When Investors Don't Want You to Be CEO of Your Own Company (part 1 of 2)

I recently learned that a former client of mine who I'll call George had finally, after years of struggling, gotten term sheets from reputable investors for investment in his startup. By now, he should have the money in hand and be going gangbusters, executing on his strategy.

Unfortunately, it all fell apart. Why? He wanted to be remain CEO. The investors wanted his partner to take the job. George said thanks, but no thanks.

I don't know all the details of this situation, but the outcome breaks my heart. George deserved to be successful, to grow the company with the benefit of significant resources. He'd worked hard, believed in the company when others did not, and brought it to the point that investors wanted in.

Who Is Right and Who Is Wrong?

The dilemma usually arises from the following perspectives:

• Investor: I like this technology and its potential for success, but the founding CEO does not have the skill/ personality/ whatever it takes to give the company the best chance for success. No way am I investing my money in a company that's run by someone who is unlikely to achieve success.
• Founder: I lke these investors, but there is no way that they really understand what needs to be done to achieve the vision for this company. If they install someone else as CEO, this company is unlikely to become the success it deserves to be. Besides, it's my company, I deserve to run it! What if they decide to fire me from the company altogether??

Answer: It Depends.

As in most real world situations, neither side is likely to be 100% right. You are in the position of needing them more than they need you so unfortunately you have less leverage. Depending on how close you are to your cash cliff, you need to consider whether remaining in charge is worth killing the company. Remember that investors talk to each other early and often, so if one group walks from a deal it will be that much harder to get another.

That said, remaining in control might be the right thing to do. In the next post, I'll give you some questions to consider when trying to make this tough decision.

Have you ever had to consider this option? How did it resolve? What would you do differently? (Please don't use real names in any of your posts as this is a public forum.)