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4.2 What Investors Look ForGood Management — Essential Requirement for InvestorsRisk 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 ApproachThe 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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"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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