The strength of leadership in a business is the deciding factor for 90% of business angels considering whether to put up money for a stake in a company.
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Good management was such a strong driver that 85% of business angels said they would walk away from any deal if they felt the leadership team lacked the skills and experience to take a company forward.
However, in the report Talent Capital – Maximising Your Greatest Asset from London talent spotting firm Intermezzo, research revealed business angels do not expect to find the complete set of managers in place at the start of a deal.
Soon after an investment agreement is reached, the study found 48% of companies are likely to see the appointments of sales directors, finance officers, non-executive directors and a chairman.
The report also noted that institutional and corporate venture capitalists had different approaches to talent management.
Outgrowing skill sets
Whereas 40% of venture capitalists, which tend to be institutions, appoint non-executive directors and a third appoint chairmen, only 10% of corporate investors tinker with non-executive directors and 13% replace the chairman.
The most common victim to be shown the door is the chief executive.
The survey suggests this is because fast-growing companies soon outgrow the skill sets of the senior manager, so they need replacing frequently.
“This is one of the factors that leads to the biggest problem for startup business,” said a spokesman for Intermezzo. “One in four companies change CEOs , but skill gaps and lack of experience mean a lack of talent in the market place.
“Nine out of 10 firms find this a challenge, but they need the right talent to move forward, so are stuck in a trap.”
The most common way of finding a new chief executive is through networking, but executive research companies are also hired to headhunt candidates.
Networks were rated the best way to source managers by venture capitalists (55%), while executive search firms came next (43%).
Traditional recruitment routes such as general advertising and recruitment agencies were not mentioned by venture capitalists as part of their talent spotting toolkits.
“Failing to find the right talent severely affects many companies,” said the spokesman. “Investors told us that the wrong appointment led to companies losing growth, missing business plan and commercial markers and failing to be in a position to benefit from commercial opportunities.”
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