Venture capital can be a grueling asset class. With an estimated 75% investment fail rate, even companies with great ideas fall short of hitting it big and providing those with equity stakes with big pay days. Thus, VCs need to do everything they can to position a young company for success. One answer? Get the best CEO possible.
According to Marianne Hudson, an angel investor and Executive Director of the Angel Capital Association, “The success of every startup company depends on the CEO. I can’t count the number of times I’ve heard top angels say, I’ll take an A+ founder with a B+ technology over the reverse—and they mean it. Without great leadership, companies struggle to sell products and tank as a result.” (Forbes)
Sometimes this requires a company’s founder to step aside and for new leadership to take the reins. In these circumstances, it is necessary for the firm, board members and private investors to work scrupulously to make sure they find the right fit for the company. A recent report from the “Stanford Closer Look Series” states that “a viable succession plan includes knowing that potential candidates have been thoroughly vetted in terms of their strategic vision, operating skill, leadership, and cultural fit with the organization.”
Ms. Hudson believes that top tier CEOs have three golden traits. “They show an affinity for performing well under stress, have the highest level of integrity, and are open to coaching.”
When selecting the company’s CEO she supplies three guidelines.
- Identify deal-breakers fearlessly and fast.
- Eliminate CEOs who cannot execute plans.
- Know your definition of an A+ CEO going in.