CEOs are from Mars, VCs are from Venus?

A recent joint study conducted by NVCA and Dow Jones VentureSource outlines several factors that contribute to a good alignment between VCs and the companies they back.

Among the findings were several areas in which there was natural alignment and agreement between VCs and CEOs.  Other findings point to not-too-surprising challenges in making the relationship work:

Do you respect me or my money?

• 54% of VCs cite mentoring the CEO as a critical value-add; only 27% of CEOs see the value.

• 64% and 34% of CEOs see the ability to complete follow-on financings and facilitate exits as top value adds; VC numbers were 48% and 22% respectively.

The money will always be important.  After all, entrepreneurs should pick a financial partner who can provide additional capital as needed as their companies grow.  But the best (sadly, not all) venture partners provide much more than money – valuable contacts, “been there, done that” experience when facing tough business issues and a sympathetic sounding board for entrepreneurs working under great pressure.

We also see different sources of conflict.  For VCs, it’s personality conflicts and management changes; for CEOs it’s valuation and exit strategy

Interesting stuff.  In our experience, the natural conflict over valuation can be addressed creatively with investment structure and fades quickly after the close.  We also typically don’t have control in our investments, so “management changes” need the approval of the entrepreneur and the exit strategy really has to be a consensus decision.  When we do experience conflict, it typically revolves around the company not performing up to expectations and how to get the company back on a growth path.  But that kind of “conflict” is both healthy and productive, and everybody has the same goal, so it really doesn’t need to be acrimonious and fortunately rarely is.

The study was completed in October 2009 & includes responses from more than 300 VCs and 200 CEOs.