I was recently asked to join an investor panel, we were presenting to other investors, about how we perform due diligence of a company’s management team. Investors, as you may know, evaluate three categories when considering an investment: The technology/service, the size and feasibility of the market opportunity, and the team leading the execution. What was most interesting to notice was how much weight is given to the team, it is more than 1/3 of the consideration. Furthermore, this evaluation extends beyond the basic skills and abilities of the members. Think of a ladder – each rung is important and necessary to climb to the next rung. Evaluation of the team is the bottom rung, and often the sole go-no-go decision point.
Can You and Your Team Execute?
The first element investors look for is competency. Which can be tricky to assess because competency can be situational. All people do not do well in all situations. The investor compares the stage the company is in and the skills required to advance the product/service to the skills of the CEO plus team. The investors, today, want to see a diversity of perspective and experience, complementary skills, and a history of everyone executing well. Even better, is if you and your team have a history of successful exit or outcomes in a previous company. The investors will want to know how well you know the industry, how well you have identified the problem, and who on your team is an expert in their area ie product engineering, science, clinical. Have you brought together the right subject matter experts?
Trust
Next investors look at character – Who are you? Do you possess and demonstrate intellectual honesty? How open-minded are you to hearing feedback? How do you process information and incorporate it into learning and growing? How have you demonstrated grit and resilience throughout your career? Can you find your way out of tough problems with finite resources? What is your reputation/brand in the industry? Your narrative needs to be tight, and honest. If you have had a misstep by making a poor choice, own it, discuss what you learned from it, and how you have integrated this knowledge into your current decisions.
Investors, unlike employers, can and will do a deep dive into your history, often working informal networks of people they know, met, or are introduced to as part of their process of discovery and diligence on you and your team. They simply want to know if you are who you say you are and can do what you say you can do. This is part of the trust-building process.
Chemistry
This important ingredient is more nebulous, hard to control, and centrally critical to initiating, building, and maintaining relationships with your board/investors. You need to have chemistry or a feeling of connection to the people you are backing you with money and other resources. Not only do the investors need to trust you, but they also need to feel some affinity for you and your team. You want to leverage your board and their resources, and having a feeling of comradery and connection helps. You, ideally, would like this feeling to be mutual.
The Process
Most investors have a leadership team scorecard – it can be on paper or in their head but know they have it. They will use this scorecard to evaluate you and your team. Knowing this ahead of time will make it easier for you to prepare and to identify gaps/lapses in your team/strategy/company. It will also allow you to hire team members with the right skills and abilities. When building your team it is wise to integrate what investors will be looking for. Remember, your investors are just as excited about your technology as you are, and want to foster your success in any way they can. They want to see you win.
One Last Thing
Likely the most important and least looked at by investors is how well your team works together and collaborates. When in investor meetings you and your team must demonstrate cohesiveness and alignment. You want to rehearse who covers what in the presentation, and make sure that you are all on the same page concerning strategy and goals. The investors are keen to know how you work as a group through solving problems, how well you respect each other and your differing points of view, and how you ultimately come up with the best solutions. This demonstration will foster confidence in your investors that your team will be able to work through hurdles and obstacles and still deliver as promised. They want to know you and your team will navigate through and around the inevitable roadblock and come out winning.
Investors have the advantage, like executive search people, of seeing many companies both succeed and fail. This “cat-bird” seat provides perspective and knowing what a winning team/technology/ and execution looks like and feels like. Adopting their view will only enhance your success – if you want to go fast, go alone if you want to go far, go together.
I hope these insights were helpful to you – and I love to hear your feedback. Feel free to email or call me if I can be of service.
What Investors Look For in Leadership Teams
