We love supporting passionate founders grow their businesses – and do so in both the private and public markets. We know and understand a founders role changing significantly over time – from employee number one, doing all jobs big and small and being across every minor detail, to having to learn to manage others and create a culture for 100’s, sometimes 1000’s of employees as the business scales. Once the business hits the public capital market, the founder as CEO needs a whole new skill set, from investor relations to regular reporting.
We decided to do some research into the performance of founder led businesses, particularly in the public markets – according to research, 11 percent of the largest public US firms are headed by a founder CEO – knowing anecdotally how crucial a founder can be in not only decision making but cultures and behaviours. The findings were incredibly fascinating. In summary;
Compared to non founder CEO’s, founder-CEO’s:
– spend up to 22% more on research and development
– spend up to 38% more on capital expenditure than non founder firms
– make more focused merger and acquisitions.
What also of interest was the literature on founders being more optimistic that professional CEOs. This has both pros and cons! In practice, founder-CEO’s make faster (but less comprehensive) and more risky (but potentially more rewarding) decisions because of their optimism bias. They may also may create unrealistic (but perhaps more motivating) goals for employees and stakeholders, as well as frequently issue earnings warnings that are too high to actual earnings
In relation to IPO:
1. Firms with founder CEO’s have higher valuations at the time of the IPO
2. There is no strong or consistent evidence of superior investment performance in the first 36 months following IPO on the part of founder CEO led IPO firms.
3. IPO firms with a specialist CEO (one whose experience is firm or industry specific tothat of the IPO) have a lower probability of failure and a longer time to survive in subsequent periods following the offering
In the long run, the jury is still out in relation to the performance of founder-CEO companies, but one thing is clear from the research; founder led businesses in high technology environments have substantially superior post IPO investment performance compared to non-founder CEO’s
In you have a spare 10-15 minutes, we think there is great value in reading the full report here
