Do venture capital firms routinely fire founder-CEOs and replace them with ‘professional’ CEOs? Or do the founders voluntarily hand over the CEO reins, so they can focus on other aspects of the business? Or do they often leave to start other companies?

Such simplistic ‘either/or’ options rarely apply in real-life, of course, but we can say that 27 (54 percent) of The Wall Street Journal’s 2010 top 50 VC backed companies have non-founder-CEOs, while 23 (46 percent) have founder CEOs.

Whether or not The Wall Street Journal’s list of the top 50 venture backed companies reflects all ‘successful’ venture backed companies – or venture backed companies in general – is unclear. But if it is somewhat indicative, then there may be some truth in the notion that venture capitalists are inherently skeptical of founder-CEOs being able to run their companies as they scale.

That’s only logical, of course: with large sums of money at stake, VCs can’t afford to leave their investments in the hands of founders who can’t grow (in some cases, quickly grow) along with their companies. On the other hand, some entrepreneurs won’t want to be CEOs any more and will want to assume other roles within the company (or even to leave). In other cases, the founders may have already appointed someone else to be the CEO (i.e. before raising venture capital), or may agree to step aside temporarily in order to be groomed into the CEO role.

Of course, that’s the ‘half empty’ way of looking at these statistics. The ‘half full’ perspective (i.e. from the viewpoint of a founder who wants to stay in the CEO role) is that almost half of the top 50 VC backed companies have founder-CEOs. In these cases, at least, the VC firms are confident that the founders in question have what it takes to command the top leadership position.

Of course, that’s not to say that all founders should want to be CEOs or that being a CEO is necessarily ‘better’ than any other role!

So how did The Wall Street Journal come up with its list of the top 50 VC backed companies in the first place? Well, it analyzed 5,194 companies, specifically looking for companies valued at less than $1 billion (thereby eliminating Facebook and Twitter from the list).

It then scored each company based on four criteria: the track record of success of the company’s founders and CEO; the track record of the venture capital investors sitting on the company’s board of directors; the amount of funding raised during the previous three years compared to the company’s peers; and the percentage change in the valuation of the company during the 12 months to November 2009.

Other interesting statistics from The Wall Street Journal’s top 50 VC backed companies are that:

• 4 out of the 50 companies have women founders and 2 have women CEOs;
• 33 companies (66 percent) are located in California, with 27 (54 percent) located in Northern California (as you might expect given that this is where most of the top venture capital firms are located); and
• 18 companies (36 percent) are in information technology, 12 (24 percent) are in health care, and 6 (12 percent) are in business and financial services.

You can slice and dice the rankings to derive other interesting insights by reviewing The Wall Street Journal’s list. For now, here is the top 50 with the year the company was founded, the names of the founders, and the names of the CEOs (as at the time of this blog post):

Related Articles:

• Those Guys Aren’t Real Venture Capitalists
• Venture Capital Investment in Startups Drops To New Lows
• Internet Marketers Sell Facebook User IDs At Their Own Risk
• Twitter: The Truth Behind Those 140 Characters
• Should You Build an iPad Enabled Website?

This entry was posted on Tuesday, October 5th, 2010 at 7:37 am and is filed under Feature, Venture Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.