Marchmont network: business news | conferences | consulting
Marchmont blog Eng | Рус

Tuesday, February 8, 2011

Taking stock of your potential investment

One of the pitfalls in VC financing is erroneous perceptions that investors develop when analyzing entrepreneurs. Not completely erroneous, of course, but rather vague and ungrounded.

Unfortunately, sticking labels on people has always been a tendency. Those labels are a ‘summary’ of what a person has done and still does, and others tend to build upon those their ‘forecasts’ about how the person will act in future. Assuming that an entrepreneur’s past flaws will not necessarily repeat in future is routinely ignored. Analyzers simply take an occurrence and develop their long-term perceptions of other people based on that occurrence.

Sticking an ‘honesty’ label is a classic, I think. We use our prior observations to say if a person is honest or dishonest, thus alleging that the person will be such in all of his future moves.

It’s not so easy to determine whether or not an entrepreneur will act honestly; each step could be interpreted differently, depending on what circumstances preceded it. An investor looks into the past and analyzes how an entrepreneur was evaluated before, but in most instances the investor lacks current data to see if the entrepreneur is honest enough now.

Even with the data aplenty, you can’t fully rely on their truthfulness. According to much research, there’s a major flaw in testing people for honesty, as all of us have at least once done something, for which we can be called dishonest, but does that mean we all want to do other dishonest things in future?

Such traits as perseverance, aggressiveness, inclination to dependence or submission and others are as hard to determine as honesty. While some other traits of an entrepreneur’s character may be just irrelevant.

So, how to take stock of an entrepreneur?

When we assess a person, we set for him standards that we expect from him or adhere to ourselves.

We develop ideas we expect people to act upon, based on prior experience.

When assessing we do not weigh all pros and cons in everything a person does. We respond spontaneously and are oftentimes dependent on our intuition. Intuition is a skill that can hardly be studied and which we typically use unconsciously. We always tend to subconsciously weigh up other people’s doings as ‘correct’ or ‘incorrect,’ and we do not ask ourselves what our assumption is based on.

There are two major approaches to evaluating an entrepreneur that are still valid: analytical and psychological.

The analytical approach is used when an investor completes his study of an entrepreneur (recommendations received, credit reports scrutinized, etc.), and comes down to the investor getting answers to the below questions:

• How will the entrepreneur treat the investor and his company?
• Does the entrepreneur have the traits of character that one should have in this particular business field to achieve success?
• Do the entrepreneur’s traits match those that ensure a successful business?

The psychological approach provides no answers to why people act in a certain manner and not otherwise. The approach helps figure what a person is capable of. With this approach an analyzer purposes to frame a ‘pared-down model’ of the person under scrutiny to predict his reactions in various situations rather than reasons for the person’s action.

You may request the person to undergo some tests (not the best option, I believe), or you may ask him to tell you his life story. Encourage him, and he will eagerly give you an account of his family, achievements, business experience or what he thinks of important aspects of life. It takes asking open questions and be able to listen. A good listener will hear many things he’s interested in reveal themselves unsolicited in a conversation. What questions are worth asking?

First of all, about intellectual efficiency. An investor should try to compare this manager with others he has ever met to see if this new one is part of the investor’s top list (5% of the best). Can the person learn fast? Can he think in conceptual terms? Can he work with numbers fast and accurately? Is he equally skilled in expressing ideas verbally and in writing? Can he make impromptu decisions or does he only stick to plan?

Secondly, about his business approaches and styles. Can he prioritize things or doesn’t know what to start from? Is he impetuous or prudent in decision-making? What strategy does he prefer? Is he reserved or quick-tempered? Sure-footed or easy to stray with the wind? How does he react to force-majeure? Are his goals realistic?

And thirdly, about his personal relationships. What type of relationship does he prefer with his bosses? Is he sincere, stubborn, loyal, responsible? How does he prefer to build relationships with inferiors? Does he feel his responsibility?

A VC investor doesn’t have to have a psychologist on staff to be able to screen an entrepreneur’s personal qualities. Learning some psychological techniques and applying them in work would do.

What do VC investors expect from entrepreneurs?

Personal characteristics:
• High efficiency
• High risk assessment capabilities
• Ability to convince
• Detail-oriented performance
• Psychological compatibility

Entrepreneurial experience:
• Knowledge of the market
• Business records
• Leadership
• Reputation

I recommend that as you analyze an entrepreneur you put down five things you liked and another five things you didn’t like. If a ‘like’ list is shorter than that of “dislike’—do not invest in such a person. When you detect negative traits think how you would act in his shoes. Sometimes, when interacting with your entrepreneur, you might come across things that may prima facie seem negative. If you do not delve deeper and make a no-investment decision, it might turn out that you have missed a terrific investment opportunity.

As an investor you have to consider everything. And make the right decision.

24 comments:

  1. I constantly enjoyed having a decent proportion of present moment and long haul speculations, around 50-50 I am youthful however and I effectively watch the market and screen my benefits. pay someone to do my assignment. On the off chance that you have a great deal of cash or simply would prefer not to watch it place more in for long haul and leave penny stocks to daring people.

    ReplyDelete
  2. Economic Homework Help Encourage him, and he will eagerly give you an account of his family, achievements, business experience or what he thinks of important aspects of life. It takes asking open questions and be able to listen. A good listener will hear many things he’s interested in reveal themselves unsolicited in a conversation.

    ReplyDelete
  3. This article was undoubtedly written by a real thought writer. I agree with many of them. I look forward to new updates day by day. Follow the Law Assignment Help London website to get 100% risk-free, authentic assignment writing services.

    ReplyDelete
  4. Want to write the marketing plan assignment and not sure where to start? Start from reading our essay guideline!

    ReplyDelete
  5. Aone assignment offers you to Pay For Assignments writing services for students’ assignments, thesis, dissertations, essays, and coursework and research assignments at different academic levels from school till university.

    ReplyDelete
  6. Vid Wonders offers you the best Video Production For Healthcare, we guarntees best result, as our team is professional and result oriented, we are the best Video Company. We are the worth considering for buisness.

    ReplyDelete
  7. Samish Leather provides you the best quality of shearling leather jackets, you can also Buy Tv Series Outfits from our store. we have our online store, you can visit our website.

    ReplyDelete
  8. Fine! Interested in personal statement examples, or just do not know how to start and write better? Then to you to us, the best masters will consult and help.

    ReplyDelete
  9. Exceptional assistance for your unique tasks , come and get what you want. A nice spot where you can finish your undertaking in incredible propensities. write my assignment for me

    ReplyDelete
  10. This comment has been removed by the author.

    ReplyDelete
  11. This comment has been removed by the author.

    ReplyDelete
  12. An incredibly diverse range of jackets that offer you style, functionality and many great years of wear. Men’s Black B3 Bomber Sheepskin Jacket

    ReplyDelete
  13. ability to introduce one innovative solution after another, Homework Help Website thus developing fast enough to always outperform competitors.

    ReplyDelete
  14. Thanks for sharing such a fabulous article; you are helping both student and a paper helper with your insightful articles.

    ReplyDelete
  15. In keeping with a great deal studies, there’s a main flaw in trying out human beings for honesty, as all and Thesis Writing Service Uk sundry have as a minimum once achieved something, for which we may be called cheating, however does that suggest all of us want to do other dishonest things in future?

    ReplyDelete
  16. It can be said that more and more families are installing smart door locks, which not only allows our overall safety to be better protected, but also solves the problem of forgetting to bring the key.Face Smart Door Locks exporter are not only anti-wear but also anti-violence, and their appearance is much better than traditional door locks.

    ReplyDelete
  17. So, stock pickers always decide what they have chosen and what they need their portfolios to accomplish ahead of time. They stay mindful of the daily news and patterns that drive the economy and each organization in it. They utilize those objectives and information to illuminate their choices to trade stocks.Best PhD dissertation writing services

    ReplyDelete
  18. This fantastic blog page! You did a great job of hitting on all the potentials investment things that matters for all readers; keep up the great work. Many thanks for sharing. adsu cut off mark for social science

    ReplyDelete
  19. This is a great article! I really appreciate all the information provided. This is very helpful and informative. I appreciate the time and effort taken to write this. It's definitely worth a read. I will be sure to share this with others. Thank you for the insight. This is definitely something I will refer back to in the future. I'm definitely taking away some new knowledge. Great job! Keep up the good work.
    is new jersey a 50 50 divorce state
    divorce laws in new jersey

    ReplyDelete
  20. digital marketing new york They grab attention, convey information quickly, and are highly shareable. Visual content should be visually appealing, on-brand, and optimized for the respective platforms.

    ReplyDelete
  21. Insightful read on the challenges of evaluating entrepreneurs in VC financing. The blend of analytical and psychological approaches provides a holistic perspective, emphasizing the importance of personal characteristics and entrepreneurial experience in making sound investment decisions. A valuable guide for investors navigating the complex landscape of assessing potential investments.
    Conducción Descuidada Nueva Jersey

    ReplyDelete