With the runway from start-up to exit stuck in a prolonged holding pattern, we began to wonder how venture capitalists’ attitudes are changing regarding the skill set that makes a successful venture backed CEO.  To answer this question, NVCA teamed up with executive search consulting firm, Spencer Stuart, earlier this year to conduct a follow-on study of VC-backed company leadership (first study was conducted in 2001). Today, we are pleased to release the findings of this study.  Click here for the full report.

Thank you to all the NVCA members who responded to our online survey and participated in the study interviews!

The new study reveals a number of trends and best practices, including:

• People remain paramount. In both the 2001 and 2010 studies, venture capitalists considered the strength of the management team as the most important factor in deciding whether to fund a venture, followed by market sector. Proprietary product or service and business model both trailed slightly behind market sector.
• Vision and fundraising are more important skills for CEOs today. Vision ranked fourth among important CEO skills in 2010, but only seventh in the 2001 study. Fundraising ranked fifth in 2010 up from eighth in 2001. Both results reflect shifting priorities in an environment where both raising funds and the path to liquidity have become more challenging for VC-backed companies.
• Venture capitalists favor proven venture-backed CEO talent. When seeking talent for emerging sectors (such as clean technology) with a limited CEO pool, 2010 survey respondents clearly favored proven venture-backed CEOs from unrelated sectors (58%) over sector entrepreneurs with no CEO experience (31%) or industry leaders from large companies who lack experience in an entrepreneurial environment (11%).
• VC-backed CEOs earn more than they did 10 years ago. Forty-seven percent of respondents said that they are paying CEOs greater cash compensation and granting more equity. VCs say this is because of the longer-term nature of the role today and because today’s CEO roles require executives with a broader skill set.
• Venture capitalists are recruiting more independent board members. Seventy-five percent of those surveyed said they are recruiting more independent/outside board members now that they face a longer path to liquidity.
  
• Investors are growing more confident in their executive assessment practices. Only 4 in 10 venture professionals in 2001 agreed that their firms recruit the best talent, consistently and thoroughly assess management teams and remove low performers quickly. In 2010, 84 percent agreed that their firms recruit the best talent, 63 percent agreed that they consistently and thoroughly assess management teams, and 67 percent agreed that they remove low-performing CEOs from portfolio companies quickly.
• Yet opportunities exist for VC firms to assess management in a more rigorous, ongoing way. While 2010 respondents are diligent about assessing the management team before investment, only 25 percent agreed that they conduct formal, ongoing management assessments after the hire. In part, this is because VCs feel that they already link the CEO’s goals and accomplishments to their compensation structure. But, it also highlights what could be the area of greatest potential improvement for talent management in the industry.

We welcome your comments and feedback about this study.  Comments can be sent to jmetzger@nvca.org.