The CEO vs. Venture Capitalist

April 10, 2006 | Matt Marshall | Comments |
VC vs. Entrepreneur.jpg
VC vs. CEO

Here’s an intriguing study about the differences that emerge between CEOs and venture capitalists on company boards. It is a reminder to entrepreneurs to take the selection of their board members more seriously. One nugget is how venture capitalists are comfortable sitting on more boards than CEOs would prefer. The link above is to a summary of the study done by the National Venture Capital Association and Dow Jones VentureOne, but you can get more details by contacting them directly (michelle.jeffers at dowjones.com).

VCs believe the ideal number of board seats is an average of 4.6 for early stage companies and 5.5 for later stage companies, according to the study. CEOs prefer their venture capitalists limit their early stage board seats to an average of 4.0 and their later stage board seats to 4.6. There are many Silicon Valley VCs who sit on more than ten boards. This study might make them uncomfortable. How many board seats is your VC sitting on?

However, some VCs argue that the more boards they sit on, the more contacts they have, and so the more useful they are to companies. What do you think? Does that argument fly?

Geographically, San Francisco Bay area VCs averaged the highest number of board seats at five per VC (understandable, because it is pretty easy to drive five miles from Sand Hill Road to participate in the board meeting).

Meanwhile, venture capitalists said conflict is likely to stem from personality issues with the CEO, while CEOs said conflict is more likely about disagreements on valuations. We are slightly amused by this perception difference, because we think the two conflict sources are in fact the same. The CEO’s job is to negotiate a high valuation for his company. That way, a VC gives him more money in return for a slice of ownership in the company. VCs who feel taken advantage of may then attribute this to a personality conflict with the CEO.

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Matt Marshall is editor and CEO of VentureBeat. Follow him on Twitter at @mmarshall, and follow VentureBeat on Twitter at @venturebeat.

  • As a counter-point to the VC argument that sitting on more boards increases the size of the network and thereby increases the value to the CEO (portfolio company), I would offer the following:

    1. This assumes that sitting on boards is the most effective way to expand the network that might be useful to portfolio companies.

    2. This also assumes that the best "value" that can be delivered is the size of the VC network.

    I'm doubtful of both the assumptions below. I would further argue that the dominant factor in how much value a VC can bring to the startup is how much time they can allocate to helping the CEO (in whatever way appropriate). This time is inversely proportional to the number of board seats the VC has. So, one could argue that the higher the number of board seats, the lower the value.
  • DV Henkel-Wallace
    I would agree with Mr Shah. Right now my lead investor is willing to give me practically infinite time. That is, if I call I'll get a call back the same day -- usually with an answer to my question. And the answers have a higher percentage of "hits" than "misses" than I would have guessed.

    But I reckon it's because he's _not_ on a huge number of boards -- right now. But he _has_ been. That's bad news for younger VCs: it's hard for a newer VC to be able to have the same depth of network as an older one, pretty much by definition.

    In my experience both as a board member and CEO, the amount of help the CEO gets is a signed quantity -- higher magnitude is not always helpful. I know I have unfortunately been on both sides of the zero point as a board member. Board members can't always know which is which -- and being on too many boards means they won't know enough about the company to get it right!