Nine out of 10 VC-backed founders to be replaced

Only one of out 10 company founders will remain in charge of the company they set up following venture capital investment, according to new research.

The survey, conducted by the European Leadership Programme (ELP) talked to over 50 UK and European venture capitalist firms and found that 92% expect to replace a company founder with a new CEO.

A third of investors then give the replacement CEOs a year to prove themselves.

Due to a lack of experienced CEOs in the UK and Europe, many companies are forced to hire first-time CEOs, who then face potential lack of support from company investors, and hence fail to perform to expected standards.

Over a third of respondents (35%) thought that the biggest challenge a CEO faced was the high expectations of investors. Almost half of venture capitalists would introduce a probation period for a poorly-performing CEO, while 6% say that they would sack the CEO immediately.

“Many companies bring in a new CEO in the hope that they can turn around an under-performing business, but often this doesn’t solve their problems,” said Ashley Ward, founder of the ELP.

“Most of these investors give a CEO less than a year to prove themselves which suggests they think a company can recover in less than 12 months, but this is usually unrealistic, and changing the CEO again results in time lost searching for a replacement and bringing them up to speed,” he added.

Although investors are beginning to realise that further training is needed, only one in 10 would look to executive coaching to help support their CEO.

© Crimson Business Ltd. 2008

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