The VCs must ask themselves if their companies are run by management teams that are capable of driving companies as the recession eventually bottoms. Studying the shift in the current unemployment rates in the US, HireLabs can forecast a recovery in the international labor market - lead by the US - sometime around Feb 2010.
Very few CEOs of venture-backed companies have the experience of riding a company out of a recession successfully. The first sign that a management team is not performing at optimum is if they blame market conditions for loss of productivity. The questions that VCs should ask their management team is whether the competition was able to monetize on the opportunities in the given market conditions. A management team that can monetize in a down economy will go on to build a great company.
Lesser experienced management teams have a tendency to fall victim to confusion when they see a decline in orders, which leads to chaos in the decision making process. Our research suggests that of 64 management teams facing a financial crisis, 36 companies had line managers who reported a lack of corporate direction. From a standpoint of human behavior, this can be attributed to lack of leadership amongst the management team. In such times, possible opportunities are missed as the management team is preoccupied in solving personal differences. At this crucial time, if the VC has prior knowledge on the behavior of the team, the VC can use preventive measures ahead of time to secure their investments.
VCs who are looking to capitalize on the market recovery should predominantly understand the teams that are running the companies, and assess the teams’ ability2 to analyze market conditions and perform.