When an investor looks at a management team, how does he decide if it’s A, B or C grade?

Awhile ago, I wrote a piece entitled, Great Ideas and Great Teams. The key messages of that piece were directed at the extent to which the team really understood the target market and how to capture it.

The seven core elements against which an investor would form a judgement in this regard were listed as:

1. A cornerstone value proposition which has been validated by the target market.
2. A deep understanding of the addressable market – its size, demands, supply chain, industry dynamics and politics.
3. Thorough competitive analysis – who do you have to beat, who might you hurt and what will they do about it. There is no such thing as “no competition”.
4. A bottom up financial model built upon established market validation and proven traction.
5. An execution plan with both strategies and tactics articulated and supported.
6. An understanding of existing strengths, weaknesses and risks and a plan that builds on strengths, addresses weakness and mitigates risk.
7. An understanding of who will want to buy the business once it achieves its planned milestones (ie. how you will make money for the investor).

While that understanding is crucial in discriminating quality opportunities from false dawns, what’s missing from this thesis is sound organisational and operational management.

As impressive and important as the above attributes are, if you and/or your key people do not understand how to develop management systems and processes, there is a risk that the business could drown itself in success.

It’s not uncommon to find businesses with rapidly growing revenue lines where the entrepreneur has been a prime mover in generating business and has hired people to cope with task level demands, without thinking through how the team is managed and how the organisation is structured.

Typical symptoms of this scenario might include:

• Poor or non-existent job descriptions (no KPI’s and no success metrics).
• Lack of clear responsibilities and accountabilities.
• Indispensable personnel (if she disappeared we would have no idea how to…).
• Lack of documented and/or poor adherence to processes and procedures.
• Staff morale problems.
• Limited visibility of core company performance metrics.

During a due diligence investigation these sorts of issues can be observed relatively easily by a seasoned investor and they raise concerns about the competence of management to pilot rapid growth.

Before seeking investment capital, take an honest look at your operation and ask yourself if you believe you have the organisational maturity to take investment dollars and rapidly grow your business. If you have any doubts about the capacity of your organisation to scale, make sure you satisfy yourself before you try to convince someone else.

For more Funding expert advice, click here. 

 Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology-based businesses.

 Got a question for one of our Experts? Choose one that suits your area of inquiry and send it in to asktheexperts@smartcompany.com.au.