The value of the Management Team

It is not the ability to identify a good opportunity in the market that determines whether an investment is good, but the ability to identify a management team capable enough of turning that good opportunity into sound reality. Venture capital companies paradoxically put more resources into analyzing companies and business plans than assessing managers' skills, despite agreeing that they play a determining role in the future success of the transaction. Various studies published recently estimate that 70% of failed MBOs and similar transactions in Europe are due to the management team not being good enough.

The skills needed to run a company vary depending on the kind of investment or company. Capacity for innovation, for example, is regarded as more necessary in a start-up than in a MBO, while strategic vision will be more essential in a MBO and not so important in start-ups. In the same way, start-ups require in-depth knowledge of the sector, while a clear focus on profits and cash flow generation is a necessary condition in a large MBO.

It is important for the management team's interests to be in line with those of the financial investor when it comes to divestment. The ultimate aim of the venture capital company is always to sell the company within a 4- to 7-year term and make a capital gain. Venture capital companies are always reticent to get involved in MBOs or the like in which the management team is not clearly willing to divest within a limited period of time, even though the venture capital company can protect itself contractually and start selling the company (Drag Along). The value will always be maximized for both parties if they agree on joint disinvestment in the future.