Evaluating founding and leadership teams of portfolio companies and acquisition targets has become crucial for investment and operating partners. As businesses grow and adapt to shifting market demands, the strength of the leadership team often dictates a company’s ability to scale and succeed. Assessing factors such as vision, resiliency, leadership style, adaptability, and alignment with the company’s vision is now seen as fundamental to driving long-term growth. These evaluations provide valuable insights into how well a team can steer their organization through challenges, making it an essential part of investment strategies.
Shifting Perspectives: The Importance of Human Capital
Historically, past successes were used as benchmarks for evaluating founding and leadership teams of portfolio companies. However, in today’s dynamic markets, past performance alone is no longer a reliable predictor of future success. Teams must now demonstrate the ability to grow, adapt, and cultivate a culture aligned with their company’s vision and strategy. As Clément Michel, founding Partner of Archiipel, highlights, “A company’s ability to scale and evolve more quickly depends on the leadership’s willingness to open up to new investors, share power, and embrace new directions. This is especially crucial in early-stage companies, where human capital often plays a pivotal role in determining the trajectory of growth.”
The Evolving Focus on Human Capital
As geopolitical and economic uncertainties rise, investors are shifting their focus on businesses with a long-term perspective, placing increased emphasis on resilient, sustainable business models supported by strong leadership. Leadership teams are now evaluated not only on qualities like passion and teamwork but also on traits like resilience, learning agility, and adaptability. These qualities are essential for steering companies through complex environments.
According to Invest Europe’s annual report 2023, diversity, equity, and inclusion (DEI) have also become critical components of venture capital assessments. Diverse teams are shown to be more innovative and resilient, and this shift underscores diversity as a strategic business advantage, particularly in fostering long-term growth.
The Human Element in Due Diligence
Due diligence in the venture capital ecosystem is no longer solely focused on financial metrics or product-market fit. Investors are increasingly assessing the personal traits and leadership capabilities of the individuals behind the business by leveraging the expertise of leadership advisory firms that utilize scientific, AI-driven assessment models. This approach allows for the collection of objective data points to predict leaders’ predispositions to manage stress, pivot when necessary, and drive innovation under pressure. The PitchBook Venture Monitor reveals that European firms are increasingly embracing data-driven assessments to evaluate leadership potential. These assessments help predict whether a team can endure the complexities of scaling, especially in volatile markets.
Diversity VC reports that traits such as empathy, emotional intelligence, and communication are now considered critical to leadership success. What previously was referred to as soft skills are becoming core skills and are increasingly seen as necessary in navigating uncertain markets and leading teams through periods of intense growth.
Key Traits Investors Value in Founding Teams
Through our work and regular exchanges with investment teams and operating partners worldwide, several key traits consistently emerge as critical in founding teams:
- Strategic Agility: The ability to balance high-level strategic thinking with practical, day-to-day operations. This allows founders to stay visionary while adjusting flexibly when needed.
- Resilience and Ability to Pivot: Demonstrating resilience in the face of setbacks and showing an ability to pivot as needed are increasingly valued. Investors rely on predictive analytics and behavioral assessments to gauge these traits.
- Leadership and Integrity: Strong leadership and integrity set the cultural tone for an organization and build trust with stakeholders. Founders who lead with ethical decision-making are more likely to foster sustainable growth.
- Vision and Communication: A clear, compelling vision, paired with excellent communication skills, helps unite both internal teams and external partners toward shared objectives.
Assessing a founding team’s human capital in a rapidly changing market has become essential—not just a nice-to-have. Financial metrics alone rarely reveal the qualities that drive lasting success, such as resilience, adaptability, and a unified vision. Numerous research studies show that up to 65% of venture-backed startups fail due to team-related issues, such as misaligned vision, poor leadership, and interpersonal conflicts—often far more influential than product or market challenges.
McKinsey reports that companies investing in leadership development see improved long-term performance, illustrating how human capital investments can help mitigate leadership risks. Investors who prioritize these human elements in due diligence are better equipped to identify leaders capable of enduring market disruptions and thriving through them. So, the question remains: as an investor, will you put human capital at the heart of your evaluation scorecard, recognizing that the ultimate strength of any investment lies in the people driving it forward?
Written by Vera Sharova & Ludovic Amblard
