The transcendental conditions of success as an entrepreneur occur at the intersection of objective real world challenges and the subjective traits of the entrepreneur and CEO. The objective risks relate to the business case of the company and include such things as technology risk, market risk, and competition. These are all subject to discovery in a thorough diligence process. Both these systemic and idiosyncratic risks of a start up are typically well identified –though perhaps poorly navigated –by early stage investors. Less discussed however, and what I want to concentrate on here, are the subjective risks, those peculiar to the entrepreneur himself.
Most experienced venture investors will agree it is a far, far better thing to invest in a second rate company with a first string CEO than to fund an A rated company with a B player CEO. This statement, which is practically a truism in the venture world, radically contradicts the idea that sufficient diligence of a company’s various objective risks suffices in early stage investing. There must additionally be an understanding of the strengths and weaknesses of the CEO and these have nothing to do with resume items.
