Why is it acceptable for the Founder/CEO to continue leading the company at 40+ employees but not acceptable for the engineer to lead an engineering team at 40+ employees? Seems like a double standard.
It is a double standard, but however it's hardly that cut and dry.
Post Series B, if the board does not believe the current Founder/CEO can take the company to the next milestones of growth, they will replace them.
Typically engineering teams need to scale sooner, so you you see a more experienced manager be brought in before the CEO is considered for replacing.
The CEO may also has the additional benefit of having the investors and board help him or her in their decisions.
EDIT:
balls187 suggests they know how to make money--which is perhaps true, but not necessarily in your field of endeavor or business, unless you've picked them.
kelnos is closer to it, which is that the board tells you what to do because they're the board and that's the power you've granted them.
Again, in neither case, do we actually need to assume they are making the best or even informed decisions. There are some great stories of boards I've known locally suggesting really dumb things that hurt and even killed companies.
You've got to keep the charade going: keep them writing checks and thinking their input is valuable.
So glad we're bootstrapped.. we're not doing millions a month in business, but we don't need to.. we've been profitable for nearly a decade, a SaaS service since 2002, and we do about 100k/mo in revenue. Pays the bills, pays our people, and we're all so much happier with life.
Well, this just isn't true at all. Many companies have very high costs up front due to the nature of their business. This is especially true in hardware startups, but can also be true in software startups.
This is a generalization, but I think owners get their priorites mixed up when they are sitting on millions in free money.. their burn rate is insane.. they spend money on the wrong things, etc.. fancy offices, whatever, and they aren't even profitable. We work from home, and share a co-working space as well as an office with 2 other companies..
Office life is over rated and is a giant waste of startup funds. =/
EDIT: The only benefit of working at startup (and a significant one) is to learn how startups work. If thats taken away from you then there is no point in risking your career.
However, for all other roles in the company, the important thing is having the experience to scale and lead that part of the company: sales, marketing, product, support, engineering. When the company is young, those roles will be filled by allrounders: people a few years experience who do everything in that area. As the company grows, you'll want to hire VPs who have the skills to lead those areas, often people with >15 years experience as a practitioner and/or leader in those areas.
It's not just engineering: you want a VP of Sales, a VP of marketing, a VP of product, etc. Those people will have the skills to take your existing sales/marketing/product/engineering org, and scale it without damaging it. If you have that skillset in your engineer #2, than it would make sense for them to do that role, but it's unlikely that they do, and certainly doesn't seem like it in th OP's case.
Chances are the Founder/CEO has a controlling share of the company's stock.