A VC - Latest Comments in The Human Piece Of The Venture Equation

Re: The Human Piece Of The Venture Equation

Ennis — Sat, 25 Oct 2008 20:49:08 -0000

This inspired me to write you a letter and more recently a blog :) Cheers!
http://startuplife.ca/2008/...

Re: The Human Piece Of The Venture Equation

duanwenming — Thu, 18 Sep 2008 05:05:45 -0000

I like this article

Re: The Human Piece Of The Venture Equation

Max Bleyleben — Thu, 28 Aug 2008 05:59:18 -0000

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 http://maxbley.typepad.com/....

Re: The Human Piece Of The Venture Equation

Dan Malven — Wed, 27 Aug 2008 08:51:47 -0000

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)

Re: The Human Piece Of The Venture Equation

Dan Malven — Wed, 27 Aug 2008 08:37:58 -0000

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.

Re: The Human Piece Of The Venture Equation

fredwilson — Tue, 26 Aug 2008 14:56:22 -0000

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 Obama

But 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.

Re: The Human Piece Of The Venture Equation

Michael Lucca — Tue, 26 Aug 2008 14:47:09 -0000

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"

Re: The Human Piece Of The Venture Equation

Cindy Gallop — Sat, 23 Aug 2008 09:11:29 -0000

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.

Re: The Human Piece Of The Venture Equation

Perry — Fri, 22 Aug 2008 14:00:47 -0000

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.

Re: The Human Piece Of The Venture Equation

Greg Cohn — Fri, 22 Aug 2008 12:18:26 -0000

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.

Re: The Human Piece Of The Venture Equation

Marin — Fri, 22 Aug 2008 07:19:17 -0000

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 www.TheYESmovie.com. Louis Lautman discovers the secrets behind the success of young entrepreneurs today.

Re: The Human Piece Of The Venture Equation

Simon Cast — Fri, 22 Aug 2008 06:59:28 -0000

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.

Re: The Human Piece Of The Venture Equation

DavidCohen — Fri, 22 Aug 2008 00:26:42 -0000

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.

Re: The Human Piece Of The Venture Equation

Steve Kane — Thu, 21 Aug 2008 17:12:59 -0000

i'm a "founder" so take me with a grain of salt but two points

1. tech/media companies where the founders remain are big winners much more often than companies where founders exit (for whatever reason)

apple
microsoft
oracle
google
analog devices
news corp
yahoo (semel destroyed yahoo, not yang)
salesforce.com
RIM
comcast
amazon
AOL
Activision
Virgin
etc...

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 al

2. 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 shareholders

i'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

Re: The Human Piece Of The Venture Equation

stone — Thu, 21 Aug 2008 15:47:18 -0000

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.

Re: The Human Piece Of The Venture Equation

fredwilson — Thu, 21 Aug 2008 15:12:17 -0000

This is exactly right

Re: The Human Piece Of The Venture Equation

fredwilson — Thu, 21 Aug 2008 15:12:12 -0000

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

Re: The Human Piece Of The Venture Equation

fredwilson — Thu, 21 Aug 2008 15:11:11 -0000

Wow

That's a very low number. I would have thought it would be much higher.

I am shocked

Re: The Human Piece Of The Venture Equation

fredwilson — Thu, 21 Aug 2008 15:10:10 -0000

That's very helpful advice.

Is leadership training a one on one thing, like management coaching, or
something you can do in a classroom setting?

Re: The Human Piece Of The Venture Equation

herve — Thu, 21 Aug 2008 04:02:59 -0000

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.

Re: The Human Piece Of The Venture Equation

hyokon — Thu, 21 Aug 2008 02:25:29 -0000

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.

Re: The Human Piece Of The Venture Equation

Tyler — Wed, 20 Aug 2008 16:46:17 -0000

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 further

As 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.

Re: The Human Piece Of The Venture Equation

Roman Giverts — Wed, 20 Aug 2008 14:52:41 -0000

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

Re: The Human Piece Of The Venture Equation

Roman Giverts — Wed, 20 Aug 2008 14:45:15 -0000

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.

Re: The Human Piece Of The Venture Equation

timothyc — Wed, 20 Aug 2008 11:36:12 -0000

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