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Research; HR Due Diligence and IRR

"Evaluation helps investors build a bridge between intuitive knowing and decision making. 'Blind spots' can be pointed out to highlight biases in investment decision making. Structured investigation of the symptoms and causes of executive performance increases the investor's scope of control."

Duncan Chapple
Correlation of Assessment Practices to Investment Performance

Human-Equity’s 2008 Survey of VCs and PE funds has found a high variation in chosen assessment techniques. Research of 48 VCs in the USA has shown direct investment performance consequences of the HR assessment approach adopted:

 
Assessment Approach Ave. Investement IRR
Ad-hoc HR Assessment 25%
Systematic HR Due Diligence 80%

Choose the right set of assessment techniques and your investment choices will have better rates of return.Better metrics also help increase your scope of investment projects.

Survey of Investors - Investors' Strategies in HR Assessment:

Human-Equity is conducting a survey of over 40 investors in 6 countries.

Click Here to learn more.

If you are a PE or VC investor, learn how to participate and benefit from receiving the summary results.

Assessment outcomes - parallels in professional sports teams

A fascinating example as to how assessment techniques can improve choices, Moneyball: The Art of Winning an Unfair Game (ISBN 0-393-05765-8) is a book by Michael M. Lewis, published in 2003, about the Oakland Athletics baseball team and its general manager, Billy Beane. Its focus is the team’s modernized, analytical approach to assembling a competitive baseball team despite Oakland’s disadvantaged revenue situation.

 

The central premise of Moneyball is that the collected wisdom of baseball insiders (including players, managers, coaches, scouts) over the past century is subjective and often flawed. Statistics such as stolen bases, runs batted in, and batting average, typically used to gauge players, are relics of a 19th-century view of the game and the statistics that were available at the time. The book argues that the Oakland A’s front office took advantage of more empirical gauges of player performance to field a team that could compete successfully against richer competitors in Major League Baseball.

 

Rigorous statistical analysis had demonstrated that on base percentage and slugging percentage are better indicators of offensive success, and the A’s became convinced that these qualities were cheaper to obtain on the open market that more historically valued qualities such as speed and contact. These observations often flew in the face of conventional baseball wisdom and the beliefs of many baseball scouts and executives.

By re-evaluating the strategies that produce wins on the field, the 2002 Athletics, with approximately $41 million in salary, are competitive with larger market teams such as the New York Yankees and Boston Red Sox, who spend over $100 million in payroll. (Wikipedia)