Two weeks ago, I was on a panel at the Judge Institute in Cambridge. The event focused on about what early stage investors and seeds look for in companies.
Max Bautin, partner of IQ Capital Partners, presented a summary of what he looks for when performing due diligence on chief executives and management teams. Here are some of his thoughts:
- The team must have a clear understanding of the financial side of the business and a firm grasp of the numbers
- It is better to work with self-starters – people who can get things done – rather than ‘PowerPoint Man’
- Executives should be experienced, with a successful track record – no ‘B-graders’
- Executive remuneration should be aligned with the investors. The focus should be on modest remuneration at the early stages, with substantial equity upside
- It is best to avoid family relationships in business and the complications that come with them
- It is best to avoid the so-called ‘Technical Stranglehold’ – people who only drive their businesses through technical development, rather than market insight
- It is never a good idea to have executives coming straight from a large company. They are too accustomed to a large infrastructure and cannot always work successfully in small, entrepreneurial environments with a greater need for self-starters
I’d like to add a further criterion to this excellent checklist – Do I like the person?
As an early stage investor, I usually plan to deal with these people for at least 6 – 8 years, so it is important to make sure that I can respect and work with the team over as long a period as I can envisage.