I was recently asked to join an investor panel, and we were presenting to other investors about how we perform due diligence on a company’s management team. As you may know, investors 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 was 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 and team. Investors today want to see diverse perspectives and experiences, complementary skills, and a history of everyone executing well. Even better is if you and your team have a history of successful exits 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, i.e., product engineering, science, or clinical. Have you brought together the right subject matter experts?
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 want to know if you are who you say you are and can do what you tell them you can. This is part of the trust-building process.
This important ingredient is more nebulous, hard to control, and centrally critical to initiating, building, and maintaining relationships with your board/investors. You need chemistry or a connection to the people 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 a sense of camaraderie and connection helps. Ideally, you would like this feeling to be mutual.
Most investors have a leadership team scorecard – it can be on paper or in their head, but you need to remember that they have it. The investors will use this scorecard to evaluate you and your team. Knowing this will make it easier for you to prepare and 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 seek. Remember, your investors are just as excited about your technology as you are and want to foster your success in any way possible. 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. In investor meetings, you and your team must demonstrate cohesiveness and alignment. You want to rehearse who covers what in the presentation and ensure 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 can work through hurdles and obstacles and deliver as promised. They want to know that you and your team will navigate through and around the inevitable roadblock and come out winning.
Investors, like executive search people, have the advantage of seeing many companies succeed and
fail. This “cat-bird” seat provides perspective and knowledge of what a winning team/technology/execution looks 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.