12/10/03: #8
Private Equity Update
How do you spot a good CEO? �You�ll know one when you see one,� we used to believe . . . but recently we acquired a powerful new tool that we are using to objectively assess CEO�s of companies we are considering investing in.
Recently we held a workshop for our portfolio company CEO�s as part of a series of such workshops we periodically hold. The topic was pure �castor-oil� human resources topics such as employment practices, sexual harassment, and the like. But there was a rich �dessert� that followed that we as investors appreciated.
Young company CEO�s are far more eager to improve their skills in the areas of business development and sales practices, where they can see an immediate benefit, and tend to ignore the human resources area. Yet this is the area that can consume their time, energy and the firm�s capital when they get into difficulty.
After reviewing compliance and motivational issues, the program facilitator, Gabrielle (�Gaby�) Jenkins, of Bridenbaugh Partners, reviewed the strengths and weaknesses of the CEO�s as a group. This was their reward for having endured the previous material, however interesting it actually turned out to be. Prior to the workshop each CEO completed a ten-minute assessment over the web consisting of multiple choice questions. Upon completing the assessment a 25 page computer evaluated report was immediately emailed to them.
The partners of our fund took the on-line assessment as well and we were impressed with how accurately it described each of our strengths and weaknesses. We generously awarded an 80-90% accuracy to it. Then Gaby reviewed the assessment with us individually by phone, and each of us increased our accuracy rating.
Gaby explained that the assessment is an excellent tool for determining the fit of an executive with a particular position. She described how she used it to evaluate a candidate for a sales engineering position who management thought was perfect. �He won�t close a customer,� Gaby told them. �He�ll schmooze them and the customers will love him, but he won�t ask for the order.� The Company hired someone else who has performed above expectations.
What about �good� CEO�s and �bad� CEO�s we asked . . . can they be identified with any reliability? �They too, have a distinct profile,� Gaby responded. I believe that I can tell you which of your current CEO�s are the weaker ones and those that are likely to be most successful,� she added. So we are working with Gaby to create a profile that we can correlate with our own experience and that of other venture capital funds, to refine the pattern for a �good� versus �bad� or potentially problematical/underperforming CEO.
Why? Because the CEO of any company is the prime mover, the driving force that can affect the company�s performance. As fund managers, we have the responsibility to seek outstanding performance in each of our investments. We now have one more tool to accomplish this, to help us sort out the right people before we invest.
Andrew Clapp is a founding partner with Boston-based Brook Venture Fund, which is currently raising Brook Fund II. He can be reached at [email protected] or 617-451-2450. Or visit www.brookventure.com
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