Houston expert looks into behavioral analytics in private equity, growth equity, and venture capital

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The larger the deal, the higher the chances of failure, says this Houston expert. Photo via Getty Images

Study after study puts the failure rate of mergers and acquisitions somewhere between 70 percent and 90 percent (2011, HBR). One KPMG study narrowed the band of M&A failures to 75 percent to 83 percent (2015, KPMG). One constant in the research is that the larger the deal, the higher the chances of failure.

A FAILED MERGER, ACQUISITION, OR DIVESTITURE CAN BE UNDERSTOOD IN 2 WAYS:

Qualitative – what the companies had in mind that caused them to merge in the first place doesn't work out that way in the end.
Quantitative – shareholders suffer because operating results deteriorate instead of improve.

Deloitte's M&A Trends 2020 reports that 38 percent of PE firms cite revenue and growth improvement strategies as their primary strategy or focus area for driving value in their portfolio companies.

In the same report, EFFECTIVE INTEGRATION is key for the success of the deal. It accounts for 20 percent of a successful transaction, tied for top place with ACCURATELY VALUING A TARGET.

Post-M&A integration is defined as the implementation of changes in functional activities, organizational structures, and cultures of the two organizations to expedite their consolidation into a functional whole. Of course, this all involves people.

Moreover, Aon Hewitt research shows that:

There is a 23 percent increase in "actively disengaged employees" after a change event – even if no one's job is affected.
It takes about three years to return to pre-merger engagement levels.

With these figures, it is startling that there is not more focus on talent. Executives attribute 72 percent of their company's value to their employees, yet a mere 12 percent of companies align their talent strategy with their business strategy (Predictive Index, The 2020 State of Talent Optimization).

HOW ARE INVESTORS IN THE PRIVATE MARKET CHANGING THE TIDE?

According to Mike Zani, CEO of The Predictive Index, "When you look at the world of PE, growth equity, and to a lesser extent, VC, we are starting to see more talent officers, someone on staff to assist with strategic HR challenges with their portfolio." For example, Vista Equity has a consulting division that is solely focused on the talent and people analytics of its portfolio companies. They go beyond just finding the right executives, they have proprietary analytics tools to add value.

THERE ARE THREE USE CASES FOR ANALYTICS WITHIN THE PRIVATE MARKET:

1. Due Diligence

"One of the most powerful ways behavioral analytics are used for due diligence is understanding the strengths and blind spots of the future leadership team. It's about applying analytical rigor to the people side of the business to create a nuanced understanding of individual and team dynamics so you can be intentional about how to enable and de-risk the execution of future growth plans. We surface people challenges and opportunities early in the process so our clients can put strategies in place for effective change management and talent optimization." Heather Haas, President, ADVISA.

After signing a letter of intent, a consultant can assess the leadership team with behavioral, cognitive, and organizational assessments. In the process of evaluating leadership fit, consultants may identify gaps between the leadership abilities needed and those present in the executive team, and investors must focus attention on closing those gaps. It is much easier to suggest fixing them before the deal is closed, where investors can work with the company to create leadership development or hiring plans. If investors discover that the executive team lacks financial or operational excellence 6 months after close, it is going to be much harder to communicate that in a positive, forward-looking way.

Predictive Index isn't the only tool used for due diligence. Specialty consulting firms that provide due diligence support with people analytics include GH Smart, Green Peak Partners, Korn Ferry, and Deloitte. They use a host of tools ranging from Hogan assessments to proprietary software. "Out of the 150 PE clients with The Predictive Index," Zani says "about 1/3 are using it in due diligence regularly."

2. Post-Deal Value Creation

Effective M&A integration accounts for 20 percent of the success of a deal. As I mentioned in the last post, behavioral analytics can provide insights that allow each person to easily understand how their new team members are wired. This can drastically reduce the time it takes to build cohesion among the group and make for more effective collaboration as project teams are regularly assembled and reassembled. Put simply, instead of using our energy to try to figure each other out, we cut through the noise so we can run faster.

3. Scale

The use of behavioral analytics for hiring is nothing new. With an infusion of cash, one of the first thing a company does in response to growth goals is to hire. People data can help companies scale quickly and with confidence. Max Yoder, CEO and Founder of Lessonly shares about Predictive Index, "Now, every time we hire, we use the assessments as another tool in our toolkit. The results will never decide whether a person gets hired or not, but they do provide guidance as to whom should be in sales, whom should be in client experience, whom should sit in a quiet space, and whom thrives on commotion."

Even with such impressive results, still there are two schools of thought when it comes to how much control private market firms want to have over the operations of their portfolio companies. General Catalyst, the PE firm that invested in Predictive Index, in particular, says they don't want to be the management team. Kirk Arnold, Executive In Residence, General Catalyst says "We're very founder supportive. We invest in entrepreneurs and innovators and work to support them. We share feedback and insights with those teams – and encourage them to The Predictive Index toolset to help them scale effectively. But we don't force any of our teams to invest in any particular tool or strategy. We believe great businesses are built by great teams, and we believe that PI can help companies excel in team building – but we look to the leadership team to make those investment decisions based on their needs and culture.

Prior to becoming a Predictive Index Consultant, I spent five years integrating acquisitions. I only had access to PI for the very last year. It was so powerful in building dream teams that I wished I had known about it sooner. Areas I used PI heavily was in post-deal value creation as well as scaling. In my current practice, I spend about 20 percent of my time performing due diligence for start-ups as well as working with them to round out their team from a data-driven perspective.

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This article was written by Wendy Fong, founder and principal of Chief Gigs, and originally appeared on Liu Idea Lab for Innovation & Entrepreneurship's blog.

Houston expert: Finding your tech talent through analytics

Houston Voices

You know the work that needs to get done, and you know the environment that you want to build. How do you find the people who will build it with you? Historically, we relied on relationships, intuition, and track record when we evaluate potential team members. This is the same approach we use to find our mates, and well, the divorce rate speaks for itself.

Perhaps you know your potential partner from a previous job when you both worked for a public company, and they were a high performer. Even when we have worked with someone before and they had a great track record, things can go awry. Humans are messy beings. When factors that affect motivation (such as equity percentages, the potential for exit, working 80-plus hours a week) change, performance can be affected. The people who do really well as a cog in the wheel do not necessarily have the same drive to BUILD the wheel. So how do we pick the team members who will best suit the work and environment?

Did you know that 95 percent of people think they're self-aware, yet only 10 to 15 percent actually are (Tasha Eurich)? If people don't know themselves, how can you possibly know your potential partner's fit?

Behavioral assessments aren't new. If you've ever worked for a large company, you've likely taken one. What is different now is that The Predictive Index is harnessing the power of behavioral analytics to predict success and help us visualize teams in a whole new way. We can now look at people's work style in under 6 minutes and quickly give you data on how people will perform in their role and with your team to drive alignment in your organization.

As a founding board member and active investor in Valhalla Investment Group, we recently implemented the practice of using behavioral analytics in our due diligence. We then look at individual and team results to identify any gaps between strategy and the team's ability to execute the strategy. We specifically look at a team's appetite for risk, approach to change, and response to pressure.

The results for one startup we were evaluating came back with a potential red flag. Five of the six in the executive team were exploring leaders in the "Innovation and Agility" quadrant. These leaders are independent and comfortable with risk. We had one who was a very strong stabilizing leader in the "Process and Precision" quadrant. This person is very precise and cautious with risk. We immediately reached out to the CEO to schedule a Zoom to ask how the team works with what could be seen as an "outlier" and how they deal with the friction. The CEO understood the strengths and cautions of his team and explained that while this person is different, they are very much needed. They provide balance and contribute to areas that are blind spots for the rest of the team. The way the CEO handled the question showed us that he was self-aware enough to manage such differences and gave us the confidence to invest in this startup.

HOW IS THIS RELEVANT FOR YOUR STARTUP?

Founders

Wouldn't it be great to know potential partners' appetite for risk, how they deal with deadlines, their proactivity or reactivity to issues before you meet them? Or how they respond to pressure? Founding partners can be evaluated to ensure their behavioral drives align with the startup strategy.

For example, if the strategy is to fail fast to obtain product-market fit and grow market share quickly, founders would need to be innovative, risk-tolerant, comfortable with ambiguity, and they'd need to thrive under pressure. Conversely, if your startup serves a highly regulated environment, your founding team needs to be well-organized, careful with rules, and cautious with risk.

Team dynamics and inclusivity

Without insight into team dynamics, results are left to chance. Behavioral analytics can provide insights that allow each person to easily understand how their new team members are wired. This can drastically reduce the time it takes to build cohesion among the group and make for more efficient and effective collaboration as project teams are regularly assembled and reassembled. Put simply, instead of using our energy to try to figure each other out, we cut through that noise so we can run faster.

Lastly, by creating a job profile and looking for candidates who fit the profile, we can cut out the biases that relationship-based recruiting can introduce to an organization.

"The alignment of business strategies and talent strategies is known as talent optimization."

Talent optimization goes beyond human resources practices, management consulting, and productivity tooling to describe a model that empirically aligns strategy and people practices. It weaves talent improvement practices into the everyday workings of a company to nurture and employ a workforce that is specifically calibrated to the company's strategic objectives. The sooner we utilize people data to look at our organization, the sooner we can spot potential blind spots. Leaders can then address the issues and focus on what's most important for their startup.

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This article was written by Wendy Fong, founder and principal of Chief Gigs, and originally appeared on Liu Idea Lab for Innovation & Entrepreneurship's blog.

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Houston robotics co. unveils new robot that can handle extreme temperatures

Hot New Robot

Houston- and Boston-based Square Robot Inc.'s newest tank inspection robot is commercially available and certified to operate at extreme temperatures.

The new robot, known as the SR-3HT, can operate from 14°F to 131°F, representing a broader temperature range than previous models in the company's portfolio. According to the company, its previous temperature range reached 32°F to 104°F.

The new robot has received the NEC/CEC Class I Division 2 (C1D2) certification from FM Approvals, allowing it to operate safely in hazardous locations and to perform on-stream inspections of aboveground storage tanks containing products stored at elevated temperatures.

“Our engineering team developed the SR-3HT in response to significant client demand in both the U.S. and international markets. We frequently encounter higher temperatures due to both elevated process temperatures and high ambient temperatures, especially in the hotter regions of the world, such as the Middle East," David Lamont, CEO of Square Robot, said in a news release. "The SR-3HT employs both active and passive cooling technology, greatly expanding our operating envelope. A great job done (again) by our engineers delivering world-leading technology in record time.”

The company's SR-3 submersible robot and Side Launcher received certifications earlier this year. They became commercially available in 2023, after completing initial milestone testing in partnership with ExxonMobil, according to Square Robot.

The company closed a $13 million series B round in December, which it said it would put toward international expansion in Europe and the Middle East.

Square Robot launched its Houston office in 2019. Its autonomous, submersible robots are used for storage tank inspections and eliminate the need for humans to enter dangerous and toxic environments.

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This article originally appeared on EnergyCapitalHTX.com.

Houston's Ion District to expand with new research and tech space, The Arc

coming soon

Houston's Ion District is set to expand with the addition of a nearly 200,000-square-foot research and technology facility, The Arc at the Ion District.

Rice Real Estate Company and Lincoln Property Company are expected to break ground on the state-of-the-art facility in Q2 2026 with a completion target set for Q1 2028, according to a news release.

Rice University, the new facility's lead tenant, will occupy almost 30,000 square feet of office and lab space in The Arc, which will share a plaza with the Ion and is intended to "extend the district’s success as a hub for innovative ideas and collaboration." Rice research at The Arc will focus on energy, artificial intelligence, data science, robotics and computational engineering, according to the release.

“The Arc will offer Rice the opportunity to deepen its commitment to fostering world-changing innovation by bringing our leading minds and breakthrough discoveries into direct engagement with Houston’s thriving entrepreneurial ecosystem,” Rice President Reginald DesRoches said in the release. “Working side by side with industry experts and actual end users at the Ion District uniquely positions our faculty and students to form partnerships and collaborations that might not be possible elsewhere.”

Developers of the project are targeting LEED Gold certification by incorporating smart building automation and energy-saving features into The Arc's design. Tenants will have the opportunity to lease flexible floor plans ranging from 28,000 to 31,000 square feet with 15-foot-high ceilings. The property will also feature a gym, an amenity lounge, conference and meeting spaces, outdoor plazas, underground parking and on-site retail and dining.

Preleasing has begun for organizations interested in joining Rice in the building.

“The Arc at the Ion District will be more than a building—it will be a catalyst for the partnerships, innovations and discoveries that will define Houston’s future in science and technology,” Ken Jett, president of Rice Real Estate Company, added in the release. “By expanding our urban innovation ecosystem, The Arc will attract leading organizations and talent to Houston, further strengthening our city’s position as a hub for scientific and entrepreneurial progress.”

Intel Corp. and Rice University sign research access agreement

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Rice University’s Office of Technology Transfer has signed a subscription agreement with California-based Intel Corp., giving the global company access to Rice’s research portfolio and the opportunity to license select patented innovations.

“By partnering with Intel, we are creating opportunities for our research to make a tangible impact in the technology sector,” Patricia Stepp, assistant vice president for technology transfer, said in a news release.

Intel will pay Rice an annual subscription fee to secure the option to evaluate specified Rice-patented technologies, according to the agreement. If Intel chooses to exercise its option rights, it can obtain a license for each selected technology at a fee.

Rice has been a hub for innovation and technology with initiatives like the Rice Biotech Launch Pad, an accelerator focused on expediting the translation of the university’s health and medical technology; RBL LLC, a biotech venture studio in the Texas Medical Center’s Helix Park dedicated to commercializing lifesaving medical technologies from the Launch Pad; and Rice Nexus, an AI-focused "innovation factory" at the Ion.

The university has also inked partnerships with other tech giants in recent months. Rice's OpenStax, a provider of affordable instructional technologies and one of the world’s largest publishers of open educational resources, partnered with Microsoft this summer. Google Public Sector has also teamed up with Rice to launch the Rice AI Venture Accelerator, or RAVA.

“This agreement exemplifies Rice University’s dedication to fostering innovation and accelerating the commercialization of groundbreaking research,” Stepp added in the news release.

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