Why Would a Founder or CEO of a VC backed startup get fired?
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And I think it's really important to just state this upfront that no venture capitalist slash board member ever wants to fire the founder from a startup. You remember like those VCs went to their partnership and said, we have to invest in this person, their vision what they're creating is so amazing. We want to be a part of this and we can get a really great financial return on it. Right? So the people who are pulling the trigger on a termination of a founder, are doing it, not because they really want to, but because they kind of feel like they have to. And remember venture capitalists or board members are fiduciaries of the company. Like no matter how much they like the founder they have to look out for the company and for the shareholder value. And that's the definition of being a fiduciary. And so they're doing it. Not, they're not happy to be doing it. They don't want to do it. And frankly, anytime you're firing a founder, the odds of you as a VC making money on the company or the company having a good outcome are probably pretty low.
So the VCs know that. So this is only stuff that... it's like their hand has been forced. They feel like they have to make a change. And so the first and definitely the biggest is just like negative surprises in cash management. And this can be a couple of different things. This can be spending way too much money, way too fast. This could be misinforming the board about how long your cash runway actually is Or maybe you're so disorganized as a founder, unfortunately, that you actually don't know how much money you're spending. And so you're not just like surprising the VCs but you're surprising yourself. And so this is definitely the biggest thing. Like the venture capitalists are financial people, they're writing a check.
Now, if you're increasing your burn rate because the opportunity is so attractive or you missed a couple of quarters, but you're communicating with the VCs and the board members, that's different. Like that's not a surprise. The surprise is when they start questioning whether they can actually trust you as the founder or not. Another issue is recruiting.
And, you know, venture capitalists or board members they will, if, executive team members leave they're going to call that executive team member up and get the scoop. Like they are not shy about getting that person's side of the, of the story. And so. If you're losing... You know, there's obviously always churn in employee ranks and executive ranks, but if there is a clear pattern of you losing your top executives at your company and it happens a couple of different times for the same positions the venture capitalists are going to ask what's going on and what's wrong. So that's another reason that could lead to termination. Falling short of milestones is another really, really big one. And just venture capitals have a lot of boards they sit on, they make a lot of investments. That's part of like, their business. That's part of their daily life. So they really depend on like the shorthand milestones that companies tell them.
And achieving those milestones is really important because if they are achieved, the VCs know that the company will be able to raise more capital from other venture capitalists. And the venture capitalists will give you really good feedback on how real your milestones are. Are they going to be enough to raise money for the next round? And so when you come short, they know in their head a couple of things, the company has missed our numbers. They missed the target they're supposed to be hitting. And also when that happens, they're probably going to have to write another check to kinda of jump in and help save the company.
A lot of times it's in the form of a bridge loan. And so if you're missing your milestones repeatedly, almost by definition, you're going, it means you're going back to the investors asking for more cash. And so, again, that's one of those things. And if you're missing your milestones you're just not gonna be able to get outside VCs interested in the company. And so that's another reason they might make a change. And the final, big reason is hopefully obvious these days but just harassment or tolerating a culture of harassment. I think people understand that it's not appropriate for harassment to happen in the workplace at all.
But if you're a founder or CEO and you maybe you're not harassing people directly but you're tolerating or facilitating a culture of harassment, that's just as bad as actually doing it.
20 июл 2024
