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Monday, February 11, 2008

Founders be aware

Founders pushed out
George Osborne happily announced this week if he were chancellor, a national Dragons’ Den style system would be introduced to help entrepreneurs find investment for their businesses.
Unless you’re spectacularly wealthy, or happen to have stumbled upon an extremely cash generative idea, you’ll probably need some kind of outside cash injection to grow your business rapidly.
Dealing with investors is often a major challenge for entrepreneurs and one, it seems, that continues long after you’ve signed over an equity stake.
New research from the European Leadership Programme (ELP) found only one in every 10 company founders are allowed to remain as chief execs following venture capital investment.
To address that figure another way, for every 100 businesses that receive significant VC funding, 90 entrepreneurs are pushed out of the driving seat.
Of the entrepreneurs surveyed, 35% said high expectations of investors was the main factor in a split.
“Many companies bring in a new CEO in the hope that they can turn around an under-performing business, but often this doesn’t solve their problems,” said Ashley Ward, founder of the ELP.
“Most of these investors give a CEO less than a year to prove themselves which suggests they think a company can recover in less than 12 months, but this is usually unrealistic, and changing the CEO again results in time lost searching for a replacement and bringing them up to speed.”
A word of warning for entrepreneurs that want to hang onto their baby after receiving funding: choose your investors as carefully as they choose their investments.

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