Data & Analysis

Calculating the Competency of Management: The Investor’s View

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Evaluating an investment involves complex research. According to early-stage micro seed investment fund and mentoring program, Seedcamp, determining the value of an investment consists of market forces of the industry and sector of the company, the balance between the demand and supply of money, the frequency and size of latest exits and a stack of other quantitative measures to scrutinize before considering a deal.

But, what about the qualitative measures? How do you determine the strength of the people leading up a potential investment? Management is considered one of the most important factors when questioning an investment. The management team is going to be with the investor for the long haul, there will be hurdles, and the competence of management will determine whether the company can respond to today’s constantly evolving market.

The CVCA reached out to various members to gather insight about how the private capital industry in Canada is evaluating leadership.

How do you gauge the qualities of founders?

Judging the qualities of a founder is key to success in venture investing but the process is more of an art than a science. We build up our view of a founder based on a combination of their past experiences and successes/​failures, their raw skills in key areas such a product/​sales/​vision/​leadership and our own intuition. – Russell Samuels, Principal, Whitecap Venture Partners

We look for relevant industry domain experience as it is critical in the Industrial IoT. We also back founders that have been successful in the past and have a high degree of grit and resiliency. We do this by spending a lot of time with the founders, ideally before they are looking to us for investment. – Whitney Rockley, Co-founder & Managing Partner, McRock Capital

The best way to predict how someone will behave in the future is to understand how that person has behaved in the past. So, in gauging the qualities of founders, we look at what qualities they have displayed in the past, whether that past be in business or in other aspects of life such as sports. – Janet Bannister, General Partner, Real Ventures

We gauge the qualities of an entrepreneur from our experience dealing with him and by asking his entourage, past business relationships, etc. We also cross reference the information with past successes and failures to see if anything stands out. – Andrée-Lise Méthot, Founder & Managing Partner, Cycle Capital Management

Does experience when starting a company/​industry knowledge matter?

Industry knowledge is extremely valuable. We focus on medtech and B2B software companies and we find that founders with a deep understanding of their industry tend to outperform. Charting the winning strategic path through a market is easier when you have a deep understanding of that market. In B2C software industry experience/​knowledge is likely of less value. – Russell Samuels, Principal, Whitecap Venture Partners

Absolutely. This is critical because tapping into industrial markets to sell tech is far from straight forward. The team needs to have extensive contacts and experience in the market vertical they are targeting in order to be successful and minimize the time it takes to crack the code to selling. – Whitney Rockley, Co-founder & Managing Partner, McRock Capital

Experience in starting a company and/​or working in the industry can be very beneficial. But it is certainly not a prerequisite for success; some of the most successful companies come from people who understand the industry but have not worked extensively in the industry and as a result, bring a unique approach which would likely not come from an industry insider. Similarly, many of the most successful companies are founded by first-time entrepreneurs who recognize what they know and do not know, are constantly looking to learn from the best, and are a sponge for knowledge”. – Janet Bannister, General Partner, Real Ventures

Experience is not the most important aspect. Industry knowledge is key and can be acquired by experience, by acquiring the experience (team members) or else. The founder is the person with the vision to solve an existing industry problem or to provide a service that is in demand. In both cases the solution needs to make sense for the customers in the context of their industry and their day to day operations. The best product/​service is not necessarily the most technologically complex or complete but the one that customers will use. Knowing how the industry functions from the inside is therefore a big advantage. – Andrée-Lise Méthot, Founder & Managing Partner, Cycle Capital Management

Are younger founders a deterrent?

Young founders are not a deterrent. A substantial percentage of the most successful venture-backed companies were founded by young entrepreneurs. Young founders bring new perspective, energy and new approaches to the table. – Russell Samuels, Principal,Whitecap Venture Partners

Rarely do we back founders that are in their 20s because they do not have the relevant industry experience we are looking for but we regularly back founders in their 30s. – Whitney Rockley, Co-founder & Managing Partner, McRock Capital

No, we look for the best person to lead the business to success. Age is just another variable in the equation. Generally speaking, a match between the age of the founder and the targeted customers is usually a plus but there are many other things to consider. – Andrée-Lise Méthot, Founder & Managing Partner, Cycle Capital Management

What are some things that have most surprised you about great founders who build great companies?

Great founders have the ability to pivot ideas and companies to be great. Our internal thesis on the companies we invest in is that a great founder/​entrepreneur can pivot a business to greatness – but a great business idea cannot pivot its founder. – Shayne Diamond, Principal, Whitecap Venture Partners

I am not sure many thing surprise me anymore but great founders are often prickly, relentless, have street cred and the respect of their team. They don’t sit back because they got funding from investors, they charge ahead 247 to rewrite history and change the world. – Whitney Rockley, Co-founder & Managing Partner, McRock Capital

Their ability to communicate their vision. The same company, the same project without a passionate leader at the helm does not have the same probability of success. A good leader will adapt to the audience in front of him in any context and deliver a compelling message. – Andrée-Lise Méthot, Founder & Managing Partner, Cycle Capital Management

What is the single most important character trait that you focus on when you’re considering backing an entrepreneur’s venture? 

Humility. Lots of founders have had successful endeavors in their past. Recognizing that one success doesn’t guarantee the next allows us to work closely with the entrepreneur to find what has worked in the past and what will work in the present/​future. – Shayn Diamond, Principal, Whitecap Venture Partners

That’s easy – grit. We back entrepreneurs that are hungry, relentless and never give up. – Whitney Rockley, Co-founder & Managing Partner, McRock Capital

I think the two most important character traits are honesty and grit. Honesty for an entrepreneur means being completely upfront and truthful with investors, employees and themselves; without strong bonds of trust, everything else will crumble. Grit enables entrepreneurs to persevere and get through the inevitable obstacles that face every young company. – Janet Bannister, General Partner, Real Ventures

Grit to persevere and humility and open-mindness to overcome obstacles along the way. Coachability is also important. – Andrée-Lise Méthot, Founder & Managing Partner, Cycle Capital Management

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