CEOs are from Mars, VCs are from Venus

A new NVCA study shows entrepreneurs and their venture capital backers may want to get to the same place, but they have different ideas on how to get there. By Dave Keating.

When it comes to managing a growing company, entrepreneurs can often have a very different outlook than their venture capital backers. After all, the company is their baby. They’ve been with it from the beginning, and like a child they want to see it navigate through the twists and turns of adolescence to a healthy, stable adulthood. It may be no surprise then that CEOs feel their VC backers are stretched too thin and are not paying enough attention to their companies.

A new study conducted by the National Venture Capital Association and Dow Jones VentureOne found that many CEOs would like more time with their backers. The study, which surveyed 700 VCs and CEOs of privately-held, venture-backed companies, found that venture capitalists believe the ideal number of board seats for one VC to be sitting on is an average of 4.6 for early stage companies and 5.5 for later stage companies. CEOs, on the other hand, would prefer their venture capitalists limit their early stage board seats to an average of 4.0 and their later stage board seats to 4.6.

Given that 81 percent of VC respondents said getting a board seat is a prerequisite for an investment, there may be little CEOs can do to keep their backers from overextending themselves. However the study also found that in reality VCs are sitting on fewer boards than their ideal, with an average of four board seats per partner in 2005.

Mark Heesen says CEOs want more time with their VCs.

“That’s a reflection of where we were and where we are today,” said NVCA president Mark Heesen. “During the bubble there were venture capitalists sitting on nine to twelve boards. Now they’ve gotten back to where they’re supposed to be. I think that’s a sign that VCs are taking the concerns of entrepreneurs much more seriously.”

The study found that venture capitalists in the Bay Area sit on the highest number of board seats, with an average of five seats per VC. Heesen attributed that to the high concentration of start-up companies in that area, which enables VCs to go to multiple board meetings in one day.

One surprising finding of the survey was the dramatic difference in concern over Sarbanes Oxley. The study found that 65 percent of VCs say Sarbanes Oxley is the biggest concern facing their audit committees. Only 39 percent of chief executives said it was their top audit committee concern, and only 21 percent said it is a concern when hiring directors.

“VCs sit on a lot of boards, and they’re constantly hearing about the implications of Sarbanes Oxley,” said Heesen. “Their exposure is much higher, wheras an entrepreneur typically only sits on one board and hears about it less often.”

Heesen said that overall the study shows that though each group may have different priorities, their different perspectives can bring added life to an enterprise.