An insightful Harvard Business Review article explore how startups fare when founders are replaced by Venture Capitalists when trying to “professionalize” the company.
To explore this question, data was assembled from Venturesource and hand-picked employment histories of founders for startups founded between 1995 and 2008.
- Approx. 1 of 5 founders in venture-backed companies are replaced, which roughly matches the replacement rates in public companies.
- Replacements become more common as the startup ages and investors have time to assess the performance of the founder(s).
- Replacement rates seem consistent across various types of VCs.
- When policy makes it easier to replace founders, the outcomes of startups where a founder is replaced improve: they’re more likely to go public or have a successful acquisition.
- It might seem ideal for the founder to step down, but remain with the company. In fact, startups perform better when the replaced founder leaves the company.
- Founders should perhaps worry a bit less about being replaced, at least from a financial perspective, because their diminished role in the company may be rewarded with a higher value for their equity.
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