The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies, 2nd Edition

CHAPTER 17 Management Team Diligence

“The reasonable man adapts himself to the world, the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

—George Bernard Shaw, Maxims for Revolutionists, 1903

Subjectivity in conducting team diligence can often be crippling. Yet this is often the case in management team diligence. The attributes of strong management teams, or the proverbial jockey, are difficult to assess. Often practitioners have a short window of time.

ASSESSING INTANGIBLES

Attributes such as integrity, execution abilities, people skills, and the ability to attract a team of high performers cannot be assessed quickly. Let's look at these attributes in the context of venture capital investments.

Integrity

In selecting the jockey—the top executives—Warren Buffett's views are relevant and appropriate: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. Think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy.”¹

When assessing the management team of an early-stage start-up, integrity ranks first. Integrity boils down to the sum total of honesty in words and actions, an ethos that defines any individual. But there is no easy way to assess this attribute. Practitioners spend a substantial amount of time investigating ...