Confessions Of A VC: Replacing A Management Team Spells Trouble

Remember the last time you heard a venture capitalist say: “That didn’t work”?

Chances are they were talking about swapping out one management team for another. It unsettles a startup, soaks up board time and can cost money.

Or so said several VCs at the recent AlwaysOn Venture Summit Silicon Valley 2010.

One common misperception is that VCs jump quickly into deals without thinking. The opposite is frequently the case.

GGV Capital Partner Jeff Richards said on average he spends nine months getting to know a company before investing. Prior to putting cash into music steamer Pandora Media Inc. in June, GGV followed the startup for four years.

Part of the “getting-to-know-you” is becoming familiar with company management. When betting on outcomes worth hundreds of millions of dollars, nothing may be more important.

The top thing GGV looks for is a good chief executive, said Richards (pictured) at the conference. Things often don’t work out well when a venture firm needs to swap one management team for another, he added.

Matthew McCall, partner at New World Ventures, agreed. He said he has never made money after replacing a management team –- an unnerving thought.

VCs often point to entrepreneurs as their key asset. When that asset goes astray it is likely to lead to a difficult confession down the road about what could have been.

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3 Comments

  • [...] Mark Boslet put up a nice post today on PEHub with commentary from a panel I was on this week at the AlwaysOn Venture Summit in Half Moon Bay.  The main thrust of his post reflects comments I made during the panel about two core tenets of GGV’s investing model: [...]

  • Mark – Enjoyed the post. I put a post on my blog (http://bit.ly/fENBbN) with a little more color commentary on the topic. Jeff

  • Richards makes a good point. Having founded successful tech start ups and served as mentor for a few, no single factor can be emphasized over all else. I have seen terrific CEOs fail with bad market timing, poor capitalization by VCs, a bad business model, sea-change in economy, and a poor business model. Multiple factors have to be aligned, including a good CEO for businesses to succeed. VCs should give time for a few trials and errors in fine tuning these factors to hit the stride and become successful. Some of the best CEOs turned out never to have had any prior experience in any business. Incidentally, I learned much of this from my mentor Eugene Kleiner, the Dean of VC in Silicon Valley.

    Nat Kannan
    Jeeva Portals, Inc.

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