23 Jul Beyond the cliché
Every other month, we sit down as a team for a day to review each of our portfolio of investments – 23 businesses now. It’s a chance for the Investor Director in each business to gather some views from the rest of the team that are less involved. It helps us to get different perspectives and challenge ourselves about progress, risks and opportunities for each business. But is also gives us a view on how we are performing across both selecting and helping the businesses. As a result, we always end up changing or finessing some aspect of how we operate.
In our latest review we had pause for thought about how we assess the personalities and behaviours of the teams we are backing. Of course, it’s a cliché in the investing world that you back teams. And within our criteria for choosing investments, the team has the highest weighting (alongside the market at 25%, with the idea 15%, marketing & communications also 15% and the commercial model at 10%).
However, a couple of behavioural challenges amongst the portfolio got us challenging ourselves on our approach to assessing the talent. We concluded we were putting a disproportionate focus on experience over personality.
We value when a team has intimate knowledge of the market being targeted. We are sceptical about a stellar corporate career if the start-up in question is the first foray into the life of an entrepreneur. We like entrepreneurs that have been around the block a bit. We tend to advise recent graduates to go and get a job and make a load of mistakes on a salary before starting a business. And we note that a few academic studies have shown the optimum age to start a business (on average) is the early forties. All of these points on experience will still be important and guide us.
We had thought we were being rigorous in our approach to personality and behaviours. Within our team we’ve had plenty of experience of assessing people and suspect we spend more time than most with teams we’re backing before we investment. But we’ve decided to really interrogate our approach. As a result, we have honed the characteristics we believe deliver entrepreneurial success and are taking a new approach to psychometric assessment to better interrogate these characteristics.
We are searching for:
Curiosity & empathy: an outward looking view on the world, listening intently, constantly challenging oneself and always on the hunt for new data whether it be about customers, competitors or different business models.
Creativity & raw intellect: if curiosity is about gathering lots of dots, this is the smarts to join the dots, making the connections that lead to new opportunities, sweat a business model or solve intractable problems.
Self-motivation & proactivity: the mentality to prioritise, set plans and follow them.
Resilience & tenacity: the relentless energy & determination to grow a business and overcome the inevitable bumps or chasms in the road.
Charm & integrity: whether building out a loyal team, negotiating with clients & suppliers or sharing news with investors, being positive, authentic & honest is the only way to develop & maintain successful long-term relationships.
It has been surprisingly difficult to find psychometric tests that deliver against these characteristics. The tests built for the corporate community often cover some of these but are focused on other characteristics that deliver progression within large organisations. We’ve now found a new approach and have started experimenting with it. As ever with psychometric assessments, we don’t expect it will give us the answer, but we are expecting it to give us some strong stimulus to improve our objectivity as we interrogate our potential investments. As ever, time will tell.