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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2 Houston space tech cos. celebrate major tech milestones

big wins

Two Houston aerospace companies — Intuitive Machines and Venus Aerospace — have reached testing milestones for equipment they’re developing.

Intuitive Machines recently completed the first round of “human in the loop” testing for its Moon RACER (Reusable Autonomous Crewed Exploration Rover) lunar terrain vehicle. The company conducted the test at NASA’s Johnson Space Center.

RACER is one of three lunar terrain vehicles being considered by NASA for the space agency’s Artemis initiative, which will send astronauts to the moon.

NASA says human-in-the-loop testing can reveal design flaws and technical problems, and can lead to cost-efficient improvements. In addition, it can elevate the design process from 2D to 3D modeling.

Intuitive Machines says the testing “proved invaluable.” NASA astronauts served as test subjects who provided feedback about the Moon RACER’s functionality.

The Moon RACER, featuring a rechargeable electric battery and a robotic arm, will be able to accommodate two astronauts and more than 880 pounds of cargo. It’s being designed to pull a trailer loaded with more than 1,760 pounds of cargo.

Another Houston company, Venus Aerospace, recently achieved ignition of its VDR2 rocket engine. The engine, being developed in tandem with Ohio-based Velontra — which aims to produce hypersonic planes — combines the functions of a rotating detonation rocket engine with those of a ramjet.

A rotating detonation rocket engine, which isn’t equipped with moving parts, rapidly burns fuel via a supersonic detonation wave, according to the Air Force Research Laboratory. In turn, the engine delivers high performance in a small volume, the lab says. This savings in volume can offer range, speed, and affordability benefits compared with ramjets, rockets, and gas turbines.

A ramjet is a type of “air breathing” jet engine that does not include a rotary engine, according to the SKYbrary electronic database. Instead, it uses the forward motion of the engine to compress incoming air.

A ramjet can’t function at zero airspeed, so it can’t power an aircraft during all phases of flight, according to SKYbrary. Therefore, it must be paired with another kind of propulsion, such as a rotating detonation rocket engine, to enable acceleration at a speed where the ramjet can produce thrust.

“With this successful test and ignition, Venus Aerospace has demonstrated the exceptional ability to start a [ramjet] at takeoff speed, which is revolutionary,” the company says.

Venus Aerospace plans further testing of its engine in 2025.

Venus Aerospace, recently achieved ignition of its VDR2 rocket engine. Photo courtesy of Venus Aerospace

METRO rolls out electric shuttles for downtown Houston commuters

on a roll

The innovative METRO microtransit program will be expanding to the downtown area, the Metropolitan Transit Authority of Harris County announced on Monday.

“Microtransit is a proven solution to get more people where they need to go safely and efficiently,” Houston Mayor John Whitmire said in a statement. “Connected communities are safer communities, and bringing microtransit to Houston builds on my promise for smart, fiscally-sound infrastructure growth.”

The program started in June 2023 when the city’s nonprofit Evolve Houston partnered with the for-profit Ryde company to offer free shuttle service to residents of Second and Third Ward. The shuttles are all-electric and take riders to bus stops, medical buildings, and grocery stores. Essentially, it works as a traditional ride-share service but focuses on multiple passengers in areas where bus access may involve hazards or other obstacles. Riders access the system through the Ride Circuit app.

So far, the microtransit system has made a positive impact in the wards according to METRO. This has led to the current expansion into the downtown area. The system is not designed to replace the standard bus service, but to help riders navigate to it through areas where bus service is more difficult.

“Integrating microtransit into METRO’s public transit system demonstrates a commitment to finding innovative solutions that meet our customers where they are,” said METRO Board Chair Elizabeth Gonzalez Brock. “This on-demand service provides a flexible, easier way to reach METRO buses and rail lines and will grow ridership by solving the first- and last-mile challenges that have hindered people’s ability to choose METRO.”

The City of Houston approved a renewal of the microtransit program in July, authorizing Evolve Houston to spend $1.3 million on it. Some, like council member Letitia Plummer, have questioned whether microtransit is really the future for METRO as the service cuts lines such as the University Corridor.

However, the microtransit system serves clear and longstanding needs in Houston. Getting to and from bus stops in the city with its long blocks, spread-out communities, and fickle pedestrian ways can be difficult, especially for poor or disabled riders. While the bus and rail work fine for longer distances, shorter ones can be underserved.

Even in places like downtown where stops are plentiful, movement between them can still involve walks of a mile or more, and may not serve for short trips.

“Our microtransit service is a game-changer for connecting people, and we are thrilled to launch it in downtown Houston,” said Evolve executive director Casey Brown. “The all-electric, on-demand service complements METRO’s existing fixed-route systems while offering a new solution for short trips. This launch marks an important milestone for our service, and we look forward to introducing additional zones in the new year — improving access to public transit and local destinations.”

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This article originally ran on CultureMap.

Cart.com's M&A move, energy innovators recognized, and more top articles from the week

trending news

Editor's note:Let's roundup the most-read Houston innovation news from the week. Trending Houston tech and startup articles from InnovationMap and its daily newsletter included a new health tech grant for Houston researchers, Cart.com's latest acquisition, and more.

Houston med school lands $3.5M grant to rollout genetic telehealth platform for underserved newborns

Baylor College of Medicine received $3.5 million to expand its telehealth platform to improve genomic diagnostics and care for critically ill newborns in underserved neonatal intensive care units in West and South Texas. Photo by Tim Bish on Unsplash

Baylor College of Medicine received $3.5 million to help hospitals in Texas better care for and diagnose some of the state's most vulnerable patients.

The funds come from the National Human Genome Research Institute for the Making Genomics Accessible to Newborns in Texas, or MAGNET, program. They'll be used to adapt BCM's Consultagene telehealth platform to be used in underserved neonatal intensive care units in West and South Texas, according to a statement.

Families in this region of the state currently can travel up to 300 miles to reach the nearest in-state geneticist, according to MAGNET. The program aims to help close that gap through BCM's established remote consultation service. Investigators also plan to create educational videos in English and Spanish to educate providers and patient caregivers on genetic diagnoses.

“Only 20 years ago, less than 3 percent of genetic conditions in newborns could be molecularly diagnosed,” Dr. Brendan Lee, co-principal investigator and professor and chair of the Department of Molecular and Human Genetics and Robert and Janice McNair Endowed Chair in Molecular and Human Genetics at BCM, says in a statement. Continue reading.

Houston e-commerce platform expands logistics network with acquisition of fulfillment operations arm

Cart.com has acquired OceanX, adding two new facilities and expanding its logistics network to enhance efficiency and support high-volume beauty, wellness, and lifestyle brands. Photo courtesy of Cart.com

A Houston e-commerce unicorn has made its latest strategic acquisition.

Cart.com, which operates a multichannel commerce platform, announced that it has acquired Guthy-Renker's wholly-owned fulfillment operations arm OceanX. The terms of the deal were not disclosed. Around 200 OceanX employees will be assumed onto the Cart.com team, and the fast-growing company will add two new facilities totaling over 600,000 square feet to its network, expanding to include a West Coast distribution hub in Southern California and its third facility near Columbus, Ohio.

"Acquiring OceanX is part of Cart.com’s strategy to continue to scale our platform and capabilities across industries, leveraging our proprietary technology to improve efficiency and deliver superior results to our clients and their customers,” Omair Tariq, Cart.com founder and CEO, says in a news release. “By deploying our Constellation OMS and WMS software and seasoned operations team across these two new facilities, we will improve order visibility, labor efficiency, shipping costs and customer satisfaction for the benefit of our new clients.” Continue reading.

3 clean energy innovators make Forbes list of top young energy professionals

Three young professionals have made the cut for this year's Forbes Under 30 list in the Energy and Green Tech list for 2025. Photos via Forbes

A handful of Houstonians have been named to the Forbes 30 Under 30 Energy and Green Tech list for 2025.

Kip Daujotas is an investment associate at Aramco Ventures, a $7.5 billion venture capital arm of the world's largest energy company. Houston is the Americas headquarters for Saudi Aramco. Since its inception in 2012, Aramco Ventures has invested in more than 100 tech startups. Daujotas joined the team over two years ago after studying for an MBA at Yale University. He led Aramco’s first direct air capture (DAC) investment — in Los Alamos, New Mexico-based Spiritus.

Also representing the corporate side of the industry, Wenting Gao immigrated from Beijing to obtain an economics degree from Harvard University, then got a job at consulting giant McKinsey, where she recently became the firm’s youngest partner. Gao works on bringing sustainability strategies to energy and materials companies as well as investors. Her areas of expertise include battery materials, waste, biofuels, and low-carbon products.

Last but not least, Houston entrepreneur Rawand Rasheed is co-founder and CEO of Houston-based Helix Earth. He co-founded the startup after earning a doctoral degree from Rice University and co-inventing Helix’s core technology while at NASA, first as a graduate research fellow and then as an engineer. The core technology, a space capsule air filtration system, has been applied to retrofitting HVAC systems for commercial buildings. Continue reading.

Rice University, Houston Methodist launch new institute to revolutionize health care through AI, innovation

Rice University and Houston Methodist have partnered to create the Digital Health Institute, combining advanced technology, artificial intelligence, and interdisciplinary expertise to transform health care. Photos courtesy

Rice University and Houston Methodist have established through a multi-year joint effort the Digital Health Institute, which aims to transform healthcare through advanced technology and the collaborative expertises of the university and hospital.

Rice’s leadership in engineering, digital health and artificial intelligence will combine with Houston Methodist’s academic medicine and research infrastructure.

“This partnership embodies Rice’s bold vision to lead at the forefront of innovation in health and responsible AI,” Rice President Reginald DesRoches says in a news release. “By combining our strengths with Houston Methodist, we are creating a transformative platform to address critical challenges in healthcare with solutions that are ethical, accessible and impactful. This initiative exemplifies our commitment to driving interdisciplinary collaboration and advancing global health for the benefit of humanity.” Continue reading.

2 Houston professors named as fellows for prestigious group of inventors

Omid Veiseh from Rice University and Edward Ratner from the University of Houston have been named 2024 National Academy of Inventors fellows for their innovative contributions. Courtesy photos

The highest professional distinction awarded to academic inventors, the National Academy of Inventors, have elected two fellows from Rice University and the University of Houston for its 2024 class.

Edward Ratner, computer information systems lecturer in the Department of Information Science Technology at the University of Houston’s Cullen College of Engineering, and Omid Veiseh, bioengineer at Rice University and director of the Biotech Launch Pad, were two of the 170 honorees representing 39 states and 12 countries.

The 2024 class will be honored and presented their medals on June 26 in Atlanta, Georgia by a senior official of the U.S. Patent and Trademark Office. Continue reading.

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