The Human Piece Of The Venture Equation

We’ve been attending a lot of “demo days” in the past month and I am attending one more this week, TechStars in Boulder tomorrow. These startup accelerator programs, inspired by the success of Y Combinator, are launching something like 100 new web startups a year, possibly more. And the founding teams of all of these startups are young and inexperienced, mostly by design.

That youth and inexperience is an asset to many of these startups. We’ve been through why that is before. The founders have low personal burn rates so $25,000 can take them six months. They are largely developers/hackers who know how to build stuff quickly and inexpensively. They create lean, mean, capital efficient companies. They grew up with the web so they have a “native” feel for how web apps and services should work. And of course, they don’t know why they are going to fail so they “just do it”.

It would be interesting to take all of the companies that have come out of these startup accelerator programs over the past four years and track them.  Of course some have failed and some have been bought. But that’s not really the data I’d be most interested in. How many have built a real business with real revenues? How many are profitable? How many have raised a significant amount of venture capital? And how many have hired experienced managers to run their companies? And how is that working out?

I am most interested in the human piece of this analysis. When do the advantages of youth and inexperience give way to the advantages of maturity and experience? And what are the tell tale signs that the young founders are maxing out on what they can give the company? And what does it take to get them to willingly hand over the keys to the car to someone else? Does it happen without VC investors forcing the issue?

We have one Y Combinator company in our portfolio, Disqus, and no other companies that come out of these startup accelerators. But we have young founders running a bunch of our companies:

Tumblr’s founder/CEO David Karp is 21. 

Disqus’ founder/CEO Daniel Ha is 22.

Etsy’s founder/CEO Rob Kalin is 28 and he recently turned over the reigns of the company to new CEO Maria Thomas.

Greg Yardley, the founder/CEO of Pinch Media is 29. 

Jack Dorsey, Twitter’s CEO and the initial creator of the service, is 31.

Return Path’s CEO, Matt Blumberg, is 37, but he’s been running the company since 1999, when he was 28 years old.

As I told Matt when I first joined his board, “the failure rate of first time CEOs is incredibly high”. You just don’t know what you don’t know. And it leads to making rookie mistakes. Early on in a company, those mistakes don’t cost much. And some mistakes can even be turned into wins.

But as a company grows, the rookie mistakes become harder to manage around. The value that everyone has invested in the business, most importantly the work of the team, starts to weigh on everyone’s minds. The CEO’s job goes from managing the product, writing a little code, doing customer support, and raising money to managing people and teams, processes and priorities. It’s not a job that most people enjoy doing and it’s a job where experience really does matter.

Some young founders can make the transition. Matt Blumberg did. But he worked really hard at it and his personality is well suited to the CEO job. Rob Kalin chose not to make the transition and spent a year recruiting a CEO he was confident could keep what was important about Etsy and change what needed to work differently.

I’ve watched my friend Mark Pincus struggle with this issue over the course of his career. I first backed Mark in 1995 when he was 28 or 29. He quickly flipped that first company, Freeloader. He handed over the reigns of his second company, Support Software, when it went public. He handed over the reigns of his third company, Tribe, and it was a bad move. The hired CEO didn’t know what he was doing with Tribe. So this time around Mark, who is now 42, is running Zynga with a firm grasp on the wheel.

I’ve learned a lot from watching young entrepreneurs like Mark and Matt grow up in the CEO role. I’ve learned that nothing can replace the entrepreneur’s passion and vision for the product and the company. If you rip that out of the company too early, you’ll lose your investment. I think it’s best to wait until the initial product has succeeded in obtaining a critical mass of users and a business model has been developed that works and make sense for the business and is scaling. Then, if its warranted, you can sit down and have the conversation about bringing in experienced management.

Some entrepreneurs react very negatively to that discussion. They have their own ego and self worth tied up in the company and cannot imagine the company operating successfully without them in the driver’s seat. They also don’t know what else they’d do if they didn’t run the company. It’s a really hard transition and can cause great pain for everyone, including the company.

I always try to focus people on what is in the best interests of the company, not specific individuals. That, of course, is easy for me to say because nobody is talking about me leaving the company. I don’t work there. But even so, it’s the right point of view for everyone to take. Sometimes the founders get it right away and are happy to part ways and do something new. Sometimes the founders understand it intellectually but have a hard time emotionally. In that scenario, I think time and patience can yield the right outcome most of the time. But sometimes, it’s never going to happen without a fight. And of course, sometimes the founders shouldn’t leave at all.

How do you know if a founder can scale into the long term “permanent” CEO of the company? Well I don’t think you can know that when you make your initial investment unless the founder has done it before. We have plenty of those situations (successful serial entrepreneur CEOs) in our portfolio and frankly they are easier deals to do. But when you are backing a young, and most likely first time CEO, then you really don’t know if they can drive the car all the way to the finish line.

So it’s important to observe them in the CEO role. Do they communicate well? Do they excel at having difficult face to face conversations with their team and their investors? Do they hire well? Do they move quickly to get rid of problem employees? Do they think about the people side of the business most of the time? Do they have a sense of urgency? Do they command the respect and loyalty of the entire team?

Those are the kinds of things I look for in “long term” CEOs. Of course they need to be able to set the long term strategy and vision and hold the company on that line. And they need to be able to raise capital and manage a Board and investor group. But frankly I think that many young founders are pretty good at those things. It’s the human piece of the equation that is so hard and so few get right.

As we create more startups with young founders at the helm, we are going to have to face these issues more frequently. And even though I’ve been doing this venture capital thing for 22 years, I honestly can say that I don’t feel that prepared to deal with these issues. They are hard. And each one is different. But in order to build the best companies we can, we need to get the people side of the equation right.

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Comments (Archived):

  1. jerome camblain

    I think that if the young founder has the energy and the brain, and that the professional investor can coach and drive him/her, then you’re up to something. The enemy is the ego: ” I had the idea so I got to be smarter than you”I feel that professional investors think that betting on the right team will prevent them from rolling up their sleeves on strategy and management direction. For me, a good VC is mostly a good manager of managers – the cash does not replace the time spent on coaching… until the business takes off and can pay for a structuring manager. And the trade-off is the company’s saoul vs its efficiency.

    1. Julie Kentwood

      Interesting thought.What happens when the young founder really is awesome? Take a young Mark Zuck for example. From everything I’ve heard he’s awesome, but they’ve just surrounded him with super experienced people as well to balance it out.

  2. danielharan

    “And what does it take to get them to willingly hand over the keys to the car to someone else?”I know a lot of people that won’t even consider VC funding because of attitudes like those. Hackers learn fast; how about coaches rather than ultimatums? Clear guidelines as to what exactly is expected instead of lionizing the CEO?

    1. fredwilson

      management coaches are great and I recommend them to everyone. but they are not for everyone. you have to want a coach for it to be effective.and ultimatums are certainly not the answer.these are issues that have to be dealt with in reasoned, calm, conversations and the outcomes can’t be dictated to people without talking it over at length.

  3. Jeremy Bencken

    I was a young CEO (28) who bootstrapped a business to decent cash flow and began the fund raising process as part of launching a new product (which an acquisition offer preempted). Knowing that raising money often led to hiring a full-time CEO, my main concerns were #1 not hiring dead weight with gray hair (such as an ex-management consultant), #2 financial engineering that would leave me and my family worse off than before the investment, or #3 finding myself strapped to a $1B-exit-or-bust rocket (when I might have been happy with a smaller deal). However, those concerns aside, I think the best way to sell young founders on the idea of making someone else CEO is eliminating the responsibilities they don’t enjoy and aren’t good at. As long as the deal leaves them financially whole, they have faith in the new CEO (or the business is so robust that he can’t screw things up too much), it should be a good thing for them.

    1. fredwilson

      those 3 points are all good ones and come up all the time in these discussionsgreat addition to the conversation

      1. Perry

        I agree with this issue, I’ve seen (yep, even experienced) the exit lead to a devaluation of the fundamental value contribution, and history does not highlight a commitment by VC’s that serves to preserve the created value for the original creators. Personally, I feel there are ways to solve this problem that would materially reduce the animosity effect of founding CEO:VC relationship. However, it implies some level of protected stock position.

  4. jeremystein

    do you think that there is any correlation between your major/background and stepping aside?obviously there is an emotional attachment but i would imagine that it is easier for a finance major to step aside compared to an engineer because they are trained to maximize shareholder value. if thats what it takes then thats what it takes. i think someone from that background would have an easier time recognizing that, esp since it helps to maximize their personal return

    1. fredwilson

      i don’t think so.i think it’s hard for everyone to come to terms with changes like this.what if my partners came to me and said i wasn’t right for the firm anymore?i think i’d have a hard time dealing with that and i am a finance oriented person

      1. jeremystein

        That would probably be a tough pill to swallow, and I completely understandwhat you’re saying, but I think its a different argument. A vc fund has acompletely different legal structure from a corporation. A former partnerwon’t have a financial interest in future funds that the firm may raise. IfI’m a founder (and large stockholder), I continue to reap the benefits of mycompany’s success in the future.

        1. Elie Seidman

          The challenge is that often a founder thinks that because they won’t be there, the stock won’t be worth as much, or anything at all. Its all tied up in the issue of ego. It makes sense since what it takes to be a successful founder in the first place – a deep deep belief in your own ability to make your own success – in direct conflict with the concept of betting on someone else to make you a success. A very accomplished VC who i’ve had the opportunity to spend a good deal of time with strongly believes that a removed founder – particularly if he/she was the CEO – should be bought out to eliminate this specific issue and the various symptoms of a founder who has been removed against his will (or even when it was done with their purported buy-in). I believe that liquidity for founders/CEOs is a very good variable to introduce into the mix when faced with a founder/CEO who needs to be moved aside. Real dollars today – vs potential dollars tomorrow – can make the conversation a lot more tangible and practical. Asking an entrepreneur to step aside and take a bet on someone else is just fundamentally in conflict with so many of the attributes that you need in a founder for them to be successful at building a startup in the first place.

      2. daryn

        I think there is a maturity that makes it easier to step aside and do what is best for the company (and probably for themselves as a shareholder) rather than hold on to their ego/pride of keeping their title. It isn’t necessarily age-related, but, personally, I know that after the experiences I’ve been a part of, I’d be much more willing to say “What do I do best, and how can we fill in the holes” than I would have been, say 5+ years ago (I’m 31).That isn’t to say that I wouldn’t want to learn those skills, and try my best to succeed, but surrounding yourself with a good team is part of building a good company, and the titles really should be secondary.I’m looking at a couple of opportunities, and my wife is surprised at some of the roles I’m considering, but for me, at this point in my career, the chance to be _part_ of something I’m excited and passionate about, and work with other like-minded individuals, is much more important than saying it’s C-level / VP or nothing…

    2. Roman Giverts

      interesting, I had no idea finance majors could start software companies 🙂

  5. Joshua Reich

    Congrats on turning 29 Greg! All these years I thought you were smarter than me because you were a year older than me.

    1. gyardley

      Heh, I wasn’t the one who told Fred I was 29 – I wasn’t planning to start lying about my age until I hit 40. Maybe he got it from an out-of-date social networking profile.And Josh, while I might be older than you, I sincerely doubt I’m smarter than you.

      1. fredwilson

        I got it from FB. It was never a concern of mine until I wrote the post.How old are you Greg?

        1. gyardley

          I’ll have to check to see if I made a typo in my birthdate – I’m an old man of 31.

          1. fredwilson

            I will change the post to reflect that

          2. gyardley

            Take your time — I don’t really mind being 29.

  6. Elie Seidman

    apologies for the long post but its a topic near and dear to me. To protect the clueless, i’ll post anonymously.I was a young CEO who built a very big business (many hundreds of an employees and nearly 200M/yr in annual revenue) before being removed by a board that had not a clue about what the business was about and/or my capabilities nor made any attempt to figure either out. It was done largely because I was young (31 at the time; company founded when I was 25) and because there was a generational gap, poorly managed on my part, between me and a board of 60 year olds. Clearly a recipe for disaster and not the sort of extreme situation you are likely to face. At least not for the next 20 or so years of your career That being said, IMO, the challenge that you face is not to know which metrics of CEO capability and aptitude to monitor and asses but rather being able to get data with which to establish opinions on capability and aptitude in the first place. If you are getting most of your data from the board room environment, your dataset is not only extraordinarily small (even if you have a board meeting every month or two like many startups to), it’s also not necessarily representative of the person’s ability. Some people are great with a board but terrible managers and leaders and vice versa; there is a lot of literature that aims to debunk the myth of the charismatic CEO.And how many board members spend time in the day to day with their companies? Even if it were possible to do given the various demands on a VCs time, would it be a good idea to have a non operating member there on a day to day basis whose primary goal was to observe the CEO to assess their ability? And if you did, the Heisenberg uncertainty principle would no doubt be the issue that you would have to worry most about – your very presence would be impacting the behavior of the CEO. I don’t have the answers. Its an extremely hard problem. I’ve seen ostensibly smart people – well educated with otherwise good resumes – try to manage the VC issues using the “VC playbook” of “replace the young CEO” and make an utter mess of the place in the process.Certainly experience with young growing companies is a good start – something the board members in my situation did not have any of – and in that regard your experience with someone like Mark – who I know somewhat well – serves you well but its worthwhile remembering the blinding glimpse of the obvious that every situation is different and that you should tread lightly. Patience is a real virtue here and be cautious about extrapolating too broadly about what you believe you have learned over the past years (your comments are, IMO, very “generic” learnings about startup founder and CEOs) keeping in mind that what you have learned might have been heavily influenced by the, likely superficial, nature of the circumstances under which you collected the data you needed to reach your conclusions and analysis.Ownership mentality on the part of the leaders is core to a startup’s success and while I do believe that there are some hired CEOs who can bring that critical mentality to the fast growing company job, finding those who have done it before and are available now is difficult at best and their success in a prior experience with a different set of people is not necessarily a predictor of how they will handle the new team and the new set of circumstances. Another thing to worry about is that most hired CEOs have not necessarily created the success they take credit for – this assuming that they had a success in the past to begin with which, of course, dramatically limits your pool of available people; there are many many people who have “been around” a success meaning that they were there while it happened. The number of people who genuinely deserve the credit is far smaller. I’ve employed many great people who would like to be CEOs someday and would take credit for the success they achieved while working for me but for whom a CEO job would be a completely fresh start for which their prior experience and resume’s reported success would in no way be a meaningful indicator of their abilities as a CEO.Great things are built by teams but great teams are led by great people and those entities develop a lot of momentum. A great team led by a great founder for 4 or 5 years and then taken over by a hired “grey haired” CEO may very well achieve success 2 or 3 years later but who deserves the credit? We can never know what would have happened had the founder been left in place. So for every hired CEO who will bring great talents to a company, unfortunately there are probably many many people who will at best not damage it and at worst destroy it even though their resume would lead one to be optimistic. Most companies, of course, cannot actually attract a “proven” CEO and so you are starting from that much more of a disadvantage. The challenge is that you typically won’t know about how much damage the new CEO is doing until its too late; as a company grows, most of the data that a board member sees are trailing or lagging indicators of the underlying foundational strength of the company. Financials can look good for many quarters past the point of the startup having lost its vigor.So in summary, tread very lightly and slowly and think about whether or not you, with the CEO/founder, can work openly and collaboratively to address deficiencies. If you can create an environment where its safe for the CEO to talk about his strengths and weaknesses, you are both learning a lot about how to work with each other and how to make the management of the company more effective. Removing a founder, even when the founder knows their own weaknesses, is something that should be done as a last resort; statistically you are almost certainly jumping out of the fire and into the frying pan. Try to put out the fire instead. It will take more work and the effort may still fail but the “replace the founder” model is no panacea.

    1. fredwilson

      This is all very true and sound advice. Tread lightly is the key point.

      1. aarondelcohen

        Fred:I feel uniquely positioned to get into this mix because I’ve founded and sold (Concrete Media/Girls on Film), founded and fizzled (Bolt), and been a non-founding CEO who sold (menupages). Andy Weissman and I have been talking about the very study you propose above. Literally I was sketching this out yesterday as part of what I want to work on next. I’m most interested in collecting measurable data about the entrepreneurs themselves to see if previous life experiences can become better predictors of performance.In short, I think that one of the outputs of Ycombo/TechStars/Seed Camp is the massive data that we can collect and analyze. I think that data could provide “moneyball” like insights about entrepreneurial performance. Obviously this is 10 to 20 year project. But, over time, I think it could really influence what gets funded.I’m particularly interested in the idea that Who may become more important than What. I think that’s where Paul Graham has been heading, at least, as I read his essays.

  7. Mike

    Its interesting to hear that your company has only funded 1 company that has come out of the startup accelerator programs. I would have thought the number would be higher due to these programs helping individuals get from the idea stage to the actual company stage, then nurtures them throughout the process and introduces them to various VCs and mentors. Is it a trend that the major VCs haven’t funded many companies that come from these programs or has USV just not been blown away by anyone coming from these programs? This leads me to my next question. If VCs aren’t funding many of the companies that have come from these programs are they worth applying to and participating in?

    1. fredwilson

      I think a good percentage get funded by VCs. There’s a lot of VCs out thereand until this year not so many ³graduates² of these programs. So it sort ofmakes sense that we only have one in our portfolio right now.

  8. Mrinal

    Corporate America says ‘Anything that can be measured can be managed’ and hence as you right point out “It’s the human piece of the equation that is so hard and so few get right.”Its ALL about people – they start cos., they build the product, they sell it, they invest in it and they together create legacies.Knowing oneself, being to be able to acknowledge it objectively (i.e. being secure) and aligning success (for all parties) goes a long way for the team

  9. Julie Kentwood

    Interesting thought.What happens when the young founder really is awesome? Take a young Mark Zuck for example. From everything I’ve heard he’s awesome, but they’ve just surrounded him with super experienced people as well to balance it out.

    1. fredwilson

      That’s ideal frankly. Google pulled it off with Larry and Sergei too. I hopewe can come up with those kind of solutions too.

  10. Stephen McKay

    Fred,I’m not going to say a lot except “WOW”! You nailed this sooo well!I know you can’t pump this stuff out everyday (nor can the GG a recipe), but I love it when either of you do!SteveSteve

  11. Philippe Bradley

    You’ve effectively been doing this job for as long, if not longer, than many of my age cohort have been alive – and here we come, asking for your backers’ money. There’s a fascinating differential there and it’d be good to hear more about it in later posts; I don’t feel Jessica Livingston covered it that well in Founders At Work – the founders back then weren’t typically this young

  12. hemel

    Hi Fred – this is my first comment on your blog after hearing you ‘Live at Leeds’. I’ve a bit of personal experience having co-founded a VC funded start-up and stepped back to a NXD role.I became interested in the psychology of growing teams and found using detailed psychometrics (personality and ability assessments) it’s possible to get a deep understanding of the potential of young staff without track records and real world experience. May be this kind of support can help Y Combinator/SeedCamp start-ups to speed up their maturity in learning how to lead and manage teams.

  13. sendoplasm

    finish line? you know thats a bad analogy. otherwise another nice post.

    1. fredwilson

      See my post today

  14. brisbourne

    Hi Fred – first, I’m probably very late in saying this, but great new look for the site.Second – great post. Management issues can be the hardest part of being a VC and few people have the courage to openly address the issues as you have here and also to admit the difficulty and uncertainty surrounding founder succession.

    1. fredwilson

      i cringed at least a couple times after posting this yesterday. this is the third rail of the venture capital business.

      1. brisbourne

        Cringing can be a good sign. At least you know you are pushing the boundaries.

  15. Gotham Gal

    it is all about ego. entrepreneurs don’t always have the skill sets, no matter what age, to run and nurture a company. their idea can be nurtured and they should be at the helm to create the soul and execute on their vision but that doesn’t mean they should be the ceo. ceo’s have a totally different set of skill sets. some entrepreneurs can make the transition while others can not. it doesn’t not lessen their value.the hardest part is getting the entrepreneur to realize that their skill set (each is different ) is best suited in a role that will be the biggest value add for the company. then hopefully finding a ceo that respects and looks to the entrepreneur to grow the company together. otherwise, ego rears its ugly head and the initial idea ( although all ideas go through many changes as companies grow ) never becomes as successful as it could have much as vc’s are about helping nurture young companies and help individuals realize their dreams, they are also about hand holding, ego boosting and baby sitting (no matter the age )while trying to get to the other side as smoothly as possible.not as easy as it looks. great ideas only become great companies with the right people in the right roles.

  16. Aruni S. Gunasegaram

    As a formerly young founding CEO of a venture backed tech company, I was always open to bringing in the right CEO who I could learn from. Unfortunately 3 CEOs later, we had not found the right one. I was young and didn’t know how to express/voice my concerns correctly. I have to say it was really disheartening and took the wind out of my sails. The company is still operating even after the bubble broke, but as a founder that experience really left me reeling for a while. That’s why my second attempt at a business I’ve bootstrapped.Being a CEO is a tough job and as I’ve seen in some of the comments, if you can find the right person that will truly help take away some of the work the founder doesn’t like so he/she can leverage his/her passion/skills to grow the business it can be a win-win. I am all for working with and learning from talented, smart, challenging individuals.

  17. Henry Yates

    Firstly, happy birthday, I hope you are having a great day.I thought this was an extremely valuable discussion for CEO founders. I read another piece the other week which echoes a lot of the above:

  18. Simon Cast

    Can young people make decent CEOs? Yes I think they can. The army puts young people in command leadership positions (albeit with support around them) and sends them off to war. The advantage for the army is that they put them through leadership/command training. Even with the advantage of training the performance is varied; some are good, some are satisfactory and others are bad. Some young CEOs have developed/pick up leadership skills well others will struggle.The same issues for young CEOs apply to old CEOs. Age is not really a pre-requisite to good leadership. The advantage of age is experience, which many hope brings some leadership skills learned over time. Unfortunately, MBAs are considered “leadership” training and from what I’ve seen they are largely not that.The problem is how do we address these leadership issues?Many commentators have identified ego as a prime factor and I would highlight that as well. I’ve come to think that the use of the title of CEO in startups is very bad idea. Startups are not large enough/developed enough for a role of CEO. By creating that role, even if only on paper, creates its own set of impressions and baggage about leadership and power within the company. The second is that once someone has the title CEO, they become reluctant to relinquish the psychological boost that the title creates. Startups should have a managing director and avoid all CEO, CxO, VP titles/roles like the plague. As the company grows these titles can be brought in as they bring value but otherwise stick with manager and director and leave it at that.But it is not all ego. The large elephant is leadership skills or lack thereof. Most of the accelerated startup founders will lack or have undeveloped leadership skills. I think several techniques will need to be employed to address the leadership issues within these accelerated startups.The accelerators need to bring in leadership training as part of their “course”. This is a good place to start and will help identify early on people who are less capable of being good leaders. I don’t mean that leaders are born rather that some people can execute the skills of being a leader better than others. Identifying those who are struggling with leadership skills early will make it easier to manage this in the future, whether by addressing it through more training or early intervention to focus the person to a non-leadership role.The second technique is for VCs that fund these companies work to provide a leadership training. I see this being a combination of require attendance at leadership training “courses” and providing leadership mentors that can act as sounding board for leadership questions.At this time I don’t think vast majority of VCs, including yourself Fred, have the necessary experience in leadership and leadership training to either run the leadership training courses or provide effective leadership mentoring. I say this not to slam you Fred and I have a great respect for you as an investor, but being an investor is not the same as being a leader.In your last paragraph you say you don’t feel prepared to deal with these issues. I honestly feel that if you put in place on-going leadership training and leadership mentoring you’ll have an effective framework within which you can deal with these issues.

    1. fredwilson

      That’s very helpful advice.Is leadership training a one on one thing, like management coaching, orsomething you can do in a classroom setting?

      1. Simon Cast

        It can be in class training or one-on-one.The best method I’ve come across is a combination of class training covering the theory and case studies, with practical exercises (rotate leadership through the group with each person given a task to lead the group through) followed by on-going mentoring.

  19. timothyc

    i was at the ycombinator event yesterday and i think PG said they have had 102 companies through and 14 so far have been series A funded by VCs

    1. Henry Yates

      Very interesting stat – 14% is a lot lower than I thought. It would be interesting to know the split on those 14 investments (so far) in terms of win/break even/dead pool

    2. fredwilson

      WowThat’s a very low number. I would have thought it would be much higher.I am shocked

      1. DavidCohen

        Doesn’t surprise me so much. it’s about the same rate that we’re seeing at TechStars, but of course we don’t have as much data. We have one VC funded company out of 10 from last year, and one early M&A. Then 6 of the remaining 8 are angel/seed funded at this point. 15-20% of these companies ultimately attracting venture capital over time seems like a pretty strong outcome given that these are almost exclusively first time entrepreneurs we’re talking about. Too early to tell with this years group, but I’d predict a similar ratio. But I would think the percentage would grow some over time – as some of the companies that are initially angel funded could work into position to attract VC money.

  20. Douglas

    This post brought back some great memories for me. I started a company many years ago when it was easy to raise money, and looking back I can see that I was completely unqualified to run it. I was 25, full of enthusiasm and little else. We grew fast by giving things away for less than their value: at the time I honestly believed spending money quickly in a drive to get big fast was a viable strategy. When it became clear that raising another round would be challenging, we found a happy ending in the arms of a competitor. I can see clearly now that my board let me stay too long, beguiled by my vigor and vision and our (unprofitable) growth. Today I run a small site for fun and profit, and benefit mightily from my past experience — I understand the lower risk for investors of working with serial entrepreneurs: you don’t end up paying for their on the job training.

  21. Susan Mernit

    Fred, this is a good post. As a first time CEO of a very early stage company, my hope is to marry the passion we have for the solution we’re building (to the ways calendaring and scheduling are broken and how having all these ways to connect doesn’t make it any easier in the end) with the greater experience and operational skill my co-founder and I bring to the table. These are hard issues, but seeing the drive and passion of my fellow TechStars teams makes me know how relevant this post is,.

  22. Kenosha_Kid

    This may seem completely out of place, but I have recently found the best and most pertinent and insightful CEO reading in the works of Machiavelli. While the common perception is that of a devious and cynical politician, this perception is limited and frankly flawed. Machiavelli provides an incredibly rich analysis of the skills/issues/strategies of successful leadership, that, although intended for statesmanship, can be seamlessly applied to any business environment and all CEOs… particularly those of start-up enterprise. In our modern conceit we tend to believe that we are inventing new systems and charting new terrain, when in fact we are merely repeating the same mistakes that ancient Roman entrepreneurs made long before us.

  23. Don Jones

    Succession issues are also further complicated when a founder is a techie and a new CEO comes in – and they have CEO/CTO issues. I invested in one company that blew up based on a failed transition in this regard.

  24. Pascal-Emmanuel Gobry

    To me this is a very important post Fred, as a wantpreneur and, more importantly, someone who sees himself as more of a manager and builder of organizations than as simply a product or “vision” person. How to transition from a great idea and great first product into a sustainable, growing business is something I think about a lot. And some day I hope I make it.

  25. timothyc

    the 102 includes the current batch so too early to tell for those. for 10 week old companies, 14 is a pretty good number.

  26. Roman Giverts

    I’m surprised there’s no mention of young CEO’s bringing in experienced leadership themselves, without the investor pushing the issue. I’m 22 and when things started taking off for us, we were lucky enough to have a mentor of mine to quit his job and be our CEO. There are a lot of advantages to jumping the gun and doing this yourself:1) It’s your pick, not your investors, so the loyalties will be aligned with you (which is especially important assuming the CEO gets a board seat)2) It’s probably (hopefully) someone you’ve known for a long time, so the team should “mesh” better than if you hire an outsider.3) the “Adult Supervision” lends so much credibility to your company, and makes your life so much easier. It becomes easier to sell your product (assuming you don’t just put up ads), it becomes easier to sell your vision, and it becomes easier to hire. People like to get excited about an enthusiastic 22 year old, but ultimately when they see an “adult” make sacrifices and commit to a company, it’s a very powerful message to everyone. If you can bring in Adult Supervision on your own, it can be a great step forward for the company.If you’re young and can’t, start making contacts with experienced adults, so when the investor does push the issue, you have some of your own people…. Just my 2 cents.

    1. fredwilson

      Yes, this does happen most of the time and it’s by far the best way for itto happen

  27. Tyler

    Fred, keeping in line with your steering wheel and keys metaphor…I think young founders can appreciate the bigger picture when the metaphor is extended furtherAs a relay race it’s necessary to have the young hungry types that are quick off the line (in 1st gear) and also important to have a strong 3rd gear as well.

  28. hyokon

    Great insights. I think there is add another aspect. I think a business has two phases, building and running.In building, you need an innovator. You need a person who has an idea and the will to make it real. Facing an opposition, this innovator will fight back not compromise. So, if you have two people fighting in this phase, I think you need to pick one and let go the other.In running, the business model is pretty much solid. You already have some demand. Now, there are small fights here and there, but nothing like the ideological debates in the building phase. Here I think you need a compromising leader.

    1. fredwilson

      This is exactly right

  29. herve

    I like this post very much so I’d like to add my own views. As a former student in SV and then as a former VC, I have seen many, many start-up and founders. My intuition is that in an ideal world, the founder should stay as CEO as long as possible. Let me make an analogy: a start-up is a baby; the founders are its parents. Except if the parents are totally incapable of educating a baby, they will hold responsibility for its education. Many “experts” will assist them (teachers, doctors and so on…). And obviously they will make rocky mistakes and sometimes it is deadly. It does not mean they should control the kid’s life forever. Hopefully not! (Though it sometimes happen too…) By the way, let me add also that two parents/founders are better for the kid (am I too conservative?).So I fully agree with your “nothing can replace the entrepreneur’s passion and vision for the product and the company. If you rip that out of the company too early, you’ll lose your investment. I think it’s best to wait …”I have written a book on the subject (“Start-Up, What We May Still Learn from Silicon Valley”) just before reading “Founders at Work” (which is a great book on the subject as you know). In mine, I tried to take a broader perspective as I am not sure the Internet and the Web2.0 have fundamentally changed things. Yes, you can do things quicker and less expensively but Hewlett and Packard were in their mid-twenties when they founded HP in 1939. So Gates, Jobs, Dell are not the first ones. It is not only about software and computing, there is something else. I think passion is more important than experience, but once again this is gut feeling and I agree that deeper studies may be needed. Passion is one of the subjects I have developed.A final point: do you need to replace a CEO when he “the CEO’s job goes from managing the product, writing a little code, doing customer support, and raising money to managing people and teams, processes and priorities.” I am not fully sure about this. I do not disagree but as you say later, the CEO role is about defining the right vision and strategy. Can not you ask the COO and the other top-level managers to handle processes? When Logitech was in trouble, its founder, Daniel Borel, stepped back and the new CEO was a marketing guy from Apple if I am correct. He redefined the marketing/vision. The unique story of Steve Jobs have similarities (“Inside Steve’s Brain” is another piece of interesting reading).It is hard to know about the Human Equation and there are many counter-intuitive elements. It is neither black nor white, you need passion and experience and by definition, they are very seldom found in the same individual. It is an argument for teams of two. Google has probably nicely succeeded with Eric Schmidt as there is no doubt the two founders are still critical to the company.

  30. stone

    Great article and very very relevant to so many that read this blog. Every young CEO must read this in order to understand the realities of being a tech company CEO.

  31. Steven Kane

    i’m a “founder” so take me with a grain of salt but two points1. tech/media companies where the founders remain are big winners much more often than companies where founders exit (for whatever reason)applemicrosoftoraclegoogleanalog devicesnews corpyahoo (semel destroyed yahoo, not yang)salesforce.comRIMcomcastamazonAOLActivisionVirginetc…i mean, how many big successful startups became huge without founders? hard to name any. sure, plenty of companies where founder succession was handled well, but typically via retirement – IBM, Intel, Sony, et al2. for founders with brains, the succession issue needn’t be painful because of relinquishing command and control. inventors, invent. go on to the next one.rather, the painful part is over economics. if a board nudges a founder out, are they fully vested? or, in addition to handing over the reins, are they also expected to leave a lot of ownership/exit value behind? and even if they are allowed to linger – say on the board – are they protected from big cap table changes in subsequent financings? as ceo they will quite often be “made whole” – given additional options as anti-dilution protection from fundraising dilution. but as a director? unlikely.also, let’s be honest — i know of several hard-charging VCs who use founder replacement specifically as a tactic for acquiring more wonership in the deal (i have heard at least two funds explain this to their LPs at LP meetings.) that is, founders have tons of potential equity but lose a lot when replaced. new managers get equity but with a deal up on its legs, don’t receive nearly as much as a founder. the difference ends up owned by the preferred shareholdersi’m not saying all VCs do this – in fact, very few do, at least as an explicit tactic. and of coure in many, maybe most, cases, there are excellent reasons for founders to step aside. but caveat founders: re-negotiate your ownership before you agree to depart

  32. Marin

    That’s one advantage I like with young people they are idealists and don’t know that they would fail.Watch out for the movie at Louis Lautman discovers the secrets behind the success of young entrepreneurs today.

  33. Greg Cohn

    Very interesting post Fred. One thought to add to this is that when small companies are acquired, the CEO – more broadly the management team – matters greatly. To the skills of scaling a business and developing a market position, we need to add the ability to integrate into someone else’s technology and sales infrastructure without losing the passion for innovation, the willingness to adapt to a more scalable execution model, the ability to absorb and communicate in the language of professional marketers and business folks, the patience to problem-solve and work through strategic or political issues, the ability to define and hit success metrics other than TechCrunch posts/quarter, etc.As with everything else, some have it, and some don’t. And while we certainly don’t want to snuff the sparks of passion that get entrepreneurs to our doors in the first place by trying to turn them into operational executives if they don’t want to be, it matters a lot if incoming founders get that leading that transition is their primary post-deal job and are prepared to effectively coach their teams – and acquirers – through it.

  34. Cindy Gallop

    I’m extremely interested in the human piece of the venture equation, and therefore pleased to see this post and the ensuing comments.I would be interested, in this context, in any insight and commentary relating to the fact that all of the cited young founders are male. Is this a function of there being fewer female start-up founders than male? Are there fewer successful female start-up founders than male? Do women start-up different kinds of ventures that are less likely to be notable in a forum such as this? I’m genuinely curious.

  35. Michael Lucca

    Given your interest in politics and technology startups, I wondered how your thinking in this post might translate into the biggest “CEO” job being filled next January. While the USA is clearly not a startup It seems we have a very interesting matchup of youth versus experience in play while trying to select a long-term “CEO”

    1. fredwilson

      Obama is not young in my book. He’s my age, we were born in the same month, same year.McCain is old in my book. His frame of reference is the rear view mirror, the 60s, 70s, 80s, 90s, and the first half of this decade. He has no strategy to change course. It’s stay the course.I’m for ObamaBut one thing I will say is that McCain, if he gets elected, will be way better than Bush. At least McCain seems to give a shit about stuff. Bush has been a disaster.

  36. Dan Malven

    One thing I always think about when evaluating a mgmt team is not the CEO per se but the team context that the CEO resides in. I think you could take two versions of the exact same business run by Team A and Team B and the same CEO could be a huge success with Team A and a huge failure with Team B.The CEO leads the team, but the team leads the company. The relevant CEO/team dynamics can be skill-based or personality-based (or usually both), but to me the CEO/team context is the first-order issue, with the CEO-only being second-order.

    1. Dan Malven

      Another way to think about this is that optimizing performance is more of a multi-variable equation (changing CEO and exec team members) than a single-variable equation (only changing the CEO)

  37. Max Bleyleben

    I’m glad you brought this up Fred, as it is an important topic that doesn’t get enough airtime and needn’t cause as much tension and mistrust as it does. I think it’s even more complex at the growth equity end of investing, see….

  38. duanwenming

    I like this article