When launching a startup, first-time founders often imagine themselves in the role of the CEO, leading the company that they’re helping build. In contrast, investors typically prefer experienced CEOs helming the startup as a way to mitigate risk. The result is that founders and investors can clash over whether a founder should be CEO, or whether to find an external CEO. So as a first-time founder navigating startup formation and fundraising, which is better? When should you push to be the CEO of your own company, and when is it better to hire a CEO?
The CEO’s purpose
To answer this question, let’s start with the CEO’s purpose: to be ultimately responsible for all decisions and ultimately, the success and failure of the company. Because I haven’t yet been CEO, here are some more experienced sources describing the role of a CEO:
- Investopedia’s and Ranconteur’s guides to the C-suite
- A breakdown of C-suite roles from Collective Hub
- And if you want to read a whole (excellent) book about it – The Hard Thing about Hard Things by Ben Horowitz
But from what I’ve seen a startup CEO does nearly everything, from developing company strategy, to pitching to investors to raise, to figuring out budgets, to finding office/lab space, and in some cases even doing experiments at the bench. And having final say in all decisions — everyone defers to them. So if your goal is to maximize your startup’s success, the CEO should be someone who is best able to do these things. Now the question is whether that’s you or someone else.
To figure that out, I’ve informally asked mentors, entrepreneurs in residence, and investors this question. These are folks who have typically seen dozens of startups, and their thinking breaks down into two schools of thought.
The first school of thought: Get an experienced CEO
Overwhelmingly the feedback I’ve gotten is to get an experienced CEO, particularly from investors and entrepreneurs-in-residence (EIRs). As one person aptly put it, venture capital is, “not very optimistic about starting at the top when you’re just starting out.” That will likely sting for any founder convinced that they should be leading their startup, so let’s unpack why investors think this. First, let’s admit that it may be somewhat self-serving because the people providing this advice are likely the people placing someone into or taking the role of CEO.
But beyond that, both groups see an experienced CEO as a way to mitigate risk. There is tons of risk in any startup, including but not limited to:
- Technical risk: Will the science or technology work as expected?
- Regulatory risk: How will the technology be regulated? In therapeutic startups, this is often “How will the FDA consider it and what will it take to get this drug approved in trials?”
- Market risk: Will customers buy it? In therapeutics, this was a historically simple question that has gotten way more complicated. Standard thinking is that if someone is sick, they will of course want the treatment, but now there is a maze of physician, hospital, and payer barriers to negotiate that significantly impacts market risk.
- Competition risk: Can you position yourselves at an advantage against the competition? This is often a combination of moving as quickly as possible, focusing on a space where your product has the advantage, and then messaging that relentlessly – so it helps to have someone who knows the space in depth to pick something quickly and tell the company’s story around that.
- Capital risk: Will you run out of money before you make a profit?
- Team risk: Will the team get along with each other, and (as investors) will we get along with the team? Do they work well together and respond well to guidance and feedback?
And while VCs are in the business of making risky investments, the reality is that like any investor they want to minimize risk. They can’t do much to control technical risk, regulatory risk, market risk, or competition risk — there are just too many variables and uncertainties. But the team and who is leading it (the CEO) are one of the few risks that they can directly control. By appointing an experienced CEO, someone who has done the job before and seen a few things, investors can also mitigate some of the risks they can’t control. An experienced CEO can be familiar with the regulatory, market, and competitive risks and come up with backup plans, meaning in the event of a disaster investors don’t entirely lose their money. So the experience CEO may not be an expert in the technology, but they’re competent or an expert in mitigating other risks and have shown they can lead and make decisions.
The second school of thought: go for it!
There is a minority of EIRs, mentors, and VCs who do favor technical founders as first-type CEOs. The prevailing thought here is essentially: “If not you, then who? Who knows the technology better than you?” From a brief and definitely-not-comprehensive assessment of business, this view is most prevalent in places with totally new technologies, fields, and/or markets.
If you look back at the last 20 years of founder-CEO types, they were points where a technology was so new and different that you couldn’t point to someone more seasoned and say “they would do a better job”. Think of Steve Jobs and Bill Gates at the dawn of personalized computer era, and Jeff Bezos and Mark Zuckerberg in the early internet days. In biotech this is less common, and it’s often seen at the union of tech and biotech – think Alice Zhang of Verge Genomics. The other place we see it is totally new biotech markets, like synthetic biology. Here, technical founders are CEOs pushing biotechnology into fields beyond healthcare – think Jason Kelley at Ginkgo Bioworks, Dan Widmaier at Bolt Threads, and Rachel Haurwitz of Caribou Biosciences. In these places, there was probably little point in investors looking around for someone else to lead the company, because there was no one who was an expert in how this technology would fit into the world except the founders themselves.
So if you’re a technical founder looking to be CEO of your own company, ask yourself the difficult question: is there someone who may only be somewhat familiar with the technology but an expert in the regulatory, market, or competitive risks and skilled in team-building? If so, you may not be the best person to lead your company. But If the answer is no or unclear, you have you work cut out for you. Prove to investors that it will take expert knowledge of the technology, and the technology is so radically different that an expert view of the current world won’t help much in the future you’re looking to build. And then explain why you are the right one to do it.
Natalie Jing Ma, PhD 