What VC’s Look for In A CEO

"I look for honest, able management"
— Warren Buffett

On a daily basis, entrepreneurs ask me what we look for in a CEO. Dick Costolo suggested that doing a post on this topic would make sense (as usual, he is right).  When we have made mistakes with an investment, its demise usually falls into two buckets: 1) we mistimed or misunderstood the market or 2) we backed the wrong CEO. Figuring out whom to back is very much of a black art. Famous, big company executives are just as likely to crater a company as a rank novice. The trick is finding the entrepreneur who fits in-between these worlds and has the following characteristics baked into his/her DNA:

Resourceful: he/she should be weary of raising capital and be thoughtful about taking on any dilution. Large capital raises limits exit potentials, defocuses management and ends up usually being wasted. Our worst investments usually involve a CEO who feels that throwing  capital at a problem fixes it and then feels entitled to option spiffs to offset any dilution to them. These plays lead to 2-3x returns at best and more often in damaged capitalization structures. Like the difference between a great and poor developer, doing it efficiently/creatively versus throwing more resources at it leads to significantly better results. Would you prefer that you had one quality mechanic focusing and fixing your car or an army of grease monkeys poking around trying different things (often with a very structured methodology) and running the bill up?

Relentless: Technology is all about being the market leader (as they say, who was the second person to fly across the Atlantic?). I like CEO’s who are competitive and paranoid about the competition. CEO’s often become complacent by putting down the competition’s products while extolling the virtues of their own. I like CEO’s who are self-critical and come out and say "we are not doing xyz well and we face a significant threat from competitor A on …".  They should abhor losing bake-offs to competitors and continually push their teams hard to iterate product quickly.  In the long run, "all technology companies are dead" (Roger McNamee) as there is no market more darwinistic. Scorched earth…

Creative Thought: we appreciate entrepreneurs who look at problems differently. Successful companies do so not by doing things the same way as their competitors. It gets our attention when we learn something new or view an old problem through a new lens.

Responsive: Keeping with the "R" theme here, we want to see entrepreneurs who see either opportunities or issues and quickly iterate solutions for them. We like resourceful teams that come up with creative, simple responses. They respond quickly to developments in a measured way when needed. They out execute the other competitors.

Proactive: tells us problems or opportunities before we see them or they become self-apparent. I like entrepreneurs who are frank and to the point. I hate Barney meetings (you love me, I love you) where everything is coated in positive spin. "Losing our two major customers (or our product is five months delayed) is really a good thing for us…". In pitches, entrepreneurs should acknowledge biases or skepticism and identify actions or layout ameliorating factors.

Honest/Open Communicator: No politics, no hidden agendas. We need to build the company together. Too many times, entrepreneurs view it as them and us which leads to divisive interactions and lack of trust. Speak your mind. Don’t play the sides against the middle as this will result in his/her eventual dismissal or trip to the woodshed. Life is too short for this kind of crap.

Justified Confidence: Pride (and ego) goeth before a fall. Cocky, self-assured entrepreneurs are setting themselves up for a beating. However, great companies are willed into existence. Entrepreneurs need to communication the vision (the "North Star") and then convey a sense of inevitability. It is hard to explain, but it is an ethos of confidence and certainty. In end, they leave you believing they can do it.

Strong Domain Knowledge: people who come from an industry or technology sector tend to do better than those who are smart but moving into a new sector. They know the dynamics of the industry, its competitors, its history, its customers and has learned from past mistakes or failed efforts. Each industry has its own nuances and we would prefer that the entrepreneur have that knowledge versus learning on our nickel.

Respect for downside: I like entrepreneurs who have failed or who have a healthy appreciation for the likelihood and unpleasantness of the downside. Entrepreneurs are optimists by nature. Knowing the dark side gives them an appreciation for how critical discipline, efficiency and slight paranoia are.   

Leadership/Inspirational: they can define and evangelize their vision. people want to work for them. Enough said since this is often the lead criteria for most posts on this topic. Think big and inspire…