Amazon. Apple. Google. Facebook. Microsoft. Oracle. What all these companies have in common is one of the founders was / is the CEO that presided over the company for much of its existence, especially as it went from Startup Inc to Big Tech. There are many arguments for founders to be CEO and also unsurprisingly enough skepticism and outright criticism, from Harvard Business Review in 2008 discussing “The Founder’s Dilemma” to Entrepreneur titling “Why Some Founders Fail as CEOs.” Some have posited also selection bias i.e., that founder CEOs don’t succeed more than non-founder CEOs, it’s just that they are over-represented in the very top echelons of tech.
At Tau we are operators / entrepreneurs turned investors focusing on seed investments and believe overwhelmingly in founder CEOs. We find many VCs advocate for a non-founder CEO once a company has hit product-market fit (series A) or starts scaling the business model (series B). But given the choice we prefer the founder to stay as CEO all throughout, and focus very much on finding entrepreneurs we believe can scale. Keeping founders in charge means typically
1) Stability — less time and energy spent by the rest of the company on who is in charge
2) Vision — a more consistent vision of what the company is trying to achieve
3) Culture — a more coherent environment on the company’s values
There are exceptions to every rule. If founders were disproportionately technical then there is an argument to bring in a person with stronger experience on the business side. A technical founder can in some cases pivot into a long-term CEO role but the company will often lose competitive advantage, after all that person’s true genius will be underutilized. Also if founders cannot continue being CEO for personal reasons elevating someone internally or doing an external search is a fiduciary obligation of the board.
But for VCs who tell entrepreneurs they will invest only if there is another CEO in place we ask — why are you even considering the deal then? Imposing it on a startup is our view old school at best and disrespectful at worst. Keep it in mind that nowadays there is far more knowledge and mentorship around startups to enable CEOs with less experience to succeed.
When are non-founder CEOs the right choice? When the impetus to hire comes from the founders themselves. In many cases the founder may still have more ownership and influence than the CEO, and it becomes a very delicate balance during delicate moments. Investor pressure alone is justified in a CEO change in some rare cases. This happens when the company has gone much beyond the founder’s core skill set and fundamentally that person is harming the company. Case in point Uber, where as is typical of such situations the founder ended up parting ways.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.