How Do Investors Assess a Management Team?

14 May

By Lucy Parkinson, Senior Research Manager, LSN 

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LSN Research often hears from investors that when choosing a company to invest in, a sound management team is just as important a factor as the quality of that company’s technology. Developing an innovative biotech or medtech product is a lengthy process fraught with risks, and it takes a strong management team to successfully guide a scientific discovery through all the challenging steps. So what are the qualities of the ideal management team, and how will investors judge whether yours has what it takes? Investors have reported the following important attributes:

– A Balance of Expertise

It goes without saying that investors feel most confident working with people who are experts in their fields of technology. However, many investors have told us that they look for management teams with a balance of skills, both in science and in business. While deep expertise in a company’s area of technology is valued, some investors are apprehensive about working with a scientist who has a solely academic background and lacks familiarity with the mechanics of turning IP into a commercial business. For example, an inexperienced manager might not be able to position the company to meet the needs of commercial partners, even if the company’s scientific program is carried out highly effectively.

– Ability to Build Value

Investors often stress that a scientific discovery in itself doesn’t make a company valuable. The management team has to build value by developing and positioning the technology for commercialization. They must have a solid plan for how to achieve this, and show that they have the ability to execute on this plan as well as adapt to any changes that occur on the way. A team must also demonstrate that they have the vision to grow a company and will be able to handle difficulties that may arise, such as issues with competitors and regulatory requirements.

– Capacity to Strategically Work with Partners

Developing and commercializing a biotech or medtech asset requires coordination with development and strategic partners. Management teams not only have to identify the right partners for their company, but also must ensure that their work is carried out according to those partners’ requirements. Big pharma scouts are typically very focused on this quality in smaller collaborators; they want a management team that shows awareness of the particular data the partner needs to see, and how to structure a study in order to obtain that data. Working effectively with others may be particularly challenging if the company has multiple partners who have differing goals that they require the management team to meet.

– Ability to Adapt with the Changing Environment

Considering the long development time frame that is required for healthcare products, it’s very likely that a company will be affected by changes in the landscape that occur as they move forward. Certain factors that are favorable today, such as buoyant public markets for biotech companies and an increasing pace of FDA drug approvals, might change in the future. Investors need to rely on the management team to continue to build the company’s value even if the environment becomes more adverse.

– A Solid Track Record

In order to gauge the strength of a team across all of these factors, investors typically study the group’s track record in great depth. Even if you’re not a serial entrepreneur, it’s important to highlight your relevant past experiences, both successful and not. Have you operated in a challenging environment? Have you demonstrated your ability to adapt to changes in your field? As one experienced investor told us recently, there is never a way to guarantee that a management team will be able to succeed, but indications of experience and depth throughout their track record increase the odds.

A great technology can be doomed to failure without the right team and while many investors are willing to tolerate scientific risk, they generally pass whenever they feel this risk extends to management or execution. Keep these variables in mind when you are building your team and identifying your strengths and weaknesses, and your company will have a much higher chance of making it through an investor’s vetting process.

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