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Only 1 in 10 Company Founders Survive VC Investment

posted 24 Feb 2013, 08:52 by Mpelembe   [ updated 24 Feb 2013, 08:52 ]

A recent survey by the European Leadership Programme (ELP)
found that only one in ten company founders can expect to
remain in charge of the business they founded following
venture capital (VC) investment.

So what does this mean if you're the company founder and
you're looking for investment?  Should you be nervous?

The key is to know your own limitations and make sure you
build a good team around you to compensate for areas where
you are not so strong.

A VC will usually have performed significant investigation
into the management team and especially the founder before
they choose to invest, so you've already passed the first
hurdle once you get investment.  The investors want to
believe in you and expect you to live up to their
expectations based on what you've told them and what
they've found out about you from their research.  After
you've been through this process it's unlikely you'll be
let go because they don't like the shape of your head or
you've upset the senior partner's wife, although that's not
to be recommended.  Ultimately it will be down to your
performance and the performance of the business against the
original plans and forecasts.

So what are the main reasons for removing a founder CEO and
how can you make sure you don't get the chop before you
want it?

1. They don't communicate

Your investor wants to know what's going on, whether it's
good or bad.  They don't like surprises, even good ones, as
it implies that you as the CEO didn't know it was coming or
chose not to tell them.  And if the news is bad they
definitely want to be notified in advance and hear what
you're going to do about it.  Communicate clearly and
frequently and don't hide from bad news, just deliver it
with a well thought out solution.

2. They panic

When you see the founder CEO looking like a deer caught in
the headlights then you know it's time for them to go.
Challenges and problems happen in business and they can be
major.  The CEO needs to keep a calm head and take clear,
decisive actions to resolve the issues.  Show you're in
command and take firm control of the situation.  If you
bury your head in the sand then you'll end up losing it.

3. They don't live up to their promises

It's easy to get carried away when you're raising finance
and promise all sorts of great results but if you can't
deliver on them after the deal then you're liable to get
the boot.  Make sure you focus on what you said you would
do, don't get distracted and stick to achieving what you
promised.  And be careful what you promise.

4. They make stupid decisions

This often comes back to the absence of a strong team.
Founder CEOs by their nature tend to be strong willed and
opinionated.  This can be the key that helps them succeed
in the early stages when it takes persistence and
confidence to start the business.  However, if you stop
listening to your fellow directors or your colleagues are
too timid to tell you the truth, then beware.  You can
easily end up making decisions that don't work for the
company and everyone around you will just keep nodding and
agreeing until it's too late.  Recruit people you can trust
as business partners who will be willing and able to give
you a dose of reality when it's needed.  And be willing to
listen to them.

5. They're simply not up to the job

Of course no-one is going to believe this could happen to
them.  Again the founder CEO's ego is going to maintain an
unshakeable belief in their ability to do anything and
everything.  If the business is going well and you've built
a good team around you, then as long as you're playing a
role that suits (inspirational leader, visionary product
creator, deal maker, lead generator or operational
champion) then there should be no issue about you
remaining.   If the business is struggling and you're
obviously out of your depth then be brave enough to accept
and admit it and be humble enough to support the business
by bringing in people who can do the jobs you can't.  There
is no room in business to carry people who are not
contributing, so find the best way you can contribute and
continue to bring value to the business.

This can all be summed up by saying, build a great team
with the right skills, communicate with the team and your
investor, lead by example, solve problems with clear
decisive action and listen.  Do this and you're far more
likely to keep your job and your company.

About the Author:

Andy Warren is the Managing Director of Marshall Keen Ltd.
He is a chartered accountant and successful CFO and
entrepreneur with extensive experience in M&A, Corporate
Finance, Business Growth and Exit Strategies.  Marshall
Keen provides CFO (Chief
Financial Officer) services to early and mid stage
businesses in the tech sector, and gives the support that
CEOs and investors need to grow their business.