What Do Investors Look for in a CEO?

Recently, we asked nearly 100 investment professionals to tell us more about what makes a successful CEO and partner.

Q: What functional background do you most prefer in a new CEO?

• Operations (49%)
• Sales (32%)
• Finance (9%)
• Marketing (5%)
• Product (5%)

Many CEOs who have never worked with private equity worry that investors will look to take over the business without any consultation from the business owner or management team, but this anecdotal data seems to suggest otherwise. These investors actually are looking for a partner — someone who can bring their operations experience to the table to improve customer experience and company culture.

Q: Do you prefer to partner with CEOs who are also founders?

• Yes (49%)
• Doesn’t matter (43%)
• No (8%)

Perhaps some investors may prefer to work with founders as they deem them more motivated to see their company succeed, no matter the work involved. Or perhaps they find founders more connected to the mission of their company and therefore more edifying to learn from. Other investors don’t see a difference between founders and non-founders — the 43% of respondents who answered “doesn’t matter” likely see wide variations in personality, motivation level, and leadership style among founder and non-founder CEOs.

Q: When investing in family-run businesses, does working with a CEO who is part of the family make things harder?

• Yes (60%)
• Doesn’t matter (35%)
• Less difficult (5%)

We’ve written before about some common issues faced by some family businesses, and investors have probably run into them before as well. However, just because it can be a bit trickier to work with a family-run business doesn’t mean investors aren’t for the challenge.

Q: What are the most common points of friction when partnering with CEOs?

• Unrealistic valuation expectations (56%)
• Cultural misalignment (16%)
• Lack of strong management team (13%)
• Deal fatigue (9%)
• Transition planning (3%)

Misalignment of valuation expectations is a frequent deal snag. If you’re a CEO, check out our 5 minute DCF valuation calculator before you meet with potential advisors or investors.

Q: What are the most important qualities a CEO can possess?

1. Industry-specific experience
2. Prior CEO experience
3. PE-backed experience
4. International experience
5. A college education

Investors don’t care much about formal education — it’s on-the-job experience they’re after, particularly experience as chief executive (even better if it’s at a company owned by PE).