Start-up: Worth investing in, or perhaps not?

psychological diagnosis, start-up, venture capital

The challenge

To increase the likelihood of successful investment.
To reach the next round of investment efficiently.

Background

In one of its projects, a VC fund noticed a threat to the investment being executed effectively in keeping with the investment agreement. Topics related to the evaluation of the concept itself, the market moment for a given idea, the business model, and financing had been addressed well by the fund’s experts. However, correctly assessing the potential of the founders and the team proved much more difficult for the VC. According to research by Bill Gross, whether an investment is a success or a failure depends up to 32% on such factors. Tools supporting VC intuition in identifying competencies (managerial, entrepreneurial, and organizational) of the founders and the team are necessary.

Diagnosis of the problem

Lack of detailed information in the VC fund regarding the founder and team, and concerning their managerial and entrepreneurial competencies, motivation, energy for taking action, or readiness to make changes and overcome difficulties.
Current assessment of the potential was based on the track record of the founder and members of his team, and on the “intuition” of the investment managers.
Problems in carrying out certain investments, delays, lack of action, missing documentation, and the need to organize e.g. weekly meetings to oversee project implementation.

Solution

We conducted a diagnosis of the competencies and motivations of the main founder and CTO.
Based on the results of the founder’s research, we proposed developmental support for the founder in entrepreneurial competencies (Innovation, Calculated Risk, Proactive approach).
We organized consultations with the founder, based on concrete tasks and decisions the founder had taken.
We conducted a study, the findings of which indicated that the CTO’s motivation was poorly suited to the requirements of his role, due to a conflict between his goals (focused excessively on personal benefits) and the start-up’s goals.
The VC engaged a consultant to verify the valuation of the programming activities and the quality of the solutions implemented.
The Fund introduced ongoing monitoring of the progress of technological work.

Results

Change made in the way of working in the start-up, particularly in key moments of investment execution.
Limitation of the risk of taking wrong decisions with a significant impact on the execution of the agreement.
Implementation of the investment agreement with the planned parameters.