An effective manager evaluation technique is to recognize that everyone presents their polished "best self" initially. An allocator's primary job during due diligence is to actively investigate beyond this facade to uncover the manager's "true self"—how they operate under pressure and handle failure—before committing capital.
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During due diligence, it's crucial to look beyond returns. Top allocators analyze a manager's decision-making process, not just the outcome. They penalize managers who were “right for the wrong reasons” (luck) and give credit to those who were “wrong for the right reasons” (good process, bad luck).
Limited Partners (LPs) value fund managers who are willing to listen and internalize market feedback, even if they ultimately follow their own strategy. This openness is a key positive signal, while a refusal to listen is a major red flag that often appears early in the relationship.
Experience taught Herb Wagner that great leaders consistently surprise on the upside. He now weights leadership quality far more heavily, assessing CEOs not by interviews or charisma, but by their verifiable track record and through trusted backchannel references who have worked with them directly.
While assessed during diligence, the true caliber of a founder—their passion, authenticity, and ability to "run through walls"—becomes starkly clear after the deal closes. This distinction is not subtle; the impact of a truly exceptional founder versus an average one is immediately evident in the business's trajectory.
Ditch standard FANG interview questions. Instead, ask candidates to describe a messy but valuable project they shipped. The best candidates will tell an authentic, automatic story with personal anecdotes. Their fluency and detail reveal true experience, whereas hesitation or generic answers expose a lack of depth.
Employees should test their managers by asking how they make decisions. A manager who cannot articulate their decision-making framework is a significant warning sign, suggesting a lack of clarity and potential organizational chaos. This serves as a powerful "reverse interview" technique for assessing leadership.
To elicit candid answers from fund managers, the most effective technique is not the question itself but the silence that follows. Resisting the psychological urge to fill the space forces the manager to sit with the question, often leading to less rehearsed and more truthful responses.
A rising tide lifts all boats. The true test of a founder partnership emerges during downturns. Diligence should focus on teasing out traits like adaptability, humility, and accountability, which predict how a founder will react when plans inevitably go awry.
Beyond IQ and EQ, interview for 'Resilience Quotient' (RQ)—the ability to persevere through setbacks. A key tactic is to ask candidates about their proudest achievement, then follow up with, 'What would you do differently?' to see how they navigated strife and learned from it.
Instead of focusing on process, allocators should first ask managers fundamental questions like "What do you believe?" and "Why does this work?" to uncover their core investment philosophy. This simple test filters out the majority of firms that lack a deeply held, clearly articulated conviction about their edge.