Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Venture Capitalists Consider Four Characteristics to Determine Whether a CEO can Lead their Start-up Company to Success

It is said that venture capitalists invest in the entrepreneurial team.  This is the case for all start-up companies. After reviewing and getting the good understanding of the investment opportunity, the first thing venture capitalist look at is the team.  Why, because they need to understand that their investment will be well managed by individuals with the appropriate backgrounds, skill sets, and capabilities to bring their investment to a successful conclusion. That is, creating the necessary value such that the investors can secure the financial returns they expect, according to their financial risk. For these same investors, it is the underlying characteristics of the CEO of the start-up company, the leader of the team, that are the most important to them.  As investors, venture capitalists seek CEO’s with the necessary characteristics to create a successful start-up company. This article outlines the four characteristics venture capital investors look for in a strong CEO.  By having a CEO with these characteristics, these same investors are more likely to take the risk and invest in your start-up company.

High Moral Character

As in any business, the CEO of a start-up company must be of high moral character. That is, they must be trustworthy and make the appropriate moral decisions for both themselves and their start-up company.  The last thing investors want are moral or ethical situations that will result in a law suit for the start-up company.  Therefore, the investors do background checks and deep personal and professional character interviews to determine the underlying moral character of the CEO.  This high moral character, as with any individual, must permeate both in the CEO’s personal and the business lives. Remember, the CEO has both ethical and fiduciary responsibilities to the start-up company, and as such, needs to conduct themselves appropriately in both their personal life and the business life.  Anything less can have an adverse affect on the start-up company.  Therefore, investors first look into the moral character of the CEO, to determine if he or she is fit to both represent and run the start-up company.  If they are not, as investors, they will either move on or require a change in management before investing. 

 Strong Leadership Capabilities

Leadership is important to any company, but having a strong leader at the top of a start-up company is especially important to a start-up company.  With all of responsibilities and the necessity to get many things accomplished on both a limited budget and in a limited time frame, the CEO of a start-up company must have the ability to lead the company and its team to accomplish, often insurmountable tasks. Accomplishing these tasks is often the difference between receiving and not receiving additional funding from these same investors.  Therefore, investors need to be assured that the CEO of the start-up company has the leadership abilities necessary to make the company successful.  Anything less will be a recipe for disaster, as investors necessarily do not need to take on the risks associated with a CEO that has weak leadership capabilities.  So, when reviewing the characteristics of the CEO of a start-up company investors need to be assured that this same individual have the necessary strong leadership capabilities to drive the company and its team to success.  Anything less will result in a poor investment for the venture capitalists.

Appropriate Background and Experience

Does the CEO have the appropriate background and experience?  This is one of the first questions the venture capitalists ask themselves.  A desirable background necessarily includes the corporate operational experience necessary to run the start-up organization from the top.  If the CEO does not have a similar level of experience, the investors will wonder if they will have the ability to grow into this position.  Remember, investors do not want the start-up company’s CEO to be learning on their dime. As such, they need to be assured that the person in charge will be able to make the appropriate operational decisions as the company grows and progresses through its development and expansion.  More often than not, this requires a CEO with the appropriate operational background and experience. In addition, it is the necessary requirement for the CEO to have had specific experience in the target industry of the start-up company is intending to address.  Again, anything less will require the CEO to learn about their specific industry on the fly and puts this same start-up company at competitive disadvantage in the market. Therefore, it is also important for the CEO of the start-up company to have specific industry experience and the appropriate operational background. This will provide for a much smoother development path for the start-up company and its investors.

Driven Personality

Start-up companies go through many ups and downs as well as changes in direction during their development.  The investors need to be assured that the CEO is driven to make their start-up company successful no matter what situation arises during its development.  Therefore, these same investors need to make an assessment as to whether the CEO has the necessary personal drive to power through the ups and downs of a start-up company.  If they do not believe this is the case, they will not invest.  It should be remembered that a start-up investment is often a marathon and not a sprint, and hence the necessity to have a driven CEO to guide the start-up company for the long-haul is often necessary for a successful start-up company. Therefore, investors need to consider how driven the CEO is to make the start-up company successful in the long term.

Evaluating the characteristics of the CEO of a start-up company is the necessary job of the venture capitalists.  This evaluation can make the difference between a successful investment and an unsuccessful investment.  As outlined here, venture capitalists look for four characteristics of the CEO in determining if they have the necessary characteristics to run the start-up company. This includes: a high moral character, strong leadership capabilities, the appropriate experience and background and a driven personality. By assessing these four characteristics, venture capitalists can gather the appropriate insight as to whether the CEO has what it takes to lead their start-up company to success in the market.  So entrepreneurs, when picking the CEO of your start-up company keep these four characteristics in mind, you can be assured your investors will be.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

Advertisements

October 19, 2009 - Posted by | Venture Capital, venture finance, Venture Funding | , , ,

1 Comment »

  1. Great Article. The 4 characteristics are essential in every walk of life. What are your thoughts about characteristics that are likely to undermine a CEO of a start-up. I have seen, and experienced, the pain of unrealistic expectations. Yet, and loathe to be able to prevent this characteristic.

    Comment by K Baney | October 22, 2009 | Reply


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: