To understand why some innovation-driven portfolio firms benefit more from venture capital (VC) funding than others, I explore the salient phenomenon of founder CEO exit. Integrating institutional logics and psychological contracts theories, I propose a meso-level theoretical framework that identifies and explains how an institutional logic of new venture professionalization shapes suboptimal founder CEO exit strategy in portfolio firms. Founder CEO exits may enhance institutional legitimacy, while also fostering contentious relational dynamics that undermine trust and cooperation between founders and venture capitalists; spill over to affect observers; and contribute to a negative sociopolitical climate within portfolio firms. I derive and test hypotheses about the paradoxical effects of founder CEO exit on portfolio firm performance over time and likelihood of failure, including how the conditions of exit – namely, the timing and nature of the exit event – influence those outcomes. I use growth modeling and logistic regression to analyze a unique panel data set of 182 high-technology portfolio firms, founded 1990-2010. Despite mixed empirical results, I found overall support for my proposition: Rigid implementation of founder CEO exit strategy in portfolio firms may improve some short-term metrics of performance (i.e., valuation), while imperiling other longer-term outcomes (i.e., profitability and odds of survival).