The Role Of Soft Facts In Investment Decision-Making

CSR, diversity, employee engagement, and retention -the non-financial and non-market related factors, the soft facts until recently were little more than a box-ticking exercise for investors– have taken on a renewed prominence in any VC's decision-making process.

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When it comes to investment-decision making, VCs rightly focus on the detail. We conduct comprehensive and complex analysis of fundamental and technical metrics– we look at the hard facts, such as a company’s financial statements and the competitive landscape within which it operates. In this way, we seek to form a holistic picture and make definitive assessments of a company’s potential for growth.

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But what about the soft facts? How many times do we overlook as investors the importance of building teams, for example, and how much do we actually drill down into it? We might talk about experience, background, and schools, but how do we actually measure the ability of those people being able to adapt to difficult situations or decision-making?

Perhaps one silver lining to the ongoing COVID-19 crisis is that it has forced us to refine and refocus our approach. I have written before how the pandemic has forced VCs to be more diligent, sparing, and strategic in their investments. The first six months of 2020 saw record levels of funding attracted by MENA startups, even as around much of the rest of the world, VC confidence had taken a hit. But something had changed. Investors are investing more money, but in fewer startups, targeting lower-risk, later-stage companies, and focusing on industries that have evolved in the current climate, such as fintech, edtech, and healthtech.

What else has changed? Increasingly, investors are looking beyond the balance sheet. CSR, diversity, employee engagement, and retention -the non-financial and non-market related factors, the soft facts until recently were little more than a box-ticking exercise for investors– have taken on a renewed prominence in any VC’s decision-making process. During the current crisis, considerations such as developing an adaptable and innovative team have emerged as an ongoing ambition and priority for any firms looking to deliver sustainable growth. And when hiring an individual, you don’t just look at their experience and education to make a hiring decision, you meet them and test them to understand who they are as a person and how they would work with your team.

In the Middle East, our burgeoning VC community is still in its early stages. We are continuously learning and exploring how to grow and improve– both from studying what other, more established ecosystems have achieved, and also where they have gone wrong. A region of late adopters and fast learners, we are also able to react and adapt with more agility than others when it comes to paradigm-shifting crises.

This is how we stay ahead of the curve. There are plenty of lessons to learn from COVID-19, but perhaps the most important for the region’s VCs, whether they err towards the fundamental or technical side, is the need to focus on the soft facts as much as the hard. It is time to look beyond the balance sheet.

Related: Connecting The Dots: The Pros And Cons Of Virtual Due Diligence

Areije Al Shakar

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Areije Al Shakar has more than 16 years of experience in banking and entrepreneurship. In her current role at Bahrain Development Bank (BDB), she is a Senior Vice President heading the Development Services Division, and leads the fund management team of the Al Waha Venture Capital Fund of Funds as Director and Fund Manager. Her role and involvement at the bank includes coaching, mentorship, startup seed funding, and entrepreneur development. She has been involved in the development of several support services for entrepreneurs, namely in the establishment of BDB’s Rowad Program and the Seed Fuel-Rowad startup funding program, a part of the Global Accelerator Network.

She has worked in reputable organizations including Investcorp, Citibank, BNP Paribas, and Lehman Brothers on the treasury, investment management, and advisory side. She holds a Master’s of Science in Public Policy and Management from the School of Oriental and African Studies (SOAS), University of London, and a Bachelor of Commerce in Finance from the John Molson School of Business, Concordia University. She is also a Kauffman Fellow Class 24, and a certified business coach and mentor from the UK’s Chartered Management Institute.