CEO evaluations at venture capital backed companies

 by Healy Jones 

Properly supporting and working with the CEO is the most important action a venture capitalist can take after funding a startup. When I was a VC, I was very impressed with how often the partners I worked with would communicate and brainstorm with their portfolio companies’ CEOs. Part of the VC’s responsibility, and the board of directors’ responsibility, is to perform annual reviews of the CEO’s performance.

The board evaluation of the Chief Executive Officer

The CEO position of a startup is pretty lonely sometimes. Just because a CEO is in charge of a business doesn’t mean that his/her professional development is over - but getting the right feedback and guidance that can help the executive grow professionally can be challenging. Getting effective feedback from employees can be hard, since it is not always easy for them to speak “negatively” about their boss to their boss. And of course, your employees and co-founders are probably pretty busy trying to grow the company. Interactions with the board can be enlightening, but usually focus around discussions of strategic imperatives and operational milestones, not the CEO’s professional development.

While it is certainly the CEO’s own responsibility to try to grow as a professional, it is up to the board to provide the critical feedback and development. Some of the partners I worked took their CEO’s growth very seriously and ran rigorous CEO evaluation processes from the board level. This is a huge amount of work. Sometimes my partner would run the process, other times another VC on the board would, and sometimes it would be the independent director. This is not the same as the “hit this revenue number and these operating metrics and your bonus with be $XYZ” that is put together by the compensation committee. This is really a process intended to help the CEO become a better leader and manager.

I only got to see this a couple of times; I wasn’t a VC long enough to run through this cycle more than that. I’m sure that I am missing some of the important nuances (heck, maybe even some of the important macro-themes) of a CEO evaluation. However, from what I could tell this is what happened:

The CEO was informed by the board that one of the directors would be running a review process. That director would inform the CEO what the expected timing of the evaluation would be. The end product of this review would be a discussion with the CEO as to his/her performance for the previous year against the company’s stated goals and the CEO’s developmental goals from the previous year, critical feedback and the setting of additional goals/areas to for improvement for the following year. That director would also have a private conversation with the board alerting them as to his/her findings in this review.

To prepare for the review evaluation forms were distributed to each member of the board of directors (I’ve put an example of this form below - I’ve embedded it with Pixily’s document sharing/embedding feature). The director in charge of running the review would collect these forms and have conversations with the other members of the BOD as needed. The director would also do the same with critical members of the management team, such as the CTO, Sales VP, etc.

The evaluation focuses on:

1. The company’s previous year’s goals and performance vs. those goals
2. The company’s near and long-term prospects
3. The CEO’s character, as demonstrated in the past year
4. The CEO’s ability to develop and articulate a vision for the company
5. The CEO’s leadership of the company
6. The CEO’s leadership of the board of directors
7. The CEO’s management of the executive team
8. The CEO’s ability to recruit talent into the company
9. The CEO’s decision making skills
10. The effectiveness of the CEO’s operational style/skill-set
11. Top strengths and weaknesses of the CEO
12. Critical advice from the BOD and team on how to improve management skills and lead the company

I’ve put my own version of this CEO evaluation form into Pixily and embedded it below. This is not a perfect copy of what I’ve seen other VCs do - it is my own attempt to make a more clear, less overlapping review form. I’d love comments on it, as I’d like to leverage other people’s experiences to make up for my own lack of experience and then improve the evaluation form… 

After collecting all of this feedback, the director would then create a master evaluation form that would be shared with the CEO during an evaluation. The process should result in a conversation that helps the CEO understand what they are doing well and what they need to try to focus on to improve their management style. Ideally there should be some concrete areas that the CEO can try to improve upon. From what I’ve heard, CEOs really appreciate this critical feedback. Additionally, the management team often appreciates the chance to interact with a director of the board and have their opinions heard/taken seriously.

I actually tried to fill this form out for myself early this year while I was still a VC. Doing so was one of the things that helped me realize how much professional development I had missed by having been an investor-type for my whole career. Particularly in areas like leadership, setting and hitting performance metrics, strategic timing… well, and some others too… I was pretty lacking. I’m certainly learning a ton now as I try to help Pixily with marketing, and hope that sooner of later I’ll be able to move myself off of those 1’s and onto some higher numbers on the evaluation form!

If people have CEO or management team evaluation experiences of best practices that they can share then I’d love your comments. Please let me know if you’ve done or seen similar evaluation exercises, and if you’ve found them useful or not. Thanks!!