Blog

Seeking Investment? It's the people that count

Jonathan Gold

13 Aug 2015

There is a recurring theme in what makes a successful business. It's the people involved. When you hear about a terrific new start-up or amazing growth success what everyone wants to know is the founder's story. The product is often taken for granted.

Perhaps this is just natural as the media love a good interview. If it's a household name such as Google everyone knows what the product is and think they know the business. They want the story on Sergy Brin and Larry Page.

It might also sound obvious but it is often neglected by new entrepreneurs and business owners seeking investment, that people are the key. We invest in the business but what we look for is the right founder and management team.

One of my favorite studies of the factors that venture capitalists look for in a potential investment was carried out in July 2000, and it is still very relevant. The study: 'Tradeoffs in the investment decisions of European Venture Capitalists' by D.F. Myzka and S.Birley summarised the point very well. In short, in their survey of around 160 venture capital investors across Europe the top 5 decision criteria of a total of 34 metrics used by investors were all to do with the entrepreneur founder and the management team.

That's not to say that the product or service is not important, of course it is, but it is the founder partners and senior team that make the business work. It's the determination of the entrepreneur that carries on when the original business plan assumptions are found wanting or the market turns against the enterprise.

What's true of success is also true of failure. Small businesses and start-ups fail. Up to 40% of start-ups, as I have discussed before, don't last. When the causes of failure are examined the most common factor is management competence or lack of it.

So what conclusions can we draw from this information and data from the last 50 years of the modern era of venture capital? Well, the founder really matters to the business. If you are that entrepreneur do you know, I mean really know, your strengths and weaknesses? Have you ever had or completed a skills, aptitude or personality profile? If not have a go, but then act on what you know or find.

Find a business partner to share the joy, pain and success of the business. I have two in Rivers Capital: John White and Peter Hiscocks and after knowing both of them for around 10 years they are the internal mentors and fountain of knowledge that has helped build the business.

When you are talking to investors, be clear about the skills you have and also the gaps in the team you have yet to fill. There is nothing wrong with being a lone founder entrepreneur, but the best are already planning the team they need on the board and in the wider business.

Also, take care not to clone yourself. As attractive as that sounds you want people around who compliment your skills and cover your weaknesses, not duplicate them. It's all too obvious at times when I meet the entrepreneur's team, either all of them are vocal front people or all quiet and detail focused. I exaggerate to make a point, you need a good mix of types.

In the end of course, I see a lot of businesses seeking cash and we work with a lot of great entrepreneurs and management teams.  When it comes together it's a pleasure to behold.

Our approach here at Rivers Capital is to enable the founder to build the business, whether it's a start-up or more established. I'm not expecting the team to be perfect or the founder to be the most experienced business leader. We can help, however some self-knowledge and analysis pays off and also helps you stand out from the crowd. We do really invest in the people even if the cash goes into the business.


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