A few months ago I was invited to be  a judge at a local venture pitch and business plan competition, where local entrepreneurs had the opportunity to present either a 2 minute pitch or a 10 minute business plan presentation in front of panel of judges as well as a group of investors. As start-ups are my passion I usually enjoy attending these kind of presentations, but that day one particular entrepreneur caught my attention.

It was a young lady in her mid 20s, who was presenting a business on a quite complex topic – gene therapy. The business plan was about a new gene insertion method, which for a number of reasons was better than anything else currently available. If proven to work on humans, this new gene insertion method had the potential to cure a number of genetic disorders, such as diabetes, cancer, and other deadly diseases.

The presenter skillfully and convincingly explained why their product is better, what is the market pain and why other similar products are not able to achieve the same success rate, she wowed the audience with the great market potential and her professionally designed  PowerPoint presentation.  I am sure everyone was thinking, “what a great product”. But, I am also sure that everyone was a bit concerned about the fact that the lady presenting was fresh out of college with virtually no experience in starting and growing a company. Now, that may seem a bit judgmental but I have to agree with the investors; when it comes to investing  millions of dollars (in this case, the company needed $5 million in Round A funding), an investor has a right to be a bit judgmental.

The moment this young entrepreneur had the audience convinced that this business is worth investing in, was the moment she described the company’s management team. She was a small part of the management team, backed up by an experienced CEO who had a number of years of experience raising money, growing and selling successful companies, a CTO, who was also the inventor of the technology and who’s work was published in the most reputable scientific journals in addition to a couple of seasoned  genetic engineers and business individuals with numerous years of experience.

The combination of skills and expertise among the company’s management team was so impressive, that they might have as well sold potatoes, investors were still going to be convinced that this group of people would be able to make them money. In the case of this particular company they not only had a great management team but a promising product, which is a good indicator for success.

But why did investors put so much emphasis on the management team? Well investors regard the management team of a start-up company as its greatest asset for two reasons:

1. Investors know that in case the technology, the product, or service, turn out not be as well accepted as projected, or the economic conditions change and are not that favorable anymore, a savvy management team will be able to find or create new opportunities, which minimizes the risk for their investment.
2. Statistics show that most businesses fail in the first five years either because of ineffective management or insufficient capital.

In the history of great companies often there was no management team in the beginning. For example Microsoft was run for years by its founder Bill Gates who had no experience managing companies. So how did these guys do it? How were they able to convince investors that they will be successful? The answer is: they were willing to give up control.

Investors realize that when a start-up is scrambling for money it is often times difficult to attract an experienced CEO who has years of experience. Thus, if you are lacking some key members in your management team, don’t panic. As long as you acknowledge in your business plan that there are gaps in the management team and that a portion of the investor’s money will go into attracting and building a strong team, investors will still consider investing, given that all the other pieces of your business plan puzzle are in place.

I have worked with many inventors of great technologies manly coming out of the university and I repeatedly have come across a mistake that many of them make – they know a lot about their technology, they know nothing about business, but they don’t want to give up any of the control and insist on managing and growing their company alone. On the contrary of the common believe, investors are not risk takers, investors are always looking for ways to minimize their risk and unexperienced CEO raises a red flag immediately.

It is sad how many great business ideas never come to live because someone’s ego stands in the way.

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1. Management Team