Investing 101: Red flags and green flags in company leadership

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Investing 101: Red flags and green flags in company leadership

The primary driving force behind a company isn’t the idea. It’s not the funding. It’s the people.

When you invest in a company, although market conditions will play a role, the chances of you seeing a worthwhile ROI rest in the hands of the individuals making the decisions.

So far in our investing 101 series, we’ve covered the problem, the solution, the market, and the competition. In this article, we’re looking at the people behind the project. Who inspires confidence? Who commands your trust? And who will ultimately deliver a worthwhile return on your investment?

Red flags to look out for in company leaders

A founder’s confidence can be inspiring and motivating. It can also be misleading.

The world of entrepreneurship is filled with big personalities. Media hype and bravado can make certain investments (a certain electric car maker springs to mind) seem exciting and appealing. Brands built on ‘cults of personality’ can succeed if balanced with true innovation and expert financial management. They can also crash and burn in the most dramatic ways possible.  

Regularly hitting headlines or posting incendiary tweets are not good qualities to seek when looking at leaders to invest in. There are several metrics to take into account when looking at leaders to place your trust and investment funds with. And none of them are hubris.

Erratic spending. Making major purchases is often a strategic way of showing shareholders there’s plenty of cash in the pot. But it’s a dangerous bluff.

WeWork’s ex-CEO Adam Neumann became something of a poster child for spending mismanagement when he concluded a meeting discussing a 7% personnel lay-off with a private performance by DMC’s Darryl McDaniels. And racked up $81 million of private jet expenses.

Glitz and grandstanding can often indicate a leader is distracted, their principles misaligned, and/or their decision-making abilities are inhibited.

   

Green flags to look out for in company leaders

Consistently held positions, low staff turnover, and extensive industry experience are all green lights for sensible investments.  

Clear alignment on vision is also essential. Every company will experience setbacks and challenges, but a team that works well together has a better chance of weathering them.

Humans are best at cooperating when they share a common goal. A company who cultivates passion and belief from the top down sets a strong foundation for success.

A well paid and well looked after workforce is also a green flag. The pressure is on for worker rights to take precedence - not just from ethical investors, but from global societies at large, as is being exemplified currently by the Amazon unionisation drive.

An effective, competent, and forward-thinking team is essential. These are qualities we seek when approving the companies raising capital on the STAX platform.

If you’re ready to take the plunge, you can view our live campaigns here or join us here to stay updated.

James Brannan

Director of Operations at STAX

Sam Henderson

Director of Marketing at STAX

Natalia Forato

Social Media Manager at STAX

All views, investment or financial opinions expressed are those of the author and do not necessarily reflect the official policy or position of STAX. The information contained in this post is not investment advice or a recommendation to buy or sell any specific security.
Understand the Risks

Under crowdfunding legislation in Australia, STAX is what’s known as a ‘gate keeper’. That means we’re obliged to check certain company details on your behalf. Read more about how we select companies here.

Like anything in life though, investing on STAX comes with risks. While we carefully screen every company, we can’t actually guarantee their success. Nor do we give any investment advice or take responsibility for losses. We’ve covered the general risks here.

Information is currency.
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