Do venture capitalists usually replace the current CEO of a company after they invest?

[Woodcs82]

Do venture capitalists usually replace the current CEO of a company after they invest?

I have no clue

[CDRamming]

I had a lecture last week with Jeff Klank the CFO of AdvantageRN. I asked him many questions in terms of venture capital. In response to your question, it depends on the group. He said usually they would evaluate the business and find what parts needed to be improved. Once these were found they would be presented to the CEO and would give him the job of implimenting the change. If he was unwilling or unable to make said changes even after mentoring then they would replace the CEO. The problem with venture capital is they are looking for their return to be large and easy. If his group did not see the business profiting at a certain percent after 6-12 months he would liquidate the company and cut his losses. The return he looked for was 5x his investment, within 3-5 years and sooner if possible.

[akula]

Do venture capitalists usually replace the current CEO of a company after they invest?

I have no clue

replace ceo - Google Search

i've seen some studies on this and the founder ceo is usually replaced in 50-75% of vc investees with professional management

if the founder takes institutional capital, it's unlikely that she's gonna be the ceo by the time exit time rolls around

[Cole Taylor]

replace ceo - Google Search

i've seen some studies on this and the founder ceo is usually replaced in 50-75% of vc investees with professional management

if the founder takes institutional capital, it's unlikely that she's gonna be the ceo by the time exit time rolls around

Couple that with massive dillution to the founder(s) and it makes a strong case to seek financing elsewhere.

I dont know who's more ruthless the VCs or the hedge funds and their toxic financing.

[BusinessAdviser]

I agree. VC firms are concerned solely with maximizing short-term returns. Nothing else.

[mattSantill]

I know when Warren Buffet takes a controlling interest in a company he makes the promise not to interfere with management. The management stays on board.

[jasaunders]

The difference is that if you are going after VC money, odds are your company is moving to the "big time." How many founders acting as CEO's have experience running hundred million dollar companies? Not many. So while the CEO may have done a great job up until this point running a company with a million dollars in sales, they likely don't have the experience to run a billion dollar company.

[akula]

Couple that with massive dillution to the founder(s) and it makes a strong case to seek financing elsewhere.

I dont know who's more ruthless the VCs or the hedge funds and their toxic financing.

well, yah, I mean 'duh...venture finance is a very specialist form of funding that's limited to either expansion capital, or serial entrepreneurs doing a narrow range of deals in either one of three US locations (cali, ny or boston)

it really has nothing to do with plan vanilla entrepreneurship...peter ireland does a good job in relation to these issues (antiventurecapital.com)

p.s. I don't think venture managers are ruthless or anything...it's mostly paranoia rather than ruthlessness. It's nearly impossible for venture funds to make money (only the top decile does), so imagine how you'd behave if 90% of firms in your industry are always bleeding red ink. you'd be pretty paranoid about your own financial statements and treat entrepreneurs accordingly.

[Cole Taylor]

Antiventurecapital.com has been bookmarked for some time. It just seems like this board is narrowly focused on VC financing. I've made a few attempts to discuss the self filing and/or reverse merger side of things...no bites.

I think technically, Jsaunders, odds are that your company is still going to fail. Although I do get what you're saying.

[Woodcs82]

Thank you to everyone who responded.

My next question is:

Will the Founding members of the business always be on the Board of Directors? Can they be voted off if they own a percentage of the company? I'm looking for opinions on this. I will read up on this more.

Thank you,

-Colin

[akula]

It just seems like this board is narrowly focused on VC financing.

heheh...yeah, it's probably mostly greed (and loss aversion). newbies get excited about vc because it's perceived as free money (i.e. "hey if I fail, I don't care, it's not my money!")..it's not because vc has any kind of correlation to entrepreneurial success (i.e. if you tally a decent sample of sucessful entrepreneurs, you're not gonna find that vc has a consistent role to play in how these guys created their wealth)

[akula]

Will the Founding members of the business always be on the Board of Directors? Can they be voted off if they own a percentage of the company? I'm looking for opinions on this. I will read up on this more.

well...definitely not always...many entrepreneurs use venture funds as a form of exit, where they sell their firm to the fund with the express intention of resigning from the business with 2 quarters.

now...in terms of corporate law and "can [the director] be voted off if they own a percentage of the company?", that's a separate issue. the rights/duties of a shareholder are completely separate from the rights/duties of a director...and yes, directors are very subject subject to being terminated from the board under a whole bunch of different circumstances..ranging from the shareholder votes, to director misconduct.

[Woodcs82]

Thank you for that akula...

I'm sure you know, Mark Zuckerburg had VC's and he still is the CEO and on the board. So Mark didn't use it as an exit strategy. I'm really not sure how much of the company he owns.

Surprisingly they left Zuckerburg in as the CEO. He may be a smart person (Harvard Dropout), as well as an exceptional programmer but i would bet he has people telling him how to run his company. Maybe im wrong, but i would have thought they would have put someone with experience in the Chief spot???

-Colin

well...definitely not always...many entrepreneurs use venture funds as a form of exit, where they sell their firm to the fund with the express intention of resigning from the business with 2 quarters.

now...in terms of corporate law and "can [the director] be voted off if they own a percentage of the company?", that's a separate issue. the rights/duties of a shareholder are complete separate from the rights/duties of a director...and yes, directors are very subject subject to being terminated from the board under a whole bunch of different circumstances..ranging from the shareholder votes, to director misconduct.

[akula]

Surprisingly they left Zuckerburg in as the CEO. He may be a smart person (Harvard Dropout), as well as an exceptional programmer but i would bet he has people telling him how to run his company. Maybe im wrong, but i would have thought they would have put someone with experience in the Chief spot???

good points there colin
yah, fb vc's have "put someone with experience"

...Jim Breyer (accel) and Peter Thiel (founder's fund) are on fb's board and Zuckerberg (who owns about 30&#37 still has the ceo title...but it doesn't mean he's the the boss. Owen Van Natta manages the firms' day to day business, whilst Zuckerberg is primarily the company's token figurehead and media magnet. Titles are there mostly for marketing purposes - they bear little influence on who is responsible for operational decisions...I'd venture to bet that by the time fb files for IPO, Zuckerberg will be replaced as a CEO, just like Larry Page was replaced when GOOG did their listing...why? because it's a good marketing decision (amongst other things).

[veikoh]

it's depending what kind of person you are. If you are visionary with extremly good management skills nobody have no reason to take you out. They will find you supporting CFO, CTO, CMO, etc... but without a management experience they may offer you a CTO or advisory position depending your skills.