I’ve done a lot of interviews about people over the years, but you can always get better.

A fascinating conversation last week with an angel investor about what he looks for in a candidate to run a new company gave me a question I will always ask from now on, but not just about people running startups.

The word for this investor is coachability and it’s a big thing when you have a person running a company for the first time. The idea for more experienced managers might be expressed as open-mindedness, but it all comes from the same place: Can a person in charge admit he doesn’t know everything, and then work to get up to speed on that weak area?

First some definitions: Angel investment is the first-stage investment in a company, also known as seed capital. Often it’s family and friends that get the entrepreneur started – funding the equipment or employees working out of a garage, a WeWork space or, as was the case with Dell, Microsoft and Facebook, a dorm room.

All the rounds of fundraising after the angel stage, including when venture capital and private equity usually get involved, are explained at Crowdcrux. In the end, while some companies remain private, the usual goal is an initial public offering (“IPO”) when you sell shares to the public.

The angel investor I talked to said that ten percent of all of his investments provided his entire return over the past few years. In other words, nine out of ten are losers, but the others make him a lot of money. A typical angel investor would put in anywhere from $5,000 to $50,000, sometimes alone and sometimes in a pool of investors. Many then set aside two or three times that amount for the next round of funding. If they don’t, their initial stake gets diluted if the company moves forward toward profitability.

What is Coachability?

The exchange that provided me with my new great question about a CEO went this way:

Q: What do you look for most of all in someone who is going to run a company you’ll invest in?

A: The track record of running other companies. If they’ve done well with three or four companies before this one, we’re comfortable.

Q: What if there isn’t much of a track record, or no track record of being a CEO at all?

A: Coachability.

He explained that this means, “How open is the person to learning? Do they know what they don’t know?”

It struck me that coachability is a virtue many of us could stand to improve a little bit. There’s taking direction, but then there’s the ability to recognize that even though you think you know a lot about real estate, marketing or whatever it is, there is always something more to learn.

That may not mean just delegating. If you say, “I know semiconductors but I just don’t understand real estate” and hire someone to take care of the real estate end of the business, (warehouse, office and retail space), how will you know if that real estate person is doing  a good job?

As we’ve written before, including in Google is Not a Substitute for Thinking most of what you know about yourself is not available through a Google search, and that goes for everyone you are trying to evaluate before investing money. The qualities of a manager or entrepreneur won’t be a matter of public record. You will need to talk to people who have interacted with them.

The Value Proposition for Due Diligence

No service is free for long if it provides a great benefit. Either you pay for it, or someone is donating their time and money to bring the service to you or someone who can’t afford it.

If you can afford to put down $10,000 on a high risk investment, spending $1,800 to $2,400 on due diligence is a high fee, especially if you make ten such investments a year. On the other hand, many angel investors pool their money. Now you are talking about, for instance, eight investors each with $20,000, but they will be sharing that $2,000 check on an executive. A one percent charge

It makes sense for many angel investors, and at later rounds of investment, the $2,000 cost just keeps dropping as a percentage of the money at stake. Before a Series A investment of $8 million, don’t you want to know more than whether or not someone has been convicted of a crime? Good due diligence gets you there.

Strange then that Ycombinator’s Series A due diligence checklist makes no mention of looking into the people running the whole enterprise.

One hopes that can change. TechCrunch wrote last year about a stampede out of a company appearing at a Ycombinator event after easily discoverable things about one of the principals was, finally, discovered: “… it’s net positive to vet your future partner, back the right startups…”

The more carefully you hire, the less you may need to hit the ejector button on the candidate who probably shouldn’t have been hired in the first place.


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