genuine failure where they got kicked in the teeth, they got it wrong, they faced public ridicule, whatever it was. So if someone can't name a specific decision they got wrong, they're either lying or they've never been tested hard enough to know, and both have no place in a GP. Test number two, did they change systems after, or did they just rationalize it? There's a difference. Real integrity sounds like I realized my decision on making a founder quality was flawed. So I completely changed how I vet cultural fit. Rationalization sounds more like I learned that the next time I'll trust my gut less and listen to my team more. One is structural change, one is hoping the same system just produces a different result. And then there's test number three. Are they willing to make the wrong call if it's the right call? This is the hardest one to test because it happens at the edge of gray. You ask them, walk me through a time when you did the thing that was right but looked wrong. When you made a move and half of your advisor thought you were completely nuts, but you had to do it anyways because the principles inside of you demanded it. You want to let that sink in. Really make sure you do it. And if you can't identify this in someone before you partner with them, you can't trust them in a crisis. And your fund will have a crisis. That's not pessimism. That is private equity business incarnate. Every fund runs into a moment where the easy call and the right call are not always the same. And if your partner has not demonstrated the integrity, they will not make the right call. They will take the call that keeps them comfortable. 

Ryan Miller

See, when I was building my first fund, I had a co-founder candidate who was phenomenal on paper. Incredible track record, deep relationships, exactly the right skill set in deal sourcing. But I asked him to tell me about a time he made a hard call that hurt him. And he couldn't. Not because he didn't try. He literally could not access a memory on it. So I passed on that partnership. And it was the best decision I ever made. Three years later, he went through a fund dissolution with another group. And you know what that problem was. Crisis hit, and when it came time to make the hard call that would be unpopular, but it's still the right call, he couldn't do it. He tried to keep everyone happy, and the partnership eventually imploded. See, integrity is not something you can teach in year two. It's not something you can negotiate. It is either built into someone's operating system or it's not. 

Ryan Miller

Now let's talk about non-negotiable number two, which is complementary gaps and complementary egos. So I'm gonna give you a specific exercise. I want you to write this down as long as it's safe. You're gonna map your gaps, not your strengths, your gaps. So ask yourself, what are three things that I'm terrible at? Not as good as terrible. The things that I'm left alone in the room with them, they just don't get solved or they don't get done. So for me, it's operational systems. I build things, I don't optimize them. It's detailed financial modeling. I can read models. I can't sit and excel for four hours. It's personnel management at scale. I get people excited, but I don't keep them organized. Now, the partner you need is not someone who's also bad at those things. That's a charity case, not a partnership. The partner you need is someone who is exceptionally good at three things that you just can't do. And here's the hard part that person is probably not your friend. See, when both co-GPs come from the same background, both ex-bankers or ex-operators, both guys made their name in the same part of the market. You've hired a competitor. You haven't hired a partner. You've hired a version of yourself with a slightly different network. Can you see the difference? 

Ryan Miller

See, the data on this is brutal. Partnerships where both GPs have nearly identical backgrounds and skill profiles have a challenge on divergent thinking and exploring new opportunities. And if you know, you know, in this industry, both divergent and convergent thinking are critical in making decisions. But you got to ask yourself, why is that? Well, it's probably because when you're both trying to do the same thing, everything becomes a challenge over turf. You're not complementary, you're redundant, and redundancy creates conflict. Take Berkshire Hathaway. This is the model here. Munger and Buffett were not the same person with different networks. Munger was a lawyer businessman, forcing Buffett to think in systems. And Buffett was a capital allocator pushing Munger toward higher return thresholds. They came from completely different worlds. They thought differently. They disagreed constantly on method. But, and this is crucial, they had agreed on principles before they started. Buffett didn't say, I'm the CEO and you're my advisor. And Munger didn't say, I'm smarter and you're better at capital. They said, we have different tools. We're building something that is better because we're not the same. 

Ryan Miller

And here's how you implement this clarity on role before entry, not vague role specific, specific decision clarity right now. Not you do deals and I do ops, but you lead LP strategy relationship management with founders and we co-own the underwriting. I own portfolio analytics, cap stack management, reporting infrastructure. When we disagree on a deal, here's how we resolve it. When we disagree on strategy, here's who has the final say. Specificity prevents mission creep. Mission creep is what kills partnerships in year three. See, nobody wakes up in year two thinking they want to blow up their fund, but they wake up and realize they're doing the other person's job. They are not being heard and they're moving in different directions because no one ever explicitly decided what each direction should be.

Ryan Miller

Hey, if you're finding value out of this discussion, could you do me a huge favor? Could you just take a second and hit that like or subscribe button? It costs you nothing, but it tells the algorithm that this is valuable information and it helps us to get it to more people. Thank you. You're incredible. Now let's get back to the show.

Ryan Miller

Then there's non-negotiable number three, the brutal alignment meeting. See, most partnerships fail not because they have irreconcilable differences. They fail because they've never reconciled their differences before they were under pressure. See, you need to have a conversation before you're in a crisis. And I mean have it, not text about it, not vague conversation over dinner. Sit down, probably with an advisor, a lawyer present, and work through three scenarios. Scenario one, fund underperforms in year two. Let's say you're below benchmark. What happens? Who has decision rights? Do we get more aggressive? Do we extend the fund? Do we return capital? Can you disagree with me on this and stay in the partnership? And if we can't agree, what's the fairness mechanism? Do we both walk? Does one person buy the other out? What's fair here? And there's scenario two. You disagree on a major founder quality call. Let's say I want you to fire the CEO of a portfolio company and you think we should give them another chance. How do we resolve that? Do we vote? Does one person have veto? Do we call an advisor? Because I'm telling you, this scenario will happen. And if you're figuring out your decision-making process while you're in a crisis, you're screwed. Then there's scenario three. One of us wants out. What does that look like? What's the buyout? What's the timeline? Is it clean or is it ugly? Because people change. Circumstances change. And if you haven't talked about an exit before you need an exit, it's going to be a nightmare. So if you cannot have this conversation calmly, you're not going to survive under duress. 

Ryan Miller

So this is where the Fund Raise formula becomes crucial. You've heard me talk about this before. Trust always comes before the transaction. And in the partnership context, capital, the thing you're protecting is partnership stability, the viability of your fund over five years. Trust is, do we trust each other's character to exist under pressure? Not do we like each other? Do we actually believe the other person will make the right call even when it's hard? Transaction is, are the economics clear? Do we know what happens if things go sideways? Is there a mechanism for separation that doesn't require a legal battle? Here's what most GPs do. They optimize for the transaction. They spend months on the partnership agreements, they work out exact percentages, the buyout formulas, the decision rights. They think they're being smart. But if they don't have the trust, the agreement is worthless. It'll be litigated. It'll be interpreted in bad faith. And it'll take five years and millions of dollars to resolve. Not a position any of us want to be in. You need both. You need trust so deep that you're willing to have hard conversations because you know the other person wants the same outcome. The fund succeeds, and we stay partners if the partnership is good. And you need the transaction, so it's clear that if things fall apart, you both know exactly what that looks like. See, the best partnerships I've seen, and I mean the ones that have survived 20 years, they're built on explicit clarity. They're boring. They sound like contract language, but they allow people to push each other hard because they're not fighting over terms. They're fighting over ideas. And that, my friends, can be extremely healthy, especially in fund management. 

Ryan Miller

So now I want to talk about the cost of getting it wrong. I want to walk you through what happens when you skip this work. You meet someone, chemistry, great energy, you like them, you think you're the same on paper. You raise capital, you're excited to close your first few deals, everything is smooth. Then maybe 18 months in, something breaks. Maybe it's operational, maybe it's strategic, maybe it's a disagreement on capital allocation. And you realize we never actually talked about this. We never decided how to handle this. Now you're in a fight, and the fight is not about the issue anymore. The fight is about control. It's about who gets to be right, it's about ego because you're protecting two different visions that were never explicitly discussed to begin with. You see how this goes sideways? So what happens next is one of two things. Number one, you go to war, you get lawyers, you start citing the partnership agreement. The partnership agreement was written when you both liked each other. So now you're interpreting it in the worst possible light. You spend two years fighting, you spend hundreds of thousands of dollars on legal fees, you burn LP relationships because every LP is asking, what the heck is going on with your team? Your best deals fall apart because neither of you can focus, and you end up in a situation where one person is forced out, or you both agree to dissolve, or you restructure in a way that neither of you even wanted. Then there's option two. It's slower and more expensive. You stop fighting, you just stop communication, you divvy up the fund, one person owns X deal set, the other person owns Y deal set. You both show up to LP meetings, you're not coordinating, you're managing around each other. And your fund limps through the remaining years in a state of civil war. 

Ryan Miller

Now here's what the industry data actually shows. When a partnership

dispute goes formal -- meaning it's litigated through court or runs through

"for cause" removal -- Lecocq Associate and O'Melveny's research shows

you're looking at eighteen to thirty-six months from the trigger event to

formal restructuring or dissolution. When it stays quiet -- when partners

just stop communicating and let the fund drift -- it can drag three to

five years before anything resolves. And during all of that, Goodwin

Procter's 2024 fund terms data shows the contractual triggers themselves

only give you a three-to-nine-month window to act. That's not a few

months. That's years. Look at Abraaj. Dubai-based PE giant. Fourteen billion dollars in AUM.

World's largest emerging markets investor. In February of 2018, four LPs

-- the Gates Foundation, the IFC, CDC Group, and Proparco -- alleged

mismanagement of the Growth Markets Health Fund. By June, Abraaj filed for

provisional liquidation in the Cayman Islands. Four months. One billion

dollars in debt. Three billion dollars in LP commitments wiped on a single

fund. The largest private equity insolvency on record. Not because the

thesis was wrong. Because the partnership couldn't survive what crisis

revealed about character. I've watched GP divorces where the reputational damage lasted a decade.

Where neither person could raise a new fund because the story was "can't

work with partners." And I've watched the human cost. Years of your life -- your peak earning

years, your peak energy years -- spent managing around someone instead of

managing toward something. That is not hyperbole. That is the private equity and fund management business. 

Ryan Miller

So now I want to talk about how to set up for success in a non-negotiable protocol. So here's the framework I use before locking into a partnership. Month one, the integrity audit. Exchange failure stories, not successes, failures. I want to know when you were wrong. I want to know what it cost you. I want to know if you learn something systemic or just situational. I want to see the pattern of your decision making under fire. You should do this with multiple people. Have your candidate talk to three of your closest advisors, three conversations, and listen for whether the story changes. Listen for whether they're being honest or selling a narrative. By the end of month one, you should know, does this person have real integrity or are they managing their personal brand? In month two, it's the gaps. You build explicit organizational structure. Who owns what? Not vague ownership, decision right ownership. When capital calls need to be made, who decides? When we're choosing between portfolio companies for the new hire, who decides? When we're communicating with LPs, who's the primary? Who's the secondary? You write this down. Not a document you file away, a document you both signed because you both agree. You map your gaps, you identify where they're strong and where they're not. And you ask, if we structure it in this way, would both be satisfied? Are we being deployed toward what we're actually good at? By the end of month two, you should have structural clarity. You should both be able to say, I know exactly what I'm owning. I know exactly what they're owning, and I'm confident in that division. 

Ryan Miller

Then there's month three, the stress test. Here you run through scenarios. The fund underperforms, major disagreement on a deal. One of you wants out. You sit down, you talk through each one, and you're listening for can we actually have this conversation? Or is this going to be a moment when we realize we cannot? You write down the agreements, not loose agreements, specific agreements. If the fund is underperforming, we will have a conversation in Q3 of year two. We will look at DPI, TVPI, net IRR against vintage and the benchmarks. If DPI is below, say 1.5X in year eight or net IRR is sub 10%, then you go for maybe a buyout, which is a medium of the last 12 to 14 months. And then we discuss fund extensions, GP led restructuring, or capital returns. Decision rights will be the managing partner with approval from the LP Advisory Committee or the LPAC. So by the end of month three, you should have tested trust in a structured environment. You should know can this person actually make hard decisions with me or are they going to crumble? At the end of 90 days, you have two options. You lock in the partnership with structural clarity and hard-tested trust. Or you know, it's not in the partnership and you walk. The partners who wait until year two to have these conversations are the ones paying for dissolutions in year five. The partners who have these conversations up front are the ones who are still working together in year 20. 

Ryan Miller

So let's go through the Berkshire Hathaway blueprint. So I want to give you the historical model because it matters. See, Berkshire Hathaway is not great because Munger and Buffett liked the same things. It's great because they were willing to be fundamentally different in how they thought. But they had agreed on principles before they started. That's the key. Buffett is the capital allocator. Munger is a systems lawyer. One thinks in financial models and probability, and the other thinks in organizational design and principles. They disagree constantly on methodology. They have genuinely disagreed on major capital allocation decisions. But here's the thing they never disagreed on why they were together. They never disagreed on whether the other person was pulling their weight. They never had to fight about control because control wasn't the fight. The ideas were. You see the difference? They built the Omaha office culture where disagreement was in the operating system. It wasn't a sign of failure. The partnership has survived from 1959 when Buffett and Munger first met at the Omaha Club, introduced by mutual friends over lunch, all the way through Munger's death in November of 2023. That's 64 years of operating relationship. Munger became vice chairman of Berkshire Hathaway formally in 1978, which means more than four and a half decades of formal partnership at a multi-hundred billion dollar company. No disillusion, no restructuring, and no drama. Not because they were best friends, it was because they were clear from the start. That's the model. Not the, we are the same, but we are better because we are not the same. And we knew that going in. 

Ryan Miller

So here's what I want you to do starting this week if you're either building a partnership or recruiting a partner. If you're already in a partnership and you skipped this work, just go back and do it now. Sit down with your partner, have the integrity conversation, build the gap map, run through the stress test. It's not too late. If you're recruiting a partner, do not skip this. Chemistry is not a substitute for alignment. The person you want to drink a beer with is not necessarily the person you. Trust with your life's work. Test the three non-negotiables before you sign anything. So non-negotiable one, integrity under pressure. Can they name a failure? Did they change systems? Are they willing to make the right call even if it's wrong? If you can't see this, you can't proceed. Then there's non-negotiable number two, complementary gaps. Map your weaknesses. Find someone exceptional at the three things that you just can't do. Not someone who's also bad at them, someone who is great. Build a partnership where you're not competing, you're complimenting. And then non-negotiable number three, the brutal alignment. Have the conversations before you're in crisis. Test your decision-making frameworks. Write them down. Know exactly what happens if things fall apart. 

Ryan Miller

And here's the truth that closes this out. The partnership you want in year one is determined by the conversation you're willing to have in year zero. Chemistry is a lie. Alignment is the truth. Every fund that survived a real crisis didn't do it because the partners were best friends. They survived because the partners had explicitly decided how to handle disagreement before the disagreement arrived. And this isn't romantic. This is not fun, but this is how you build something that lasts. We don't get paid to start things. We get paid to finish them. And you cannot finish a fund with a partner who wasn't tested before it got off the ground. 

Ryan Miller

So here's what you're taking from this episode. One, chemistry can destroy partnerships. Compatibility is not the same as alignment. You need someone who challenges you, not someone who just amplifies you. Number two, integrity is non-negotiable. Not honesty, integrity, the willingness to make the right call when it costs you something. Test for it before you partner up because you can't teach it in year two. And then three, complementary gaps, not complementary egos. Partner with someone who's exceptional at what you are terrible at. Build a partnership where both people are being deployed toward their actual strengths. And then four, the brutal alignment meeting is the most important conversation you'll have in your entire fund. Not the one that feels good, the one that tests whether you can actually make decisions together under fire. Then five, the Berkshire model. 64 years of partnership built on principle and clarity and method disagreement. Not because they were the same, because they were different and they knew it going in. The cost of getting this wrong is millions. The cost of getting this right is just a few hard conversations in month one or month two. See, most GPs skip this conversation and pay for it for years. The partners who have the conversation up front are the ones who are still working together in year 20. 

Ryan Miller

To help you lock in this framework, I've put together The DP Partnership Stress Test. It's a 30-day pre-alignment protocol with the exact scenarios I use before partnering up, the integrity interview questions and the gap mapping template that saved my fund from a multi-million dollar disillusion. Download the document in the link provided in the notes. This is what's inside The Fund Raise Capital community. And I want you to have it because your partnership is the foundation of everything. If you're actively recruiting a partner right now or you're already in a partnership that never had this conversation, use it. Print it, sit down, have the hard conversation. The partnerships you want in year five is determined by the alignment you build in month zero. You do these things, and you too will be well on your way in your pursuit  of Making Billions.