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Due Diligence in relation to new investments

To deliver superior returns, Private Equity and Venture Capital (PE&VC) investors need to quickly understand the strengths and weaknesses of the management team of the businesses in which they plan to invest, or have invested in, and put together a strategy which will substantially improve their performance, as winning PE&VC strategies rest on fundamental business improvements.

It has been estimated that 40% of a business’ superior ROI and 35% of its income growth stem from the strength of the CEO and the management team, yet they are rarely fully professionally assessed to ensure they are capable of delivering. Indeed, many non-executive directors are still recruited through their network rather than through an impartial selection process. Currently, the number of CEOs removed from businesses for poor performance is around 35% a year.

There is a widely held myth that it is difficult to "prove and measure" the capability of a management team. However, the precision of the psychological measurement of people, organisations and their performance has evolved immensely over the past ten years. This should be good news for corporate financiers and investors who can now use such techniques to significantly enhance the predictability of the performance of management teams.

At Crelos, we have a thorough understanding of the PE&VC markets and as a result we have designed services for firms which have decided that investment in developing their human capital will be a source of competitive advantage. We believe that, in transactions, Human Capital Due Diligence needs to stand alongside, and is every bit as important as, Commercial, Financial and Legal Due Diligence. This is why we have developed our own precision psychology assessment model that has been specifically designed to benchmark executives and their teams against a framework for high performance.

 

Our unique set of services

Using our precision psychology assessment model, we provide PE&VC investors with a comprehensive, objective and independent understanding of:

  • The people and teams in the business in which they are about to invest, or have invested, in
  • What their business plans mean for their people and their roles, and
  • How to make sure that their management team is up to the challenge

 

Our reports are impactful and provide clear governance recommendations on key capabilities, areas for development and risks with regards to delivering the strategic objectives for shareholders, stakeholders and regulators. Our proven in-depth Due Diligence methodology on senior team members brings out:

  • Their key capabilities, any areas for development as well as any risks with regards to the strategic objectives
  • We follow up with advice on how to mitigate these risks – Our model provides team development roadmaps and actions tightly woven into the business plan
  • A clear understanding of how members of the management team will behave in a wide range of different future situations
  • Using clear criteria and benchmarks we have developed over time, we show individual leaders and leadership teams how their current capability compares to leaders of high growth and high performing business units
  • Ways to significantly enhance the management control of the business and to underpin the investors' decision making

 

Back

Ali Gill CEO and Client Director for the Private Equity and Venture Capital sector

'80% of the 1,000 plus VC-backed firms in the UK are still loss making, and 25% have no revenues. The financial crisis and historic under performance have caused investment in UK VC funds to dry up and the chief contributor to poor performance is, to one degree or another, the failure of the management teams of portfolio businesses.'

Peter Sanders Client Director for the Private Equity and Venture Capital sector