Last week, @wadhwa tweeted this: “Sequoia founder says 45% of founding CEOs of their investments fired in 18 months. Quite a confession.”
I’ve tried to find other references to this quote to no avail. So I will not pass judgement on that statement, nor will I assume it is true.
But I was surprised at some of the comments people posted in reaction to this statement. It seemed that most people are surprised to hear that founding CEOs have a tendency not to be in that role forever.
Let me tell you something… This is not a Sequoia-specific trend. It is a early-stage-high-growth-VC-funded company trend.
Now I won’t claim that some VCs are better than others in supporting and maintaining the founding CEO in his/her role all the way to an exit. Nor will I make assumptions about the correlation between shareholder return and the tenure of the founding CEO. I literally have no data on either.
What I will tell you with certainty is that founding CEOs more often than not are not in that position at the point of exit… and that there’s nothing wrong with that! Let me say that again… There’s nothing wrong in a founding CEO passing the reigns to another CEO.
Yes, every founder wants to be the next Jobs, Gates, Zuckerberg, and Ellison. But these founding CEOs are exceptions to the rule. The reality is this: At the startup/expansion stages, the persona of the CEO is one of the founding creative/technical entrepreneur. At the growth/later stages, the persona is one of the experienced operational CEO. The likelihood of the founding CEO having both characteristics/personas is quite small.
So here’s my confession: In portfolio companies which we invested in more than two years ago, we have a 55% transition by the founding CEO. Two things to note here:
First, the percentage would be lower if I included all our portfolio companies (so be careful about making comparisons).
Second, notice I used the word transition and not firing.
In the case of our companies, we have had not had a single founding CEO fired. Rather, they were situations where the Board of Directors and the CEO came to the conclusion that it be best for the company to bring in a new CEO. Semantics? Perhaps. Were there cases where pressure was applied by the Board on the CEO to get to that conclusion? Yes. Did it take time to get to that conclusion? Oh yes! Were any of the CEOs fired? Nope. Were all of them happy to have made the transition? Nope. Were some happy? Yes, but only after the transition.
The nature of the transitions also varied…
Here’s a summary of the situations:
- CEO reluctantly comes to the conclusion with Board prodding. Launches search, is involved in selection, makes the transition and leaves the company (in some cases leaves the operations, but stays on as a board member).
- CEO reluctantly comes to the conclusion with Board prodding. Launches search, is involved in selection, makes the transition and takes an operating role reporting to the CEO.
- CEO agrees at the point of the investment that the company needs an operating CEO. CEO is recruited shortly after the fund raise, founder takes operating role.
It is a rarity that the founding CEO is happy with these transitions, and certainly not leading up to them. After the transition, I have seen founders being much happier having the heavy burden of a challenging role lifted.
I have written about this topic in the past: