More than you may realize!
I am a serial Entrepreneur/CEO and over the years I have raised over $50 million dollars for my companies. I raised these funds from a variety of investors including Angel Funds, Venture Capital and Private Equity firms, and Strategic Partners, through countless pitches at venture fairs, investor offices, and corporate HQ’s. I eventually succeeded… but had to suffer through more rejections than a person selling ice cubes in Alaska!
Now, as an Angel investor, I sit on the other side of the pitch. It has truly been an eye-opening experience, and my perspective has changed dramatically now that my own money is on the line. Investment diligence is a complex process and there are certainly many things that investors consider, but I have learned that there are three main factors that will motivate us to open up our checkbooks – the product or service, the market opportunity, and the management team.
I used to think it was all about the product or service. All of the usual buzzwords come to mind. Is it “disruptive”? Does it solve a “market pain”? Is there “product-market fit”? While this is necessary to building a successful business, I have come to realize that having a great product or service is only about 30% of the investment decision.
I also used to spend a lot of time and energy considering the market opportunity. How big was the market niche I was targeting? Who were the competitors? What were my differentiators and competitive advantages? Could I achieve a big enough market share to make enough money for a successful exit? Again, while this is extremely important, and investors want validation that a real opportunity exists… I have now come to believe that market opportunity only represents about 20% of the investment decision.
My biggest “aha” moment, however, came when I realized that, at times in the past, I didn’t spend enough time considering the makeup of my management team. I now understand that the management team is often the most important factor that investors consider when evaluating an investment opportunity. I now believe that this factor represents the remaining 50% of the investment decision! Entrepreneurs take note - be conscious of the fact that investors are evaluating you and your team as much as what you are saying and the information you are presenting.
Why is the executive team such a critical factor in achieving success? In the end, it’s all about execution. You can have the best product/service in the world, in a massive market, but if you don’t have a management team that can deliver - preparing successful strategies and executing against a business plan - the business will inevitably fail. It’s the people that make a business successful, and it’s those very same people that will make money for their investors. So, think about the composition of your management team and the skill sets they bring to the table…. and think about that person selling ice cubes in Alaska – maybe you should add him/her to your team!
J. Gary McDaniel, TCV Partner