Stuart has many years’ experience of investing in young, innovative companies. He co-founded DFJ Esprit in 2006 and the firm has since made investments in over 30 businesses. Prior to that, he was a partner at 3i Ventures and enjoyed four years in the firm’s Silicon Valley office. As part of Intramezzo’s Talent Capital Report, we spoke to Stuart about his views on the key leadership issues facing the investment community.
WHAT DO YOU LOOK FOR IN LEADERSHIP TEAMS?
“The biggest factor in leadership for us is the ability to lead. To sell the story, so that people believe you and want to follow you. Leaders need to be able to explain why their offering is better than the rest and take the whole team with them (fellow directors, employees, investors, customers, etc.).
“And, while the leadership team is critical, given the early-stage nature of our investments, this has to be backed up by really great technology, huge market potential – otherwise we just won’t see the potential for growth that we’re looking for.”
AND HOW COMPLETE DO YOU EXPECT THE SENIOR TEAMS TO BE?
“We never back complete leadership teams – the companies are usually too early in their development to have the full complement of skills. What’s much more important to us is that the senior team recognises the skills they will need as the company grows and develops. We’re more interested in those that have the foresight to identify and understand that they’ll need, for example, a VP of Engineering to complement the CTO post-investment. To my mind these teams are far more hackable.”
HOW DO YOU ASSESS THE SKILLS OF SENIOR TALENT IN A PORTFOLIO COMPANY?
“I’ve been investing since 1992 and I’ve seen so many fads come and go – qualitative analysis, quantitative analysis, 360-degree feedback, and so on. There is no clear winner in any of these in my opinion and they can’t be a substitute for lifting the lid and understanding what experience a person has, what their colleagues and/or employees say about them and getting to the bottom of what they have actually achieved in the past.
“Over a long career I have made a lot of hiring mistakes; we once hired someone who we thought was a big shot from the US. He built a team around him of people he’d worked with before; the investors backed the story. By the time it had all gone wrong, it emerged that his previous role had not been as a CEO – he had simply managed sales teams. That’s a very different role from, for example, getting stuck in, managing relationships in a small team where the CTO might have a differing perspective about the technology from the sales director. That was a big lesson about getting seduced by CVs. Now, I’d look for someone in that role who had got a product from zero to £10m rather than £30m to £50m, for example.”
FINDING ENTREPRENEURIAL TALENT EMERGED AS A BIG ISSUE FOR MANY RESPONDENTS IN OUR TALENT CAPITAL STUDY. WHAT’S YOUR TAKE ON WHY THIS IS SUCH A CHALLENGE?
“Well, I don’t think it’s because there is a lack of it – there is actually an abundance of raw entrepreneurial talent. I often advise students to go and work in a 20-person company if they want to hone their entrepreneurial skills. That will help them much more than going into a large services organisation, as many do.
“I think it has much more to do with the fact that it is a hard and bumpy road to be an entrepreneur. You have cash flow problems as an early-stage company, few customers and minimal reference points in the market. It’s a stressful undertaking to be a senior person in a young, entrepreneurial company.”
IN YOUR EXPERIENCE, WHAT IS THE BIGGEST CHALLENGE ASSOCIATED WITH INTERNATIONALISING PORTFOLIO COMPANIES?
“It’s a pretty basic issue but an important one. You need to hire good people internationally and, going back to what I said earlier about lifting the lid on what people have actually done to date, it is that much harder in a different country. If you were appointing in the UK, you understand people’s successes and achievements. You don’t know what the benchmarks are for success locally and you don’t know how they are codified. That’s why we try and provide mentors and ex-CEOs locally to help portfolio companies navigate recruitment in new markets.”
HOW DO YOU MANAGE THE ISSUE OF COMPANIES OUTGROWING THE SENIOR TEAM MEMBERS’ CAPABILITIES?
“You have to be open about this from the outset. You have to be clear with the individual(s) concerned that if the company is going to grow to a certain point, it will either need a new team or existing team members will need training and coaching. We’d far rather the individuals grew with the company because replacing them is so disruptive. If we find that, following training, they are still not suitable, we try and work with where their strengths lie to fit them into a suitable role.
“But the key is doing this two years before the skills gap becomes a problem – the long lead time gives the individual enough time for appropriate training and the company adequate time to find a replacement if necessary.”
AND FINALLY, OUR TALENT CAPITAL REPORT SHOWS CLEARLY HOW DAMAGING IT CAN BE TO MAKE THE WRONG APPOINTMENT. HOW CAN YOU MITIGATE THE RISK OF THIS HAPPENING?
“Have knowledge and understanding of who you are bringing in. That either comes from personal experience with individuals or, if you are using a search firm, make sure you have a good, long-term relationship with them. The problem is, if a search firm or you see the relationship as a transactional one and the firm doesn’t really understand the needs of the business (and the characters involved), you run a greater risk of bringing in the wrong people.”
To read Intramezzo’s Talent Capital Report in full, please click here.