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Steps to Growth Capital Self-Study GuideStep 4

Self-Study Guide

Step 4:
Demonstrate Your Management Capabilities
Introduction
What Investors Look For
Describe Your Track Record
Prepare Report Cards for Investors
Assess Your Managers' Abilities
Strengthen Your Management Team
Determine Your Competitive Advantage
Action Items
New Tech Case Story
Investor Readiness Test
Fast Track to Growth Capital
Steps to Growth Capital: The Canadian entrepreneurs' guide to securing risk capital
Resources   Glossary   Index/Search   Comments   Steps Home
Step 1

4.2 What Investors Look For

Good Management — Essential Requirement for Investors

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See what venture capitalists say.

Risk capital investors are like seasoned bettors at the racetrack. They would rather have a great jockey (management team) and a good horse (product/service) than a good jockey and a great horse.

Why do investors put such a high priority on the management of a company? Because a weak management team is the downfall of many businesses. The emphasis on "team" is critical. Investors don't care too much for one-person operations, no matter how savvy they might be.

Investors Prefer the Team Approach

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The members of your management team may be experienced and knowledgeable, but do they have the key ingredients of a good management team?

Investors will want your business to have a management team of, say, three to six executives. This way, all the important aspects of your business — production, marketing, finance, human resources — get the attention they deserve. And the team can survive the loss of a key person.

Investors are looking for a good management team. That means a talented and diverse team with an effective structure and clear roles, and good communication, decision-making, and consensus-building skills.

For more details, see Key Ingredients of a Good Management Team.

What's Wrong With a One-Person Show?

If the success of the business rests on one person's shoulders, what will happen to the business if a serious illness or tragedy should occur? Can one single person manage all of the key functions of a rapidly expanding business? Unlikely.

Many companies are founded by visionaries who have great ideas and great dreams. But if those dreams aren't backed up by strong implementation, the accounts get into a mess, the staff is left to their own devices, obligations are forgotten, and clients get turned off. And, while one mistake or problem area won't usually bring a business down, it's often a sign that there are problems on the horizon.

Investors want to be assured that the company has a strong management team that can weather the loss of individuals and respond to the challenges of growth.

 

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Tips

"Venture capitalists say they prefer a grade A entrepreneur with a grade B business idea to a grade B entrepreneur with a grade A idea. And it is generally a strong management team not a lone entrepreneur that they back." (Pratt's Guide to Venture Capital Sources.)

*A. Dingee, B. Haslett and L. Smollen, "Characteristics of a Successful Entrepreneurial Management Team," Pratt's Guide to Venture Capital Sources (New York: Securities Data Publishing Inc., 1996), p.23.

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Question Icon Key Ingredients of a Good Management Team

Good chemistry is an essential quality of an effective management team. A team is more than just a group of people who all want the same thing. The people in a team will support and help each other, tackle problems together, appreciate each other's strengths, and believe in each other's capabilities.

Here are some other factors that can help your management group become a tightly knit team.

Team Diversity
Your management group should have a good mix of personal values and professional experience, skills and abilities. And they should appreciate each other's points of view.
 
Clear Roles
The roles of team members should be clear to them and to everyone else in the business. An organization chart is a good vehicle for showing the relationships among your team members.
 
Effective Decision Making
Team members should have the ability to come together to make important decisions in a timely way. It's important that no one person always prevails, that it doesn`t take agonizing hours to make decisions, and that meetings don't become watered-down just so agreement can be reached.
 
Good Communication
Team members should place a high value on exchanging views, consulting each other and keeping each other informed. The climate should encourage asking questions and showing respect for the ideas and comments of all team members.
 
Other Ingredients
Your management team needs strong leadership. Team members need to be competent, resilient, innovative and, above all, capable of reaching the company's goals.
 

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Updated:  2005/07/12
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