When should you fire the founder?

Authors

  • William Bains

DOI:

https://doi.org/10.5912/jcb199

Keywords:

founder, management, succession, IPO

Abstract

This paper examines the effect of founder team removal on the success of a set of 77 UK venture-backed biotechnology companies. Five measurements of success of these (predominantly private) companies are used: achieving liquidity for its shareholders, attracting further investment and further investors, company size, and how many products it managed to take into clinical trials. For all measures, early removal of the founding New Venture Team is correlated with poorer performance than retaining the founding team's skills. The best time to remove the founding team for this set of companies is after IPO. This suggests that venture capital investors' tendency to routinely remove founders and change CEOs on investment is damaging to their own interests as well as those of the founders concerned, and that alternative, more cooperative ways should be sought to retain founders and early executives in meaningful, effective roles in their companies to continue to harness the value that they are observed to add.

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