Aaron Grunwald: What is people due diligence?
: People due diligence is basically a leadership assessment of a company where private equity houses or VCs want to invest. So VCs and private equity houses always have a process of due diligence when they are preparing to invest into a company.... They always do it from figures perspectives, but a lot of times, unfortunately, they forget to do it from a people perspective. Although startups and companies in general fail in more than 80% of cases not because of the market, not because of the product, not because of the figures, but because of people.
People due diligence means that we are going into that target company, and we are basically assessing their leadership team to see if they have the core competencies and the right skills that will allow them to put into practice the strategy that the investor established for the company.
How do you check that?
The first step is we sit down with investors.... It’s really a very deep discussion and very honest discussion about the values that they have, about why they want to invest into that particular company, about the strategy that they want to give to the company. And we try to extract from that discussion the skills and competencies that the leaders of the target company need in order to accomplish the strategy. So we have a matrix of skills and core competencies that we have established with the client.
And once we have that, we go into the target company and we talk to their leadership team. We have an individual assessment of every member of the team, but also an assessment of the whole team. And then we benchmark them individually and as a team against the matrix of competencies that we have determined with the investor beforehand. We [then] have a very clear picture of the gaps between what they have and what they need in order to execute the strategy.
We go back to the client, we present them the picture that we have taken of the leadership team, and we can tell them, ‘well, this is the situation today’. So be aware of what you will find in the company once you have invested in it. And be aware that probably you will need [to make] some changes, either changing people in the leadership team... either by helping them to reach the level that they need to have in order to execute the strategy [through training].
Do investee companies have access to your reports?
Of course, it’s ethical, every individual has access to his or her assessment, and we have a debrief, not only with the client, but with every individual who took the assessment.
Why isn’t people due diligence conducted more often? Is it the cost involved? Do investors think it takes too much time?
Actually it doesn’t take too much time. It’s really done at the same time as the economic due diligence, so it takes a couple of weeks. It shouldn’t be a question of money. Of course it has a cost, but you have to consider this as being an investment into your knowledge of the company, in the same way the economic due diligence is an investment. I mean, you wouldn’t invest in a company where you don’t have information about the productivity and the economics of the company. Why would you invest in a company where you don’t have any information about the people that are running the company? I think it’s just a question of investors being very much focused on economics rather than people.
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