Each quarter we survey growth stage CEOs who are running innovation driven companies.  This quarter,  we had more than 60 CEOs responding.  CEOs were running companies in broadly defined technology (software, hardware, semiconductor, telecom), Internet (e-commerce, media, social, entertainment), medical devices, biotech, and cleantech / renewable energy sectors.

A note on methodology.  We send these surveys only to those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies).    All responses were anonymous due to the web-based survey technology employed. The majority of respondents were in the United States, with the highest concentration on the East and West coasts (New York, Boston, and San Francisco/Silicon Valley areas).

For prior survey results from Q2 2010, titled “Impact of Economy and Renewed Growth”, go to http://www.bostonsearchgroup.com/blog/ceo-survey-results-q2-2010-%e2%80%93-impact-of-economy-renewed-growth/ .

ECONOMIC CLIMATE

The first set of questions was around the economic conditions in which each CEO felt s/he was operating.    One question we continue to ask and re-ask over the last six quarters or so targets the turbulence in the macro- economic climate.  It is interesting to compare CEO responses to the same question, “Do you anticipate a double dip in the near term future?”

* In Q3 2009, more than half  (54%) of CEOs polled were expecting a double dip, and planning accordingly

* In our Q2 2010 survey,  again 50% felt a second economic correction was likely, the biggest percentage of those CEOs believing it would be in either Q3 2010 or sometime in 2011.  The other half  of CEOs felt the specter of recession was behind them

* Currently in Q4 CEOs were consistent with prior quarters with a bit more than 50% indicating they didn’t feel a double dip was likely, and the other half of the CEOs saying either a 50/50 probability or greater (16% feeling more likely than not)

So less than 1 in 5 CEOs feel another economic dip is likely.  No CEOs selected the ” greater than 75%” probability.

It’s interesting to do a meta graph of the changing CEO sentiment on this question.  Surprisingly, the graph would be sloping downward, but not as much as many would hope.  The high point was certainly back in Q3 2009, but even throughout 2010, as many CEOs were fearful of a negative correction as those who felt it was behind us.  No doubt this “lack of confidence” index doesn’t inspire the CEO with a swashbuckling, damn-the-torpedoes-full-speed-ahead attitude toward growing their companies.  Rather, it makes CEOs think in short-term windows, perhaps 3 months at a time, with little appetite to make medium or long-term bets.

Those CEOs who felt another downturn was likey referenced several factors that might tip the scales negative–  gridlock in Congress due to midterm elections and likelihood that Democrats lose congressional majority, a belief that a bad Q4 holiday retail shopping was likely, and the persistent overhang of ongoing commercial and residential loan defaults.

As for when another economic dip might occur if it were to occur, the vast majority of CEOs pointed to Q1, 2011, with Q4 of this year and Q2 2011 tying for second at 18% each.

STRATEGY

Almost 50% of CEOs polled said that they had either made a shift in strategy in 2010, or were planning to in the near future.  Granted, growth-stage companies are prone to shifting strategy until they land upon the best formula for significant and sustainable growth.  However ~50% is a big number, and clearly a chunk of those companies have been driven to rethink their strategies because of the challenging economic climate, the concern over the future, and the possibility that 2010 might represent “the new normal” where with no economic “rising tide” no help generated to float all company boats as in periods of economic expansion in the past (1997-2000, 2005-2008, etc).

CASH FLOW

The majority of CEO survey respondents (49%) indicated that they were still planning on burning cash over the next 2 quarters.  24% indicated they would be profitable.  CEO comments regarding this question indicated an overwhelming drive toward cash flow break even.  That was the big push and focus for their companies in 2010, and if they hadn’t achieved it yet, they were gunning to by end of the first quarter of 2011.  CEOs also commented that they were trying to run their companies at break even, with any extra EBIT being reinvested back into the company for additional growth.

COST REDUCTION PLANS

When asked what were the top 3 areas CEOs were targeting for cost reduction, the following table summarizes their responses, representing a combination of spend reduction and staff reduction in non-core areas.  There was a preference by CEOs to favor non-staff cuts over cutting headcount if at all possible, but many acknowledged that in order to make meaningful cuts, staff had  to be considered in the equation.

CEO responses when asked about increasesin spend were logical.  The top three in order were sales, marketing, and R&D.  Many of the comments about this question noted the fact that outside of directly growing revenues, additional spend was hard to build in when many CEOs are driving toward a minimum cash-neutral mandate and economic uncertainties are driving CEOs to think conservatively rather than expansively.

[Click on "more" below for remaining 8 slides and narrative from Q4 2010 CEO survey]

RAISING CAPITAL

The largest segment of CEO survey respondents (40%) listed themselves as having raised capital in the last 12 months, and also planning on raising additional equity in the coming 12.  For those who indicated “other,” most of these CEOs had raised capital quite a while ago (2 or more years ago), were at cash flow positive, and some who were looking at liquidity event in the next few quarters, subject to market conditions.

OUTSOURCING & OFFSHORING

A quarter of CEOs surveyed responded that they were unlikely to ever use/need outsourcing or offshore resources to grow their businesses.

However, almost 70% of CEOs were using some combination of outsourced resources, whether domestic or offshore, full-time or project-based.  Those CEOs using domestic resources were the largest segment at 22%, while those with full-time offshore resources tallied at about 14%.  Nearly one in four CEOs had used contract (non-full-time) outsourced resources in the last 12 months.  A number of CEOs highlighted the fact that although they were users of offshore staff in some capacity, it was difficult to “get right,” and often the experience was less than positive early on in the relationship and took a great deal of work before CEOs could declare it truly accretive.

In answer to where global outsourced/offshore resources were being most utilized, manufacturing, product development, and customer service were the three biggest areas.  One in 5 CEOS (20%)  had already established an international sales presence located abroad.

GROWTH-COMPANY CLIMATE

Do CEOs feel it will be harder to grow companies in the future than in the recent past?  This is a question that many entrepreneurs who look to undertake a new venture (and venture capitalists looking to invest in them) are often quick to ask.

CEO responses were much more evenly distributed than one might think– slightly greater than a third of CEOs indicate “about the same” difficulty, a bit less than a third feel “somewhat more difficult,” and 27% indicating that they thought it would likely be “easier in the next 5 vs. the last 5 years.”  Many of the comments of CEOs responding “easier” pointed to the fact that advances in technology have allowed entrepreneurs to stand up companies for less cash and a lot faster than in years past.   Those CEOs who said it would be harder all pointed to the capital markets, and the medium-term challenges in both raising capital, and achieving liquidity.

DEBT LENDER APPETITE

CEOs were closely split on the question of whether debt has been harder, easier, or about the same to procure in the last few quarters.  37% indicated about the same,  33% responded that it feels worse, and 27% conceded that it appeared easier to get debt now than in the trailing 6 months or so.  However, CEOs commented that even if debt lending had stayed the same or improved slightly in the last six months, over the last year or two lenders have tightened up a great deal, and the lending climate today compared to 2008 is substantially worse.

FEDERAL POLICY IMPACTS

More than three-quarters of CEOs surveyed indicated that there was no impact on their companies due to  changes in federal policy, be it pending capital gains changes, mandatory healthcare, or potential tax increases.  Of those CEOs who did register an impact, the majority (10%) indicated that they would be offsetting any negative impact via headcount reduction.

CEO comments focused on the negative impact of rising healthcare costs as the biggest contributor to any decisions they were considering that were directly attributable to federal policy changes.

EQUITY INVESTOR APPETITE

CEO respondents reported that they saw equity investors as having become more bearish in their investing, with almost 37% holding that opinion.  In contrast, more than 25% of CEOs felt investors appear more willing to put money to work in the next two quarters than in recent past.  CEOs commented that investors don’t want to put money into B rounds, and the investing profile “is a barbell– 259,000 angels poured $17.6 billion into more than 57,000 startups last year, and there are a number of very well funded late-stage private equity firms looking to put $20-$40 million to work per opportunity. But almost nothing in between.”  Other comments indicated that even though investors may be more interested in putting their money to work, those same investors are squeezing valuations harder than ever and their expectations for return are increasingly difficult to meet as an operating CEO.

PRIMARY SURVEY INDUSTRY SECTORS

Of the 50+ CEOs who responded, 25% were running software companies, 16% cleantech, 15$ biotech, 10% interactive media/Internet, and 4% medical devices.  Much of the other 32% of CEO respondents were in the services sector across various industry sectors.

Location of the Companies Surveyed

The majority of responding CEOs were from the New England region (66%), 10% of CEOs’ companies were located in the Rocky Mountain region, with smaller numbers in Northern California (2%), Canada (4%) and the UK( 2%).

We’re often asked how to establish fair market compensation when it comes to CEOs of privately held companies, often with venture capital or private equity backing.

Below is one method that can be employed as a jumping off point for this calculus:

1)     “De-risked,” how much is a CEO worth?  Is  $500 -$1M a year too much?  For our purposes here, we’re talking about a talented CEO.  Not someone below average, but above the average, one that a retained executive search firm, venture or private equity investor, or board of directors would be proud to put in the role.   Rather than pick some arbitrary number, this should be  ”market set,” by looking at what someone working for any global 2000 company (i.e. General Electric or other similar) earns annually.  From our executive search experience and database of compensation comparables in these companies, base salary is usually between 250K and 400K, depending upon how big the divisional P&L responsibility is, there is usually a bonus that is between 50-100% of base, and an LTIP (long term incentive plan) that-once partial vesting begins-can generate from 100K up to 250K or more a year in cash.

2)     So, the cash component of a comparable, including average base, annual average bonus, and yearly LTIP pay-out looks something like this:

Base ~ 300K

Bonus ~250K

LTIP (cash only) ~ 200K

TOTAL: 750K

* This does not include any meaningful RSUs (restricted stock units) that are usually also part of that package, which could add another 200K or more per year in value to a general manager’s package with true P&L responsibility for their division, group, or sector/segment.

* This is also not indexed to geography/cost of living.  If the position is in New York City tri-state area (New York, northern New Jersey, southern Connecticut), San Francisco, Boston, London, Singapore, Hong Kong, or Tokyo, a multiplier factor needs to be used to level-set for cost of living increase required for those metropolitan areas.

3)      Now, back out the cash portion of a CEO’s compensation for the company that they’re stepping into (say 250K a year in cash in smaller companies as all base, or combination of base + cash bonus).  So you’re left with say 500K that needs to be made up in equity, on a per anum basis.

4)      Over how many years is the liquidity horizon (and/or vesting rate, 3, 4 ,5 years)? Let’s say it’s 4 years, at net 500K, equals ~$2 million

5)      Now, this is with ZERO beta risk factor.  Add back the beta risk of an earlier stage company.  Let’s assume a global 200 company equals “1.”  A CEO role in a privately held, externally backed company is not “1″.  It’s probably a multiplier of 1.5, or 2.  For a pre-revenue, VC-backed company with high burn rate, it could be as much as in the 3 to 5 range.  Note that any illiquid company is inherently risky in terms of cashing in any equity at a reasonable price.  Let’s pick a beta risk multiplier of 2.5 times riskier than “average.” So, 2M * 2.5 = 5M.  Note that when there are preferences for the investors that create an exit hurdle rate before any common shareholders get paid, beta risk goes up accordingly unless the CEO participates in any exit event via cash carve out or other instrument.   As mentioned above, a recent IPO that represents a reasonable market comparable netted a CEO who joined the company 4 years ago $20M.  Using this number, the CEO’s compensation was $5M a year, or a beta multiplier of approximately 5.

6)     Then, are there any combat pay provisions you need to add in (warts that a CEO or executive team member is required to overcome and vanquish in their role that are above and beyond the normal call of duty)-reconstituting the executive team, or raising an outside round of capital because existing investors are tapped out, or starting up an Asia manufacturing capability that will require the CEO to take a dozen 15-hour flights one-way to get up and running.

7)      Finally, you have to look at what likely dilution there is going to be to an initial options grant for the CEO.  If you start with a 6% stake in an early stage company in a Series A funding, and you then raise a series B and C, depending upon valuation for those rounds, the CEO will likely end up below 3% as a “fully diluted” stakeholder.  There is an argument to be made that any of the management team critical to the success of the company will be “topped off” at later funding events in order to keep them motivated.  However, there is no guarantee that this happens.  It’s only good business sense to do it.  For the CEO, it is more important what s/he ends up with, not how much with which they start.

8)     Add water, and stir…

Notes & disclaimers:

• * This is not intended to be biased in any direction, to any party, neither CEO candidate, nor company and/or investor.
• * This is only one way of calculating compensation, indeed there are many others.
• * There is no way an earl- stage emerging/growth company will be able to compensate a CEO in all cash, nor truly be able to offset the risks inherent in this stage of venture.  The CEO either accepts this, or is not truly capable of working successfully in this milieu.
• * Other than the impact of cost of living  adjustments to base compensation, each CEO candidate comes with what we refer to as their own subjective “keep the lights on” cash needs.  We calculate this simply as the amount of cash required on a yearly basis to cover their living/family obligations without having to write checks out of savings to cover it.  Some CEO candidates may have 3 children in private school or college, while others may have no children and no mortgage.  Cash needs therefore may range widely, and need to be adjusted for using equity as a “leveler” (less cash-needy, higher the equity, and vice versa)
• * Alternatives to paying bonuses in cash might be to pay bonuses in equity, upon achievement of key milestones for the company
• * This same calculus can be applied to the Vice President level as well, subject to appropriate adjustments downward in cash and equity
• * In a circumstance where there is a “turn-around” required, equity may not be enough of a certainly to attract a competent CEO for the challenge ahead.  In these circumstances, a cash carve-out may be warranted in addition and/or in substitution for a stakeholder role.  The cash carve-out may be just for the CEO, or for the key management team required to achieve the turn-around.  Often, the cash-carve out structure is a percentage of total sale price over a certain amount, with the possibility for an accelerator depending upon exit/liquidity circumstances/outcome.
• * Often the question of anti-dilution comes up in an effort to assure a CEO of a certain percentage of equity upon liquidity.  Granting 5% equity to a CEO at a Series A financing with anti-dilution would ensure that the CEO retained his or her stake across the growth and additional funding needs of the company.  However, this is rarely a good mechanism, as the CEO becomes less interested in new company valuations at subsequent funding events, and becomes misaligned with the company’s investors.

Every few months we survey the innovation-stage community of CEOs with the goal of leveraging our C-level relationships as executive recruiters to generate collective wisdom to share back.    We hope below you find insights that help to run your companies more strategically.

In August, we surveyed our CEO community and had more than 60 CEOs participate.  Thanks to all who contributed.   The theme of this survey was centered around whether a different strategy is required to succeed post-recovery than that which was in place pre-recession.  These CEOs came from those practice areas in which we focus, and included broad based technology companies in the media, software, mobile and telecom sectors, Biotechnology, medical devices, and cleantech / renewable energy.

The 60-plus participating companies were spread across the growth-stage spectrum, ranging from pre-revenue through profitable/shipping product, most being seed-funded through post-Series C, as well as private equity-backed–

To set the stage for the survey questions, when asked when CEOs were expecting the recovery to materially reach their companies, the results were still quite bearish, with more than 50% responding Q2 2010 or later–

Although entrepreneurs are supposed to be eternal optimists, when asked what sort of recovery CEOS expected, again, the majority picked the worst of the alternatives, with more than half opting for a “W” recovery (in graphical terms, a double dip, with the last year starting September 2008 to now equalling the first “u” of the “W,” and another anticipated dip between now and Q2 2010 or later.  Almost as bearish, 28% of CEOs chose an “L” recovery, indicating that they felt “recovery” was really better defined as a flatting out of the downward trendline, but no corresponding upward rebound–

The next several survey questions focused on business strategy.  58% of CEOs indicated that they were not planning on pursuing the same strategy after the recession than before–

In executing on their strategies, CEOs responded somewhat intuitively that sales & business development functions would be two of the most important executive level functions that would help them in executing successfully post-recovery.  Somewhat less intuitively, the third most important functional area ranked was product development–

The last strategy question posed to CEOs was whether - if a majority of the CEOs were executing on a different strategy in post-recovery than pre-recession – did CEOs feel that the same executive team they had could execute effectively on both.  More than a third of CEOs surveyed indicated, no, their current executive teams were not the right teams for their new post-recovery strategies.

As for their companies’ financial condition, 60% CEOs responding indicated they were still burning cash, 15% were cash flow break-even, and 25% were running their companies in cash positive position–

And answering the perennial question as to whether CEOs were planning on raising equity capital in the near future, slightly more than half responded in the affirmative–

In conclusion, the survey pointed up the fact that innovation-stage companies are still very cautious around the economic forecast, have recast their strategies as different from pre-recession in preparation for the recovery, but still have some retooling to do within their executive teams to optimize the chances of outstripping their competitors in 2010.

Thanks again to the CEOs who participated.  Knowledge is power.  Collective knowledge is actionable.

We are often asked to do some executive compensation “ciphering” on behalf of our clients.  Getting an accurate read on market compensation is always a bit of fuzzy math.  You can call around to those you think may know or are in those positions now, you can commission a survey, or dig into some of the executive compensation databases that pre-exist.  We often do all three on behalf of our clients.  However, the below numbers are based on the Dow Jones executive compensation data collected several times a year, targeting venture-capital backed companies in the U.S.  The companies surveyed cover early stage seed-round and Series A, through later funding stages, and companies that are pre-revenue through shipping product and profitable.  From an industry perspective, the below data is an amalgam of all venture-backed industry sectors in the U.S., including technology (software, hardware, services, interactive media, etc.), sciences (biotech specifically), medical devices, cleantech / renewable energy, and other related fundable venture sectors.

For this bit of ciphering, we’ve focused on three executive compensation comparisons involving CEO compensation–

1)     West Coast versus East Coast, and the differences that may exist between them

2)     “Founder CEO” vs “non-founder CEO”

3)     and early stage CEO compensation vs. later stage companies and associated CEO compensation within

This is always an interesting analysis.  Each category of CEO always feels as if the other is getting a “better deal”-CEOs on one coast think it’s likely better on the other, and founders and non-founders often feel the other has a better package.  Similarly, early-stage CEOs are often jealous of the “rich cash packages” that they seem to hear about in later stage companies, and late-stage CEOs always feel that early-stage CEOs get so much more meaningful an equity position than they as “hired guns” seem to be able to garner.

Note that below we’ve only included the analysis of the executive compensation data, in other words the deltas.  If you’d like more detail and the information on which we based the analysis, please email damador@bsgtv.com with your name, title, company and business email address, and we can provide you with the baseline full report.

Do keep in mind that this is only one set of data.  To draw the best comparables, it’s important to do all three data-grabs listed above.  Also, this is a “blended” sample set of all venture-backed industry sectors.  Some industry sub-segments may pay more or less than others with further parsing.

Highlights of the analysis

In the first “delta” table, we took a look at West versus East for early stage start-up/product development focused companies.   What was apparent in this earlier stage company setting was most recently, West Coast early-stage CEOs  on the whole have lower cash packages in both base and bonus. In addition, an equity analysis also returns 1-2% less on the West Coast than East in this data set in the lower quartile and median.  However, in the top quartile compensation range (those CEOs who have compensation in the top 25% of all CEOs surveyed), West Coast CEOs outearned East Coast in both cash (by only $13,000) and equity (a full 1% more).  Another interesting data point is that West Coast CEO’s have more upside in terms of bonuses (an average of 27% of their base compensation) than East Coast CEO’s whose bonuses are an average of 16% of their base compensation.

In later-stage companies where they are already shipping product, West Coast founder CEOs are paid less cash and ultimately hold less equity than East Coast founder-CEOs, except again for the top equity quartile, where West Coast founder-CEOs make up for less cash with +4% more equity on average than East Coast founders.  However,  West Coast bonuses for CEO are 29% of their base compensation while on the East Coast, CEO bonuses are 22% of base compensation.

West Coast non-founder CEOs (hired guns) make more than East Coast in cash only.  Equity is about the same, East vs. West.

On the East Coast in later-stage companies professional president/CEOs are paid less cash and hold less equity vs. similar founder CEOs.

On the West Coast, the pattern that Noam Wasserman at HBS has observed does prove out–  that non-founder CEOs get paid less cash compensation, but hold much more equity than their non-founder CEO counterparts (see http://founderresearch.blogspot.com/)

Below is the hyperlink to our latest CEO peers “speed-survey,” exclusively for growth-stage CEOs.  Topic– “Preparing for Recovery?”

http://surveys.polldaddy.com/s/D3642F14267CCC14/

We at BSG Team Ventures periodically take the temperature of the markets we serve. This speed survey is no more than 10 questions, simple multiple-choice.

Knowledge is power.  Aggregated peer-provided knowledge is “actionable power.”

We make an effort to survey only those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies). [Note, if you don't fit the aforementioned description, please refrain from responding.]

Feel free to forward to the qualified CEOs in your sphere of influence.  The more data generated, the more accurate the trend lines.

All responses are anonymous due to the web-based survey technology employed.

We will forward the survey results within the next two weeks to the email address on file.  Please let us know if there is another email address you wish us to send the results to as well.

Executive Recruiters Boston Search Group and IdealWave Solutions Merge to Form BSG Team Ventures

Bringing Unparalleled Mobility and Social Media Expertise IdealWave Deepens Firm’s Commitment to Building Trusted Advisor Relationships with Clients

Boston – August 1, 2009 - BSG Team Ventures, formerly Boston Search Group, an international retained executive firm serving emerging and high-growth companies, today announced a merger with IdealWave Solutions, a nationally recognized executive recruitment leader in the mobility and convergence sector.  IdealWave couples deep expertise in the enterprise mobility and social media industries with a unique team-based approach that yields quick results with highly personalized service. The combined company, BSG Team Ventures, will be headquartered in Boston, with offices in Silicon Valley, New York and London.

As many other retained search firms are shrinking or closing down, BSG Team Ventures is taking advantage of the opportunity to grow stronger.  The merged entity will be uniquely positioned to identify and recruit top Board Director, C-level and VP-level talent for both emerging and established companies across its now seven practice specialties – mobility and convergence, cleantech, technology and media, medical devices, biotech, education, and not-for-profit.  While the executive search industry has been slow to harness advanced technology to optimize domain expertise, market involvement, and the candidate development process, BSG Team Ventures has turned to innovative social networking technologies to cultivate a large and growing community of mobile industry executives working for some of the most high-profile companies in the world.

“Combining forces to create BSG Team Ventures marks the beginning of an exciting adventure and a natural evolution for our business. With BSG we have found a partner whose commitment to innovation, client service, and results mirrors our own,” said Mathew Corbett, founder and managing director, IdealWave Solutions.  “I look forward to drawing on our combined 17 years experience in retained search and mobile industry expertise to grow the firm, provide increased capabilities to our clients, and expand into new markets.”

INmobile.org: Engaging the Global Mobile Community

The brainchild of Corbett, a longtime social media evangelist, INmobile.org is one of the largest industry-specific social networks on the Web, comprising more than 2,500 mobile industry executives who gather in one place to learn, share ideas, and network with peers.  Combining online networking with offline executive receptions at top mobile industry conferences, INmobile.org is both a key facilitator in helping BSG Team Ventures’ clients stay abreast of market and technology trends, and an invaluable tool in keeping BSG Team Ventures fully engaged with top leaders and decision makers globally.

The mobile industry is especially well poised for continued growth.  “Even more exciting than the internet phenomenon is this mobile phone phenomenon,” according to Dr. Eric Schmidt, CEO of Google, in a speech given to the Economic Club in 2008.

“Our merger with IdealWave comes at a pivotal time for our firm as we look to expand to new markets and set the highest bar for innovation in the executive search process,” said Clark Waterfall, founder and managing director, BSG Team Ventures.  “With decades of combined executive search and strategic organizational development experience, we’re confident that together with IdealWave we can continue to achieve the highest levels of client satisfaction in the industry.  We couldn’t be more thrilled with the addition of Matthew Corbett and Mark Newhall as partners to the firm.”

About BSG Team Ventures

BSG Team Ventures is an international leader in retained executive search and human capital consulting for emerging and high-growth companies. Its mission is to build deep, trusted-advisor relationships with its clients, and to do so with a keen appreciation for the unique requirements of entrepreneurial ventures.  Via its presence in Boston, New York, Silicon Valley and London, BSG Team Ventures has completed hundreds of leadership searches on behalf of its clients in its practice specialties that include technology, media, cleantech, biotech, medical devices, education and non-profit.

About IdealWave

IdealWave is the leading executive search partner for companies involved in or effected by mobility and convergence. Established in 2001 and headquartered in MA, IdealWave has worked with many of the most exciting companies innovating within mobility and convergence. The company was launched by Matthew Corbett and Mark Newhall.  For more information please visit www.idealwave.com.

Contacts:

BSG Team Ventures

Clark Waterfall: Managing Director cwaterfall@bsgtv.com

Matthew Corbett: Managing Director mcorbett@bsgtv.com

Address: 224 Clarendon Street, 4^th floor, Boston, MA 02116

www.bsgtv.com

As CEO, when do you predict the market conditions to take a turn for the better?

When CEOs were asked whether they were still seriously considering cuts in Q2, 2009, more than 25% of the early respondents answered affirmatively.

As CEO, are you seriously considering further downsizing in Q2 2009

We will post the rest of the survey responses in the next 10 days or so, and will include updates in the interim.

Scott Griffith, CEO of Zipcar (www.Zipcar.com).

Scott has been CEO of Zipcar from it’s angel funding stage more than 4 years ago to today, growing the company through several rounds of venture funding including investors Benchmark and Greylock and a recent merger with FlexCar that broadens Zipcar’s offering to more than 10 cities, both here in the US as well as the UK.

Jill Smith, CEO of DigitalGlobe (www.Digitalglobe.com)

Jill has been CEO of several companies, including venture-backed eDial ultimately sold to Alcatel, and COO of Micron Electronics, a $1.5B PC manufacturer. All of this ultimately led her to take the CEO role at DigitalGlobe 3+ years ago, an imagery company providing both satellite and aerial imagery for the likes of products like GoogleEarth, the U.S. Government and other mobile, commercial, location-based services companies, and nations around the world interested in geospatial information management.

Jim Mahoney, CEO of Novomer (www.Novomer.com).

Jim early in his career was an executive at Baxter, then moved into several general management & CEO roles in biotech including CEO of SurfaceLogix. Recently Jim has taken the helm as CEO of a cleantech-renewables industry start-up targeting green chemistry funded by Flagship Ventures and several others.

In recruiting these three to the panel, we were looking to find three veteran CEOs who had been in both public and private company settings, had assembled experience in CEO positions across the growth stage spectrum of technology and science-driven companies from seed-stage funding through S1/IPO. Also, we wanted to assemble CEO panelists who had been in the CEO chair a number of times, and thus had experience with a number of boards-boards with founders on them, venture capitalists and other investors on them, as well as outside and strategic investors.

The podcast below is the audio from the evening offering some thoughtful input and CEO-to-CEO questions and answers from the audience.

The audio last a bit more than 70 minutes, and you can graze it by streaming it here, or download for car, train or plane ride listening.  Enjoy.

Venture-backed CEOs talk about Best Practices in Board Management

Given survey responses, it appears the bell curve peak is in the 20-40% reduction in headcount.  The group of CEOs who indicated these reductions were approximately half of the 60 CEO respondents.

• •    40% or more staff reductions? ~ 10% of total CEOs surveyed
• •    Less than 20% staff reductions? ~ About 17% of all CEO respondents

Winner on this question was “more than 9 months,” with more than 40% of the CEOs.  Runners-up were the “0-to-6 months of cash” CEOs, evenly split with 25% saying 3 to 6 months, and another 25% saying “less than 3 months.”  What this may indicate is that there is a bimodal distribution of funding in the market –those who are well-funded, with 9 months or more, and those companies who are running out of cash (popular definition = less than 6 months of cash remaining).  This is reinforced by the fact that very few companies responded that they had 7-9 months of cash (less than 10% of companies).  Therefore, one might imagine that those companies who are shortest on cash are also those who are making the deepest cuts in staffing.  In addition, that there may be another round of cuts in store for those low-cash companies if they can’t get another round closed soon.

Top implied answer here?   Don’t raise a venture round in 2009.  And this is what the largest slug of CEOs responded with (33%).  Of those who are going to try to raise in 2009,

• •    one-third of CEOs see a flat round
• •    16% feel they’ll get an up round
• •    and almost half (45%) are predicting a down round

Winner for this question shows some great optimism however, with about 1/3 each of the CEOs responding answering with either “revenues up 1 to 25%”  or “Up more than 50%.”

There was an intentional effort to get a fairly even distribution of venture-backed CEO respondents for this survey, to try to avoid sector bias.  We were fortunate to have at least 10% (6 or more companies) from each of life sciences / biotech, medical devices, and the cleantech sectors.  Software/Internet/telecom was the largest category represented, with 42% of CEOs hailing from this sector.

BONUS SLIDE

Q: If YOU could survey your peer CEOs, what question(s) are both urgent AND important to running your business you’d like us to consider asking in future polls?

This was one of the most rewarding questions for which to see the responses.  Fully half of the CEOs polled had a question they’d like to pose to their peers, and some CEOs had several.  Below is a partial list of questions we’ll choose from in follow-on surveys.  If any of those CEOs would like to respond individually to any of the questions below, feel free to post a comment on this blog entry and we’ll post it for public consumption (clustered by general question subcategory as well as by industry sector).  Of course, the winning question asked by one of you CEOs, just to validate that venture capital-backed CEOs are-if anything-self-aware, pragmatic, and not fatally over-optimistic:

“What will CEOs do if their company fails?!”
1.   Cost-related questions

• •    Approaches or success stories in restructuring debt to the company’s advantage.
• •    Is it better to reduce headcount 20%, go to a 4-day work week, or reduce salaries by 20%?
• •    In addition to headcount reductions (if any), what type of expenses are you reducing?  Are you delaying new projects/initiatives?  How have investors reacted to this?
• •    Will you consider outsourcing some of your product development to make cost variable, at the expense of some know-how then being outside the company?

2.    Sales/Marketing/Revenue-related questions

• •    How are you using the economic downturn to improve your business position/model?
• •    What are you going to spend more money on in 2009 than in 2008?
• •    What changes in the sales cycle are you seeing in the last 6months, 2 months, currently?  What does the resultant trend point to for 2009 and what actions are you taking in response?
• •    How has your visibility into the level of future business changed in the last 3-6 months?Asked another way – what level of confidence do you have in your current forecast of business?
• •    (1) What emphasis do you place on marketing in your organization? (2) What do you consider the top 3 most important elements of marketing to be?
• •    How will you as CEO deal with longer term rate issues if you are a service business as it seems all labor rates are being pushed down?
• •    The number one reason why clients buy your product is? (cost, quality, service, other?)

3.    Funding/exit/valuation questions

• •    Are you finding lending lines out there?
• •    If an acquirer made an offer to buy your company today, but at a multiple less than what it would be in a strong economy, would you consider it, or wait until the economy improves so you could get a higher valuation?
• •    Are you considering merging your company with another? Are you looking at merger partners as a legitimate exit option in 2009?
• •    Are you looking to current investors or new investors for additional rounds of financing?

4.    Board of Directors/investor-related questions

• •    How will venture capital investing change in 2009?
• •    What is your satisfaction with your Board’s ability to fundraise in the future? (I think the current environment highlights a board’s function as protector of value through fundraising and too few board members are good at it)?
• •    Compensation for outside board members?

5.    Staffing/talent questions

• •    How are you balancing full time versus contract employees?
• •    How are you retaining employees during these tough times?
• •    What kind of retention ideas have you considered to make sure your key folks don’t bail for a more stable environment?
• •    What skills are you as CEO still looking to hire?
• •    What do you do to conserve cash? attract customers?
• •    How many of you CEOs have proposed reducing people to part time levels and adding equity compensation instead of releasing them all together?

6.    Economy-related questions

• •    When do you predict the market conditions to take a turn for the better?

There a few industry-specific questions CEOs wanted to ask their peer as well:

Life sciences/biotech-related questions

• •    What kind of deal structures are you seeing in liquidity-directed partnerships? What kind of partnerships, if any, are you envisioning for discovery stage assets?

Medical devices-related questions

• •    How do you expect reimbursement to be influenced during the next administration?