Should I worry about my VCs replacing me as CEO?
Occasionally, we hear from founders that the reason they don’t want to raise funds from VCs is out of fear of being replaced as CEOs. While this may seem like a legitimate fear, it isn’t. VCs are just not in the business of replacing CEOs.
Consider how much time VCs put into learning about the teams. The founders of a company are a significant discussion point in every investment decision. The final decision often comes down to “Do we see this founding team building a billion-dollar business?”
The answer almost always has to be a yes before VCs invest. Therefore, the thought of turning around after an investment and replacing the CEO is abhorrent. It goes against all the work we did.
Yet, CEOs do get replaced.
The decision to replace a CEO is not taken lightly. The number one driver of replacement discussions is poor performance of the company. If your company is growing up and to the right, there is likely no need to worry.
If, on the other hand sales activity, is floundering and you, as CEO, don’t have a plan to fix it, start hitting the books and come up with a plan to save your company. Fast. Otherwise, your board will need to come up with a plan B. Likely, the board will begin to meet in-camera for months before any decision is made. You can’t really blame them. It’s their fiduciary duty to your shareholder they are performing.
Another relatively common reason for a change at the top is that the CEO just doesn’t enjoy his or her job anymore. As a company grows, it shifts from a company looking for a business model to a company looking to optimize every aspect of a business model. Not all founders either enjoy this second phase of a company’s life. No one wants to be a miserable CEO, and no investors want to force an unhappy CEO to stay. The best outcome here is the CEO recognizes that it’s time for someone else to take the reigns. The founder often moves up and becomes chair of the board. However, some founders just want to walk away completely. Each decision is unique, but the outcome is a win for all involved.
Much less frequent, and certainly more controversial, is when the board and the CEO have divergent views as to where to take the company. Like poor performance above, this isn’t a decision that occurs in a vacuum. The underlying reasons for divergent views are long and typically complicated. These departures can be amicable or downright hostile, and everything in between. Think Uber and Travis Kalanick.
In summary, as a founder who has just taken on funding, there is almost no chance a VC will try to replace you regardless of how much of the company they own. As the years progress, don’t ignore your VC and board relations. Discuss regularly with your lead investors their expectations for your performance as CEO and the overall performance of the company. Make sure there is an alignment of expectations. If you’re unhappy in your role as CEO, discuss it with your investors. It may be that a change of leadership would be a win for you personally.
Christian Lassonde, Founder & Managing Partner @Impression Ventures
