Comments on: VC Board Management Best Practices: 5 Early Warning Signs of Trouble

By: pascallev

pascallev — Mon, 01 Feb 2010 19:34:33 +0000

Thanks for your comment. You accurately point to an occupational hazard when dealing with VC's who are over-committed– but the it is the fiduciary duty of a director to exercise oversight in their role on the board. VC's who are not responsive or proactive need to be reminded of this by the board chairman or lead investor. The consequences of passive or passive-aggressive behavior by VC board members who want to avoid the responsibilities associated with a founder replacement can be severe, and it starts with losing money on their investment.

To your second point, I agree that Founders need to be on board with the replacement process or else they must be gone. The nuance, which I am sure you see often, is that some founders may say they are on board but actually they are not, and the downside is that they may work to undermine the process. I've unfortunately lived through that experience once. The impact to the company was severely negative as windows of opportunity vanished because the outgoing founder was not truthful with the rest of the board and poisoned the well for competent replacements to come on board until the company had run out of runway and the viable candidates disappeared.

By: Paul Gomory

Paul Gomory — Mon, 01 Feb 2010 18:46:12 +0000

I have done many "replace-the-founder" CEO searches over the years. Your emphasis on communication is key here (as in all our relationships in life) – but the Venture Capitalist must also be a communicator. VC's who are over-committed with board seats and new-deal chasing are not going to proactively initiate calls to founder/CEO's who have "gone silent." And they aren't going to return my phone calls and be immediately available to interview high-value (and therefore short-fused) candidates in a timely and responsive manner.

A CEO search should NOT begin until the founder/CEO TRULY is on board 98% with being replaced. [Founders rarely get to 100%.] The tactic of "let's get a recruiter working, see some candidates, and then the Founder will come around to it once he/she sees great candidates" only prolongs the search, and most importantly it is a colossal waste of those first few good candidates: Nothing scares off top-tier candidates (who always have other options) than Founder/Board friction, and sensing that the Founder will a problem going forward. If the change is to be made, Founder needs to be on board with it, or gone. Paul Gomory

By: pascallev

pascallev — Sun, 31 Jan 2010 22:57:55 +0000

Thanks for your comment. In my experience we have moved founders into successful positions as Chief Technology Officer, President of International Sales, and Executive Vice President Corporate Development. These have been "real" positions as opposed to just placeholders. In one case we allowed a founding CEO who was truly the Chief Evangelist for the company to establish an independent sales organization and receive premium commissions for closing business– a strategy which proved to be extremely successful. The key is pre-emptive communication– from both sides. It is critical to have conversations that lead to self awareness of the founder's limitations and to mutual recognition between the board and the founder that an end-game is in sight, even though it may be several years away. To answer your last question, the most common stage at which this occurs is during the transition from product development to accelerated revenue growth. Some CEO's can take a company through R&D but can't deal with customer-facing requirements because they are internally focused as opposed to customer driven. Others can take a company from $1 million to $10 million in revenue but can't manage a team of 50 or 100 people. Nowadays, there is no clear financing round associated with these milestones– it could be a series B or a Series AA.

By: Nathan Beckord

Nathan Beckord — Fri, 29 Jan 2010 20:29:35 +0000

Interesting post. "Fear of being fired" has got to be among the top concerns of startup founders, probably just behind "fear of running out of money" and perhaps just ahead of "Google just entered my market."

It sounds like the main takeaway is the importance of frequent, candid communication and transparency. Here's a question, though: if it's clear a founding CEO has reached his or her limit in growing the company, how often do VCs try to arrange a new role so he/she can stay involved? (e.g. 'chief evangelist' or 'strategy' or something). Also, any tips for CEOs to pre-emptively tee this up?

One more q: of the two-thirds of founding CEOs that are eventually replaced, what is the most common company stage or funding round that it happens? (this would be helpful to understand to help set expectations)

thanks, Nathan Beckord