What Qualities Does One Need to Succeed as a Venture-Backed CEO?




The National Venture Capital Association and executive recruiting firm SpencerStuart recently released a white paper, “Emerging Best Practices for Building the Next Generation of Venture-Backed Leadership”.  One of the key points from the paper is the increasing preference by VCs for CEOs who have ‘been there and done that’: When seeking talent for emerging sectors (such as clean technology) with a limited CEO pool, 2010 survey
respondents clearly favored proven venture-backed CEOs from unrelated sectors (58%) over sector entrepreneurs with no CEO experience (31%) or industry leaders from large companies who lack experience in an entrepreneurial environment (11%).

This is also consistent with the challenging, resource constrained environment in which VCs must now operate– it doesn’t make sense to have an inexperienced CEO cutting their teeth on your funds if you can avoid it as the next financing round will be painful– especially if your management team has not executed to meet the company’s board approved operating plan.

The paper makes a number of interesting observations, several of which I summarize below:

* “Vision and fundraising skills are more important than they were a decade ago.”

* “VCs increasingly prefer to find executives who already have a small-company education.”

* “Despite the sea change in the venture capital landscape over the past decade, firms haven’t significantly changed their approach to evaluating senior-level talent.”

*”Firms remain less systematic . . . about conducting formal assessments of their CEOs and top managers after the hire.  Only 25% of respondents to our 2010 survey conduct formal, ongoing management assessments after the investment has been made.”

*”In addition to expecting more of their board members, venture capitalists are also recruiting more independent board members.  Seventy-five percent of 2010 survey respondents said they are recruiting more independent/outside board members now that they face a longer path to liquidity.”

From my fourteen years of experience as a venture capitalist, I can say with conviction that  I have consistently seen the most ill-suited incipient entrepreneurial CEO’s come from large company backgrounds.  When the going gets tough, executives who have grown up in the comfort of the large enterprise typically  are uncomfortable with the difficult actions required to cut significant cost– they tend to be reactive as opposed to proactive about making these changes. Fundamentally, newcomers to VC management who do not have small company experience simply aren’t as self reliant as they need to be to successfully lead a group in a small company.

I was most disappointed to see that venture-backed companies continue to avoid the formal process of reviewing executives after they are hired.  Again, in my experience, I have consistently found that the review process is one of the most important tools for aligning interests between the board and the management team.  We have reaped major benefits from doing this in our portfolio companies, and we have worked with outside organizational consultants to do it.  It is money well spent.

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