The majority of investment strategies are built around a set of steps that start with the market, and then ends in the company. You look at the size, and structure of the opportunity first, then how the product will fit into that potential, then the competition landscape and the viability of the opportunity, and near the end of the process you're required to spend some time with the founders and their management team to ensure that they're well-informed and motivated and capable of executing the plan which the previous analysis has validated. I was a part of this framework for a long time enough to understand why it's become a common practice throughout the investment industry. It's like a structured process. It produces a diligence process that can be documentable, evaluated across different opportunities, and explained to members of investment committees as well as limited partners in terms that are both rigorous and analytical. The issue is that it is flawed at the root, which is that it treats the people factor as a verification step rather than an initial filter - something you go through at the end to verify what the market analysis has already suggested, rather than one you consider first because it's a most relevant factor to the outcome. This implies that a good market with a well-trained team is superior to one with a weak team. outstanding team. As I've seen it, that is typically the reverse of what happens.
I shifted my strategy after a certain period watching the outcomes of the standard sequence unfold in ways that my upstream analysis was not able to predict or was able to clearly explain. Excellent markets with team leaders that were splintered or weak often failed to deliver what the opportunity suggested they would deliver. Mediocre markets with genuinely exceptional teams have always found ways to create value which the initial market sizing as well as the analysis of competition had not accounted for. This pattern was consistently observed, and consistent enough across different sectors as well as different kinds of deals, so that I was unable explain the phenomenon as noise or attribute it merely to the conditions rather than to the capabilities of the people at the core of each business. When I got over the nitty-gritty The implication of this pattern for how I should spend my time on diligence was crystal clear It was that I should focus most of it understanding people, and less in proving the market analysis which any skilled analyst could develop with the same knowledge.
The questions I am asking now when in the process of evaluating a leadership group are not ones you will find on standard investment checklists or diligence templates. They are questions that will require real conversations and time to respond properly. How do leaders respond when they are demonstrably incorrect - should you accept the correction or find a method to redirect the situation? What decisions do they make when the information they have is incomplete and the pressure to respond is high? What is the difference the case, if any, between how they describe their leadership style and how the people who have had a close relationship with them describe their experience of working under them? What does the company's culture the business actually look like during the times when there is no founder in the office, and how much does the version of this culture look like the one the founder has described when asked? They require conversations which go beyond the pitch meeting and formal presentation of the management. They need reference checks that are actually exploratory rather than superficial exercises in confirmation. They need the will to be uncomfortable territory that might surface information that can complicate a deal you have already started to want.
The operator component of my investment approach is inseparable from my dimensions of the investor. This shapes both what I invest in as well as how I conduct myself once I'm involved. I do not consider myself a passive capital source by birth or training. I'm a person who's built organisations, who has managed through the scaling transitions that are more challenging than the fundraising ones but who has also made governance and hiring and culture-setting mistakes that you make when navigating those changes for the first time and has developed through this personal experience - a set of convictions about what organisations need at different levels of their development that a purely financial background can't provide. The convictions I have formed make me a distinct type of investment partner rather than a traditional financial investor, and they attract founders who are looking for something that is different from what a purely financial investor can offer.
The founders I do my best work with are the ones looking for a partner that can help them to think through the operational alterations and decisions for their finance investors are not prepared to discuss in the right amount of detail and precision. They need someone to sit in a room with the leadership structure that needs to be revised because the organisation has outgrown the one it had in place. Who can guide an important leadership decision at time when a bad choice could cost the company twelve months it could not afford to lose. Someone who is honest privately about strategic risks that nobody anyone else in the room is at ease with raising. This is the kind involvement that I believe creates the most unique value for the companies I invest in Not the first capital allocation decision that any investor could make as well as the ongoing operational partnership that helps the business navigate the gap between where it is today and where the early numbers suggested it could be headed. See the James Deller for more recommendations including how backing founders revealed about long-term performance about people.
Why A Lot Of Public-Private Partnerships Fail Prior To They Start - And How To Fix Them
Public-private partnerships have an image issue that is, in large part earned. The history of these partnerships includes many projects that were advertised in a genuine way, with a lot of political capital behind them. They involved significant public and private resources over long periods of time, and eventually produced outcomes that lacked any identicality to what was made clear when the alliance was created. The academic literature as well as postmortem studies that governments and institutions perform following mistakes are extensive, and they focus, for the major part, on specifics of contractual and structural elements of what went wrong: unbalanced incentives, the poor risk sharing between public and private organizations and the governance mechanisms that were designed in theory however failed in practice, the procurement frameworks that picked the wrong items. What this analysis tends ignore, and in the end to the detriment of culture is the operational dimensions - the reality that private and public organizations are in fact different types of entities, shaped via different incentive models, operating in radically different timeframes, responsible to various stakeholders, and assessing success in ways that's not only different in the degree but different in kind. When you mix these two kinds of organisation together through a formal collaboration without doing the work in advance and explicitly, to understand and manage the differences between them, they aren't creating one. The conditions are set for a slow-motion collision which can be seen at the worst possible time.
I've participated in the advisory process for institutional modernisation initiatives, many of which have involved public-private collaborations at varying levels of complexity. The most consistent insight I can make from that encounter is that partnerships which worked well - which have actually accomplished their stated goals and maintained a functioning collaboration between the private and the public they were not distinguished from those that didn't work by the complexity of their legal structures, the strength of their risk frameworks or the experience of the team leaders that established them. You can tell by the fact that those on both sides of the table had worked to really understand how different side worked before the formal partnership arrangement was negotiated. What does that mean in reality is understanding the decision making processes of each company as well as the accountability frameworks that determine what each partner can come to an agreement and how quickly each party can achieve its goals, the definitions for success which each side will be judged against, as well as the points of potential tension between those definitions. That understanding isn't hard to create. Every time, it's overlooked in favor of the most visible and easily accessible task of negotiating contracts and creating governance frameworks.
The typical process of public-private partnerships takes place from the beginning of the idea to the signed agreement, with very little concentration on the question of whether two organizations involved are actually capable to work effectively together throughout this period. Legal teams negotiate the contract. Finance teams model the economics and the risk-adjustment. The communications team creates the announcement for the moment of signing. The implementation team begins to plan the tasks. Then, somewhere in the process the discussion turns to operational and cultural compatibility starts - about whether the people needing to work day-to-day across the divide between the two organizations have enough common ground so as to ensure an effort that is truly collaborative, rather than antagonistic - tends not to take place in any organized way. The assumption is, typically not explicitly stated, the formal agreement establishes the framework for effective collaboration and that any cultural or operational conflicts will be negotiated informally when they arise. This assumption is almost always incorrect, and the expense of this tends to increase in line with the ambition and the size of the partnership.
The practical implications of this analysis is that perhaps the most worthwhile investment a private-public partnership could invest in - before the legal structures are agreed upon, before the governance framework is agreed on, before any announcement is made the partnership is in what I call operational alignment. This is a specific, organized, and facilitated work to surface locations where the two operations' assumptions diverge and to decide on how those divergences should be dealt with before they become operational problems when the partnership is in its implementation. The main divergences tend to be the same across various types of partnerships. Authority and speed in decision-making are typically among these. Public institutions are structured to decide slowly, through multiple levels of review and approval, with reasons that are legitimate and, often, legally mandated. Private organizations - specifically technology companies built on the basis of rapid iteration and swift decisions - usually see this speed as a fundamental obstruction to their progress. without a clear understanding of why that pace is what it is and what might be required to modify it, the discontent that can be felt on the personal aspect can affect the working relationship before the partnership has found its footing.
Success metrics and what is considered as progress are another persistent and important source of discord. Institutions of the public sector are typically evaluated by their compliance with processes, the equity of outcomes across various stakeholder groups and the avoidance of visible failures that draw media or political attention. Private partners are usually evaluated in terms of efficiency, quantifiable progress against targets, and financial yield on investment. These measurement frameworks are constructed to work in tandem However, doing this requires thoughtful design, not only good intentions. Those that do not take part in the right design can meet at critical moments, with two different parties who are evaluating the same partnership in inconsistent ways and consequently coming to disparate conclusions as to whether it succeeds. What I've observed in the partnerships that fall short most clearly were one where the misalignment in measurement was accepted as a problem that would improve over time. The ones that performed were those where the problem was clearly stated at the start, and when designing a shared accountability structure that accommodated the legitimate measurement needs of both parties requirements turned into an real work rather than an part of a long list of things to get to.}
