Dear SaaStr: Why Don’t More VCs Replace Founders That Don’t Deliver?

Yes, it did seem like in the old days, VCs replaced founder CEOs pretty often.  It happened at Apple, Google, Cisco, and more.  But it’s rare these days.  In fact, ~90% of SaaS companies that IPO still have their founder as CEO!

And when founders do step down as CEO these days, most often I see it as voluntary, when the company really hits scale and the founders know they’ve personally hit a wall they can’t scale past.

But is still does happen sometimes.  Founders get replaced as CEO by their VCs.  But it’s rare in SaaS these days.

For at least 4 reasons:

  • First, if you are going to “replace” a CEO — you better darn well have a better candidate on hand. Most VCs don’t have enough of a bench here. Many of the billion+ funds do have a list of potential candidates to bring into their investments as CEOs. But often, the replacement is worse, especially if the company is struggling. Personally, I have zero candidates on hand. If any of the CEOs I’ve invested in don’t work out, or quit — I assume I’ll have to write the investment off to $0.
  • Second, it’s hard to do better, usually. Founders know everything about the customers, the industry, the product, the bugs, the flaws. At some point, a market and product become mature, and a “professional CEO” perhaps doesn’t have to be an expert in product or market anymore. But you immediately lose this fluency when you bring in a non-founder CEO, at least usually.  It’s almost always better to try to help bring a great COO or other great help.  The outside CEO just never knows the product and the customers as well as a founder CEO.
  • Third, adding a COO or other senior help is often the better course. If the CEO has gotten you this far … it’s often better to help her build out the team. Rather than hope someone new can fix the issues.
  • Fourth, you have to have the right. VCs control boards less and less often these days. In my first start-up, the VCs had the right to pick the CEO. Not so much the second time.

So …

It’s not that simple.

(note: an updated SaaStr Classic answer)

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