VC Fundraising: CEO's role

I recently ran into a whole list of questions around how VCs view on CEO's role in fundraising. First of all, raising VC money without having a dedicated CEO is a real challenge in and of itself. For now, staying away from that question, here are my thoughts that all entrepreneurs in this situation should consider to evaluate the merits and tradeoffs.

If VC still wants to invest......

• valuation will be driven down due to the additional risks of hiring the top leadership
• option pool needs to be carefully assessed to have something attractive enough for the incoming CEO
• VCs want to keep the founders around. This is something that investors insist regardless of CEO's peresence.
• VC will make recommendations (sometimes forces the company) to fill the CEO position. While this may be a big win for startup, hiring someone who fits into the culture, team dynamics, etc. can be a drag.
• Attractiveness of the overall investment opportunity (this has to do with valuation also) deteriorates. Remember... VCs invest in A team with B idea. A team usually means quality, but it also means having the whole team in place.
• The incoming CEO may have a different view of the business than the founders... for better or worse.
• VC's investment thesis is very different now. It probably looks something like.. "great idea with major risks in execution. might pull the plug sooner".
  

VC will not want to invest, because......

• hiring a good CEO to execute within the existing culture and idea is too difficult. It often means trying to make a hire and burn cash at the same time. In the end, the company has a smaller case reserve for the CEO to execute.
• in this economy, finding a real talent to drop into startup is challenging.
• it's hard to justify the economic benefits of putting their own money in to find someone that the company needs.

Either way, raising an institutional VC round with a CEO is generally a well-accepted practice. Find and convince a solid business person with vision, sales skills, and leadership to buy into your company. Have him/her be part of your team, then go out to raise money. You will save lots of time taking this step than finding a high-risk taking investor to go through the turbulent ride of CEO hiring.