Technology Commercialization

New Venture CEO and Team

In my venture management consulting work, I am often asked about the management team — what is needed to attract funding and what is needed to be successful.  A founding CEO and management team is usually quite different than the management team that takes a company through its high growth phase after it goes public.  This is because the required skill sets are different.

A founding team needs strong leadership and vision.  The founding CEO must know the technology and the market and is usually very “hands on”.  The team needs creative technical talent and shrewd marketing smarts and the ability to sell.  Less needed at this stage is a CFO, business analytics, or a hierachy.  More important is a strong vision, ability to motivate creative people, the confidence to surround yourself with smart advisors and listen to them, and a willingness to step aside for more process oriented professional management when that time comes.  A very clear vision and compelling value proposition is an essential leadership tool. 

It is often said that venture capitalists look for a strong team and that is more important than the best product.  The philosophy is that a strong team can adapt to the market and build a great product in due time, but a company with a great product and a poor team will not adapt when needed. 

So what is needed on a founding team — that is, the team that goes from nothing to something?  How does this differ from the team as the venture matures  — that is, the team that grows the company from $10M to $100M in sales?

1.  A CEO who knows the business, ideally who has run a start up before, who has strong credentials, strong leadership skills, and is hands on.  It is equally important that the CEO is “coachable” and not a control freak.  (Investors will shy away from CEOs who think they know it all, or who expect unrealistic valuations and an an excessively large piece of the pie.)  The CEO should be seen as someone who is capable of raising capital.

2.  A founding technologist who either invented the underlying IP or who knows it in great depth and who has the ability to lead a technical team in product development.  Additional team members who are engineers or technologists thatb report to this founding leader are important as well.

3.  Someone who really knows the market well and who is influential on the team.

4.  A chief operating officer (COO or similar title) who can manage the team and the milestones.  This person is usually not the CEO, but sometimes a single person can do both.  The skill sets are somewhat different so it is more usual that it is not the same person.

5.  A good advisory board.  These are people from industry who can help and who are willing to do so without taking significant cash out of the company.

The entire founding team is expected to be motivated with generous equity, but equity that vests over a four year period.  The management team usually owns about 30-45% of the venture after Series A. Additioinal equity is set aside for employee option pools.  Equity among the individuals varies based on whether they were hired guns or true founders.  Salaries are typically modest, often a bit below market due to equity compensation, with the CEO earning nom more than $200,000 after Series A.  Salaries can be expected to adjust to normal market rates after the company achieves profitability, usually several years after start up.

Generally a CFO can be hired later.  Similarly, a professional sales force is not needed much before the product is released, with the exception perhaps of the sales VP.

Once a company has penetrated the market and emphasis shifts from start up to growth, it is not unusual for new management to step in.  Often the founding CEO must step aside for someone who has experience with rapid growth.  This is a different skill set than a founding CEO or a Fortune 500 CEO.  The founding CEO is a strong and visionary leader who is creative.  The Fortune 500 CEO is a good politician and primarily a manager and listener.  But the high growth phasse CEO is one who may not have the creative talents to start a company, but one who is very good at running an efficient set of systems in a procedural way, a “business pump” so to speak.