How Investors Evaluate Human Capital At Deal Stage

To help better understand how investors think about human capital during the diligence phase of investing, we invited Matt Hermann from Ascension Health Ventures and Brad Sloan of Questa Capital for a Roundtable discussion earlier this month. Given their years of success in early and growth stage businesses, we heard several interesting themes that we wanted to share with our readers.

Now more than ever, entrepreneurs in the Healthcare Software and Services space know that these sectors remain hot, especially when it comes to attracting investors.  For CEOs of Venture Capital and Growth Equity investor backed companies, their success in securing capital from institutional investors depends not just on innovative healthcare solutions and differentiated business models, but on the strength of their management team and company culture to be able to execute on these opportunities.  After all, it’s the quality of their leadership and team dynamic that allows successful businesses to persevere through the inevitable zigs and zags, and ups and downs commonly associated with start-ups. To investors making decisions about their investments, is as much about “human capital” as it is about venture capital. 

Both Matt and Brad agreed that human capital is a key factor in successful companies. To help predict future performance, today’s investors actively seek ways of measuring success that go beyond the basics. One important theme discussed was distinguishing patterns of dysfunctionality versus patterns of success, both on an individual and team level. A history of serial success suggests a greater chance of positive future results. The ability of a CEO to bring strategic thinking and display strong leadership is crucial. “Servant leadership” is the term associated with a leadership style that is able to leverage the capabilities of the team during a highly ambiguous phase of a business, and creates the foundations for managing high rates of growth. According to Matt, “The right leader has the foresight and experience to identify things that someone who hasn’t been in that seat before can’t possibly see. So, if we see a deficiency in this area, in either a CEO or their team, the question becomes how do we surround them with that DNA so that they can identify these things and act like one of those serially successful entrepreneurs.” 

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