Woodside Fund Vets a CEO
July 01, 2005
By Vincent M. Occhipinti
How much time did you spend getting to know the last CEO candidate
you hired for one of your portfolio companies? And how much time
have you spent dealing with the challenges of firing a CEO?
Too often, the time spent on firing an executive greatly outweighs
the time spent on the assessment process. As we all know, one of
the most important roles of the VC board member is to help make
the right hiring decisions for the CEO and other senior executives
of a company. This is especially important in an environment of
increased regulatory scrutiny at the board level and growing global
competition. Assessing management is also a critical part of the
process in evaluating potential investment opportunities.
Over 22 years, Woodside Fund has developed and refined an approach
to hiring and evaluating talent that we call the "Org Chart
Process." It helps us:
- Establish a long-term working relationship built on candor
- Secure an investment opportunity.
- Secure top executive talent early.
- Convince an entrepreneur to bring in complementary skills.
- Share best practices with portfolio companies.
Org Chart Process
The interview process is an in-depth interview session with an
executive that can take anywhere from three to six hours. We preface
the session with an invitation to make the conversation a two-way
dialogue in which the candidate may ask us any questions he or she
would like answered. One or two partners typically participate in
the session with the candidate.
The session begins with the typical perfunctory questions about
a candidate's work history. After reviewing the basics, we launch
into a process of identifying the organization around a candidate
at various points in his or her professional career, covering major
roles in the most recent 10 to 15 years of the candidate's work
history. We have the candidate give us multiple organization charts
that list superiors, peers and subordinates by name.
We then select key individuals, asking the candidate to briefly
profile these individuals' leadership styles and the nature of their
relationship with the candidate. This helps provide context for
the next set of questions:
- If we were to talk to this person (with your permission, of
course), how would he or she describe your strengths?
- How would this person describe where you are less than perfect?
- How would this person say you were perceived in the organization?
- Who might your supervisor or board say you had the most difficult
- If you were rank-ordered by your superiors, peers and subordinates,
which group would rank you 1, which would rank you 2 and which
would rank you 3?
How do we get the candidate to answer these potentially threatening
questions openly and honestly? The key is a nonjudgmental attitude
both in words and body language. From time to time we mention some
of the mistakes we may have made when we, as entrepreneurs, were
running our own companies. In almost every case, we gain candor.
Early on in this process, the candidate must determine just how
candid to be with us. If a candidate defers on listing weaknesses
("Oh, you would have to ask him/her. I don't know what he/she
would say") or simply lists weaknesses that are actually strengths
("I can be impatient when people don't perform. I am very demanding"),
a red flag goes up. However, when candidates are brutally honest
and see how we react they learn that they can trust us and can come
to us in the future with problems even before they have solutions.
Some other benefits that come out of the Org Chart Process include
- We obtain instant reference checks on the candidate.
- We build a list of names to call that are off the candidate's
pre-screened reference list.
- We share a best practice with our portfolio companies that they
often employ when they are filling out other mid-level and senior
An important follow-up to the Org Chart Process is a rigorous process
for calling references. The process helps us prioritize which references
to call and ensures that we get a balanced view of the candidate.
We select a mix of individuals to call, including both those who
would give positive references and those who would give potentially
With the board, recruiter and company we then allocate who is going
to make the calls. When we call a candidate's references we describe
the Org Chart Process without divulging the perceptions shared.
The result is far more candid feedback. At the same time, we do
not overweigh negative comments, since the process almost always
brings those to the surface.
Due Diligence Process
We also use the Org Chart Process as one of the critical steps
in our due diligence process with companies before we invest. If
a company appears to have significant potential we will conduct
the Org Chart Process with key founders and the senior management
team. The trust built is a perfect launch pad for eliciting candid
insights about a company, helping us both in making investment decisions
and in working effectively with founders and executives after making
In the due diligence process, the Org Chart Process provides an
"unfair advantage" in a competitive investment opportunity.
By spending significant time with the company founders and building
a relationship based on trust, we establish an inside track on getting
into a round and become a preferred investment partner. The time
we take to get to know a company clearly indicates both how highly
we have prioritized that opportunity and how thorough we are in
Woodside's business practices.
The trust that develops from the Org Chart Process also permits
a candid discussion of sensitive issues surrounding whether an entrepreneurial
founder and CEO can scale. We emphasize the importance of relationships
in our interactions with founders. This attitude, along with the
quality time spent together helps convince technical founders of
the value of partnering to bring in complementary skills early into
We have found Woodside's success directly correlates with the effectiveness
of our Org Chart Process. Woodside has retained approximately 90%
of the original entrepreneurs in our portfolio, while strengthening
management teams early.
Companies In Transition
One of the most difficult challenges in the venture business is
how to affect change in senior management at a portfolio company
without causing major disruption in the company's business or morale.
With the support of the board and the company's cooperation, Woodside
Fund periodically conducts a comprehensive review of its portfolio
companies. The Org Chart Process plays a valuable role in understanding
the strengths and weaknesses of a company and its management team.
Again, a critical element is to be nonjudgmental and respect the
confidentiality of the discussions.
When conducting a company review, a couple of investment partners
spend one to two full days at a company meeting with all of the
mid-level and senior managers. With each individual we discuss the
core competencies of the business and where the company is "less
than perfect." We ask if the person were king or queen for
the day, how he or she would restructure the company and make changes.
We then have the individual go through each member of the management
team and discuss leadership style, strengths and areas where managers
are less than perfect.
After this on-site process is completed we compile a report that
summarizes the impressions of the management team, without attribution,
which we share with the other board members as well as the CEO.
This report provides invaluable insight into the true state of the
business. It also provides a basis to discuss potential changes
in the organization. With the help of this organizational review
process, Woodside Fund has successfully worked with portfolio companies
to affect change with minimum disruption.
Importance of Relationships
As venture capitalists we set out to identify opportunities where
we can invest for superior returns. Success is based on our ability
to find the best companies and make the most impact in helping those
companies succeed. While every venture capitalist will tell you
that the key criteria in evaluating a company are markets, people
and technology, at Woodside Fund we feel that relationships are
at the heart of good investing. In addition to assessing strengths
and weaknesses, the Org Chart Process is a vital means by which
to establish and promote relationships between the investor and
the executive or founder. We feel that the strength of these relationships
is a critical component of our strategy for success.
Vincent M. Occhipinti is co-founder and Managing Director of Woodside
Fund, an early stage venture capital firm formed in 1983. Woodside
Fund attributes its ongoing success to the value it places on building
productive partnerships with entrepreneurs and other investors.
Occhipinti chairs the Early Stage Venture Capital Alliance (ESVCA),
a federation of more than 150 seed and early stage funds. For more
information, go to www.woodsidefund.com.