It looks so easy from the outside. An entrepreneur with a hot technology and venture capital funding becomes a billionaire in his 20s. But, it isn’t really a cakewalk. Take the Housing.com drama as a case in point. Rahul Yadav, Co-founder & CEO of Housing.com, had resigned in very controversial circumstances and now within 24 hours he is back as the CEO of the company. This is after Yadav got involved in several social media controversies with both investors and media in the last few months.
Yadav’s behavior has been taken as an opportunity to showcase the vulnerability that young and inexperienced founder CEOs bring to companies that are raising (and spending) large amounts of capital. That is why it is so important to make sure the shareholding pattern of the company remains balanced as they grow and aligns all shareholders’ interest.
Research by Shikhar Ghosh, a senior lecturer at Harvard Business School estimates that 25 per cent to 30 per cent of venture-backed businesses fail. His findings are based on data from more than 2,000 companies that received venture funding of at least $1 million from 2004 through 2010. What went wrong? A lot of it comes down to the personal characteristics of the leader.
As per ET reports, Yadav owns 4.57 per cent stake in the company. Research shows that CEOs that hold higher percentage of equity are more likely to act in the shareholders interest (Core & Larcker, 2002). Deepinder Goyal of Zomato tweeted, “Housing is what happens when investors leave founders with little skin in the game.”
Further, it also raises the question on whether all founder CEOs make great CEOs. CEOs need a gamut of skills, personal and leadership characteristics as the company scales that get more and more complex. Founder CEOs under 30 don’t normally have theses experiences and skills. Its absence puts tremendous pressure on the CEO and the organization.
This is a wake up call for many entrepreneurs under the age of 30 who can get trapped by the position they put themselves into after several rounds of funding (losing too much equity and control too early) and by their own limitations as leaders (difficulty in managing self and managing others, as stakes get tougher and higher).
Having said that if one looks at successful technology companies, founder CEOs ran an overwhelming majority of them for a very long time. Entrepreneur, Author & Investor Ben Horowitz shares that companies like Amazon, Apple, Microsoft, Dell were all successfully run by founder entrepreneurs. What made them great CEOs is their commitment to innovation, their comprehensive knowledge to take the best decisions, their courage to disrupt the status quo and their commitment for the long term. After all, many of the founders did not have great personal and leadership characteristics to start with (Jeff Bezos or Steve Jobs for example). Let’s give our Indian young entrepreneurs the same chance as they build innovative and outstanding products.