Noubar Afeyan, founder and CEO of Flagship Ventures, started his first company at age 24. As he was raising money, many investors told him that they wanted to bring on a more experienced CEO to run the company. But Afeyan wanted investors who would trust him, so he kept looking until he raised $1 million from three VC firms that would let him stay as CEO. Then on his second day after receiving funding, he did something unexpected: he hired an outside CEO to replace himself.
Now a prominent venture capitalist, Afeyan says a startup CEO stands for “Current Executive Officer.” It’s simply a matter of fact, he says, that 80% of startup CEOs are replaced at some point. And the cause is in large part due to the structure of venture capital firms.
Proposition #1: startups miss their numbers. It’s inevitable with any startup, good or bad, successful or failing.
Now, VC firms are run by individuals but have collective responsibility. Each partner has a portfolio of startups that they work with, but the other partners at the VC firm have an interest in the performance of all portfolio companies, if only a passing knowledge of what’s going on inside the companies.
The first time a startup misses its numbers, the lead partner usually goes to bat for the company. He or she tells the other VC partners, “yes they missed their numbers but they have a plan…”
The second time a startup misses its numbers and the VC partners are unhappy with the performance. They ask the lead investor what he’s doing about the situation, the most obvious answer is “there’s a leadership problem and we’re replacing the CEO.”
CEOs are critical to the success of a startup, but also the most interchangeable. Pull one out, drop a new one in, and the startup continues without missing a beat. So long as the CEO is not the founder. That’s why venture capitalists don’t like the founder to be CEO – because then if the founder/CEO is fired there is no more company.
Moral of the story? If you’re a founder of a startup looking for Venture Capital money, you probably don’t want to stay on as CEO. And if you’re a CEO of a VC-backed startup, keep your resume up to date (and try not to miss your numbers!)
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