Lets make a slight qualification to this post before going any further. Obviously, investors will focus their attention on opportunities that meet their criteria for industry, technology, profit potential, and so on. But after they pre-qualify the opportunity to be in the ball park so to speak, what is the most significant criteria there after that most equity investors and their advisors will apply against potential opportunities?
Answer… Strength of the management team.
And even to get more specific, the presence of some one or a team of some ones that has been involved with a similar opportunity in a similar industry with at least one other company at a similar stage in its life cycle, and successfully led these past organizations to not only meet the expectations after capital investment, but also were able to orchestrate a profitable exit strategy.
Most investors are looking to get in and get out in 5 years or less and at least double their money in the process to provide the minimum return expectation. So not only do they want someone at the controls that knows how to get things done right off the start, but also someone who knows how to cash out profitably in a reasonable amount of time.
So basically, investors are looking for a tangible financial score card that clearly shows what the key personnel have delivered in the past, and hopefully delivered more than once. Sure, holding high senior positions in profitable companies and having an impressive set of academic and professional credentials can help build the case for competent management, but if there isn’t proof of making things happen and delivering returns directly from their leadership efforts, then investors are likely to pass.
There are a number of reasons why this makes a lot of sense.
First, there are all kinds of senior managers out there that may be highly skilled at what they’re area of expertise is, but have no real experience of managing in a more raw and non linear start up or growth environment. And the business landscape is littered with all kinds of examples of high priced executives that flamed out on ventures funded with other peoples money.
Second, there is a definite learning curve to managing a fast moving venture with high expectations and lots of moving parts that have to come together quickly or fall apart. There are many executives that are capable of moving into an existing position and improve upon it or take it to the next level. But its not the same experience as building something from nothing.
And here’s something else to consider. Not only is the past management track record the most important equity financing criteria, but in many cases its at least 70% of an investors decision to proceed with the opportunity or not.
So before you spice up your presentation for the next group of equity investors you want to get an audience with, make sure that you’ve got someone you can bring along that has the type of track record to close the deal.