You claim to invest in companies as an active partner to founders and management – the people that will make your investment successful at the end of the day. Right? Good for you!
Still, your Due Diligence is largely a numbers game, dozens of slides filled with quantitative and qualitative analyses. In-depth descriptions of the business model, customers, market trends, legal matters, investment needs and an array of other financials. And in the end, a single slide where you conclude that the team is “highly experienced with excellent track-record”.
You are not alone. What we have learned from a decade of working with successful and high profile Private Equity and Venture Capital investors is that almost everyone is doing this. But you can do better.
First of all: complement your traditional suite of Due Diligence with a Management Audit.
If you’re looking to invest in a company, use professional advise in order to understand;
– Key strengths, weaknesses and risks connected to the team
– How the members complement each other, how they fit the game plan and where to improve
– How you can assist the team to ensure leverage on the investment
Sure, you can find out yourself by trial and error and through the passing of time, and you probably already have a gut feeling of the status of the current management team. But do you really know which members are task- or people oriented, and is the team balanced in this respect? Do you know if the team complement each other or is totally unbalanced in terms of motivational drivers? And, no – your Management Incentive Program will not motivate everyone, so please do everyone a favour and dig deeper than that.
Doing a Management Audit will prepare the company and its stakeholders for the journey ahead, help avoid pitfalls and unlock potential. “Sounds good, but the management team won´t be up for it” you say. From our experience, they are always up for it. But in the unlikely event they are not, as a serious investor you have two options:
- Turn down the opportunity
- Assess yourself as part of the group. After all you’re a team, right?
So next time you’re contemplating an investment – consider the people who will execute on your mutual plans. And if you already have your dream team in place – assess and learn for the future.