Various selection criteria are considered when evaluating projects in Private Equity. At TCD Capital we articulate our a scoring process around the following categories
1) the quality of the entrepreneurial team,
2) the competitiveness of the solution and
3) the governance criteria.
During our evaluation, we always favour an intense and continuing dialogue with the entrepreneurs. Our scoring will heavily focus on the supposed capability of the team of turning a business object into business reality and success, especially with startups where we cannot easily rely on past achievements and results. This is the level where intuition and experience with human factors will be of paramount importance. The good and continuing dialogue with the entrepreneurial team which we initiate at the early stage of the evaluation, will form the basis for a common understanding of both parties objectives, a successful structuring of the transaction and a better governance on a continuing basis.
Plan B or not Plan B?
I recently read a few articles about an interesting debate in the market: Does the fact entrepreneurs have a plan B represent a sign of future failure or lack of commitment of the entrepreneurs? Some do think that the very fact of having a Plan B is an indicator of loose commitment.
In our opinion, the question is wrong, or, at least needs to be turned differently.
How will the partner’s team react if Plan A does not materialize?
More concretely, will the team that will have failed in “selling” to the market a Plan A proposition react in a manner that demonstrate agility, capability to adapt, and, more essentially, willingness to stay tied and strong together also in case of adverse evolution.
At one stage or the other, all companies are faced with adverse evolutions, and sometimes, the fundraising process, in itself, is already forcing a team to revise its options. That is a sour acid test. But a test we like, at TCD Capital, as if the ties are not strong enough, it is better for everyone that failure takes place before being financially tied with other investors.
All processes we put in place at TCD Capital allow to diminish those risks of misunderstandings and help to start a partnership on the right foot !
Hence, we favour developing personal ties with our members and would-be entrepreneurs. We learn more during a lunch, or the case may be much to rare, during a game of golf, than at any powerpoint meeting …. Human relationships do matter.
At a next opportunity, we will discuss on the other pillars of our scoring: competitiveness and governance.
