Victus Spiritus


Why VCs prefer firing founders

12 Jun 2010

Getting kicked out of your own company means watching your ownership position going down hill fast

AVC Community Speaks Up on Founder Firing

Fred Wilson brought up the touchy subject of Parting Ways with a Founding Team Member and got a very strong and rich set of community feedback. The comments on the post were some of the highest caliber I've read there. Regular AVC commenters like Chris Dixon argued strongly for keeping founders on the team (until the company becomes liquid).

I would never fire my cofounders and they would never fire me. Which is one reason I I have great cofounders. You put up with people's ups and downs and stay loyal and it pays off in the long run.

Charlie Crystle eloquently describes his own firing as CEO and helps center the concept of founder firing in human terms.

It's definitely painful. When we decided to sell ChiliSoft, I was fired 6 months after I gave up control and had recruited my replacement, and 3 weeks before our integrated suite of apps for business (SaaS CRM mostly) would launch with ATT, PSI, and Earthlink.

I found out in my office from our attorney, who had left a long message for me (we were and are still friends) assuming the CEO had already talked with me. He hadn't. So after a quick chat with my friend, I went into the CEO's office to shoot the shit, talk about how things seem to be looking up, etc, just to see what he'd do. He was squirming, so I just smiled and said "relax" and let him know I knew. Nicely handled, guys.

They killed my project, because clearly Saas CRM had no future. There was some lingering resentment for a while toward the board and CEO from people loyal to me, and some people left. But the deal got done, and despite the wonder of math that took me from 40% of the company to 15% (hmmm...) within six months, everyone had a pretty good outcome (12x for investors).

From Charlie's comment, the compelling reason investors might prefer founders fired is one of ownership. If a founder is entitled to 40%, but after firing only receives 15% of the business, remaining shareholders see a net increase in business ownership even after granting replacement shares of ~10% to a new executive. Charlie's lesson in loss is one every founder should be aware of.

After the post and comments I was curious about if and when any business partner should be fired. Liquidation is the only course I can see as legitamite. Pay off a founder, or investor their current ownership of the business and bid them farewell. If you can't afford to do this, you can't afford to fire them. Much like the "double trigger" where a company is purchased and it's founders fired, full ownership shares are paid out.

My visit to San Francisco is just about over

The Albino Alligator at the California Academy of Sciences was one of the many wonderful discoveries Michelle and I discovered about San Francisco over the past few days. The gator represents something anomalous and special to visitors of the academy. More pictures and images available on my current photo/video blog