Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast. The Angel Connection is published weekly.
RESEARCH TRIANGLE PARK — Investors will judge the entrepreneur’s ability to pick the right management team. In fact, it is critical to a company’s ongoing success and should be done with regular discipline.
To make it even harder, the requirements for the management team change as the company matures. The team that started the company may not be the one that raises the first institutional round of funding, or leads the company to its first million in sales or merges the company with another in an exit event.
If the investor hears any of the following, red flags will start to wave:
- “Products and services are everything. The business and management stuff is easy.”
- “I will be the CEO for the long haul.”
- “I just want people that can do the job. I don’t care about their personality.”
- “I have some close friends and associates that will help me run the company.”
- “Let’s fill out our management team right away so we have the experience we need.”
They would rather hear is a mature assessment of the needs of the business, then determine what management team is needed to accomplish the near-term objectives of the company. If the investor hears the entrepreneur saying the following, there will be a much more positive reaction:
- “I need people that have business and management experience.”
- “I probably will not be the CEO after our first round of funding.”
- “Personality and ethics are very important. We have to be a cohesive team.”
- “The best way to end a friendship is to hire them into a risky business.”
- “I will hire the right management as I need them.”
In order to determine what you need for your management team, three assessments are needed:
- The skills and abilities of the current management team
- The status of the company and what skill is needed now
- The company’s two-year objectives and what skills will be needed to achieve them
With this assessment and these needs understood, you can determine if the current management team has the experience and capability to accomplish the objectives. The management organization can be changed to realign roles and responsibilities. When additional management experience is needed, a job description can be written easily for the position that has to be filled. This description is then used to identify candidates through whatever recruiting channels are used.
As companies mature, the current management team faces new challenge that it may or may not be able to handle. As a company grows, so must its management team in order to deal with the demands of the business. The worst thing that can happen is to be led by a team that is not experienced enough to manage the day-to-day issues it faces.
Investors know that if such a condition continues too long, the company will lose momentum as too many mistakes will waste resources and require time to perform recovery actions.
The message here is that entrepreneurs must know what kinds of managers they need and when they need them. Investors are looking for foresight of the upcoming business transitions and whether or not the entrepreneur knows the steps necessary to hire the right managers ahead of time.
Entrepreneurs need to pick people who will fit into the company’s culture and who are “A” players. Particularly in early-stage companies, only the best talent should be employed to ensure success. If you are rigorous about picking the right management team ahead of the crisis, you will have the right people to manage through the next transition.
About the author: Bill Warner is the managing partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and the chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast.