By Javier García Manzanedo, Founder’s Risk Due Diligence for Investors
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Javier García Manzanedo is an entrepreneurship psychologist specializing in founder risk due diligence for investors. His work focuses on the human factors that financial and legal due diligence often overlook, with particular attention to founder transitions, leadership assessment, and post-acquisition integration in founder-led businesses. Drawing on evidence-based assessment and psychometrics, he helps investors make safer decisions by identifying the people risks that shape continuity, performance, and long-term value creation.
Why evaluating the searcher can be just as decisive as evaluating the company
In search funds, the sophistication of asset analysis has advanced dramatically. Investors now examine markets, business quality, capital structures, downside scenarios, and value-creation potential with increasing rigor. Yet one of the most consequential variables in the entire thesis is still often assessed with less structure than it deserves: the searcher’s real fit for the full cycle of search, acquisition, integration, and operation (Kowalewski et al., 2024; Stanford Graduate School of Business, 2024).
And that matters more than it may seem.
In a search fund, the searcher is not simply a promising candidate or a high potential executive. They are a central part of the investment thesis itself. Their ability to sustain a long search, distinguish true opportunities from attractive distractions, calibrate risk, absorb the founder transition, and then lead the company directly affects the probability of success. The relevant question, therefore, is not only whether the candidate performs well in interviews. The real question is how they are likely to function once reality stops resembling the interview room.
Put differently: if the asset is examined through a due diligence lens, the human variable should not be left to intuition, broad impressions, or scattered signals. In a model where execution depends so heavily on the quality of the leader as well as the quality of the business, the assessment of human risk also deserves method.
Four phases, four distinct forms of human risk
One reason this issue is often misread is that the searcher is still too often assessed as if the role were stable. It is not. The demands shift materially across the lifecycle.
The Search phase requires a combination of psychological resources that is easy to underestimate. From the outside, it may look like a period dominated by networking, sourcing, and disciplined outreach. In practice, it is often a prolonged test of ambiguity, delayed reward, repeated rejection, and cumulative fatigue. What matters here is not simply raw capability, but adaptive persistence, frustration tolerance, emotional stability, self-discipline, and the capacity to sustain motivation without immediate reinforcement. Research on long-term perseverance suggests that the pursuit of difficult goals depends not only on talent, but also on sustained effort over time (Duckworth et al., 2007).
The Deal phase changes the nature of the challenge. At this stage, the task is no longer to generate options, but to filter them with judgment and quality. Analytical reasoning, strategic reading of the business, economic prudence, risk calibration, and decision-making under incomplete information become more important. So does the ability to contain overconfidence, urgency, and decisional impulsivity. Many costly mistakes do not arise from failing to find an opportunity, but from misreading one under pressure.
The Integration phase is often the most delicate and the least systematically assessed. After closing, the searcher stops being a buyer and becomes a successor. They enter an organization with its own history, loyalties, informal power structures, and often a strong symbolic and operational dependence on the outgoing founder. Formal authority is not enough. Legitimacy has to be built. And it has to be built without forcing change too early, becoming trapped under the founder’s shadow, or damaging the transfer of tacit knowledge that supports much of the company’s real functioning. At this point, variables such as behavioral humility, social intelligence, active listening, and ego modulation become especially relevant, in line with the literature on humility and leadership in complex organizational settings (Owens & Hekman, 2012).
The Operation phase requires turning transition into sustained execution. Once the visible moment of the acquisition is over, the challenge becomes professionalizing the business, setting priorities, building systems, making consistent decisions, leading teams, and engaging constructively with the board without weakening authority. At that point, leadership quality ceases to be an abstract attribute and becomes an operational determinant. Research on personality and leadership has long shown robust associations between certain dispositional patterns and leadership effectiveness, especially when examined through the Five-Factor Model (Judge et al., 2002).
The issue is not a lack of judgment, but a lack of structure
None of this is meant to diminish investor judgment, references, interviews, or qualitative reading of the candidate. Quite the opposite. Used well, they remain valuable tools for understanding narrative, trajectory, maturity, self-awareness, and interpersonal style.
The problem is different: those tools are not always sufficient when the task is to distinguish between several strong profiles or to anticipate how someone will respond inside an organizational system they have not yet experienced.
Research on selection interviews shows that interviews can be useful, but their predictive value depends heavily on how structured they are, what kind of evidence they capture, and how they are combined with other sources of information (Levashina et al., 2014). In high-stakes contexts, relying too heavily on broad impressions or highly open-ended conversations increases the risk of overreading charisma, narrative fluency, or interpersonal affinity.
The same is true of broad typologies or overly descriptive instruments. They may be interesting as conversation starters, but they do not necessarily estimate with sufficient precision variables such as persistence, judgment under uncertainty, coachability, dispositional integrity, relational sensitivity, or legitimacy-building capacity. And those are precisely the variables that matter most when the task is not a standard hire, but the acquisition, succession, and leadership of a company.
What a rigorous assessment of the searcher adds
If the goal is to raise the quality of human-capital analysis, the discussion should not center on whether a tool is appealing or intuitively persuasive. It should center on whether it produces measures that are reliable, valid, interpretable, and comparable.
Reliability matters because it reduces noise. It helps ensure that the signal does not depend too heavily on interviewer style, the candidate’s temporary state, or overly broad categories. Validity matters because measuring something consistently is not enough; what is measured must also be meaningfully related to expected performance. And traceability matters because in investment decisions it is not enough to say that someone “seems strong.” It should be possible to explain clearly why one profile presents better functional fit than another. All of this is aligned with the general principles set out in the Standards for Educational and Psychological Testing (AERA, APA, & NCME, 2014).
There is also a particularly important issue in search funds: comparability. In practice, the decision rarely involves choosing between one clearly strong candidate and one clearly weak one. More often, the real choice is between several highly credible individuals. At that point, the difference no longer lies in who tells the most compelling story, but in who offers the strongest fit for that particular search, asset, founder profile, and transition challenge.
In addition, the accumulated literature on personality and performance suggests that certain traits, especially conscientiousness, show consistent relationships with job performance across occupations (Barrick & Mount, 1991). This does not mean that any single trait “explains” the suitability of a searcher. It does mean that well-designed psychological assessment can add signal where interviews and intuition alone may fall short.
Which variables are actually worth examining
If the aim is to assess the searcher’s fit with greater precision, it is not enough simply to describe what the person is “like.” What matters is identifying relatively stable patterns of functioning that may either support or undermine fit across the full cycle.
Among the variables that appear especially relevant in this context are adaptive persistence, tolerance for ambiguity, execution discipline, emotional stability, risk calibration, learning orientation, dispositional integrity, coachability, social intelligence, listening capacity, gradual legitimacy-building, and receptiveness to feedback without loss of authority. Some of these connect with classic findings on personality and performance (Barrick & Mount, 1991); others with the literature on leadership (Judge et al., 2002); and others with relational growth and behavioral humility, which are especially important in succession contexts (Owens & Hekman, 2012).
In other words, the useful question is not “what personality type does this person have?” but rather: what psychological and behavioral pattern is this person likely to display when asked to sustain a long search, make decisions under pressure, enter an organization with inherited loyalties, and turn a transition into durable operating performance?
Toward a more structured reading of fit
This is where a more structured framework becomes useful. Not as a substitute for investor judgment or competency-based interviewing, but as a complement where the signal is hardest to detect and where the cost of detecting the problem too late is highest.
An approach such as APF (Functional Psychological Alignment) becomes useful for exactly that reason: it allows the searcher to be assessed not in the abstract, but in relation to the concrete demands of Search, Deal, Integration, and Operation. Its value lies not in labeling people, but in structuring fit hypotheses, identifying risk concentrations, and improving comparability between strong profiles.
Seen in that light, APF does not appear as an add-on commercial solution. It appears as the logical consequence of a broader thesis: if the searcher is part of the investment thesis, then evaluating the searcher also deserves an analytical architecture proportionate to that impact.
Conclusion
In search funds, the quality of the asset will always matter. But so will the quality of the person expected to find it, acquire it, inherit it, and run it. Treating that human variable with greater rigor does not eliminate uncertainty. What it does is make the decision more complete. And that may be the central point: in a market where technical sophistication is already concentrated intensely on company analysis, the next natural frontier of maturity lies not only in seeing the business more clearly, but in reading the leader more clearly as well.
References
• American Educational Research Association, American Psychological Association, & National Council on Measurement in Education. (2014). Standards for educational and psychological testing. American Educational Research Association.
• Barrick, M. R., & Mount, M. K. (1991). The Big Five personality dimensions and job performance: A meta-analysis. Personnel Psychology, 44(1), 1–26. https://doi.org/10.1111/j.1744-6570.1991.tb00688.x
• Duckworth, A. L., Peterson, C., Matthews, M. D., & Kelly, D. R. (2007). Grit: Perseverance and passion for long-term goals. Journal of Personality and Social Psychology, 92(6), 1087–1101. https://doi.org/10.1037/0022 3514.92.6.1087
• Judge, T. A., Bono, J. E., Ilies, R., & Gerhardt, M. W. (2002). Personality and leadership: A qualitative and quantitative review. Journal of Applied Psychology, 87(4), 765–780. https://doi.org/10.1037/0021-9010.87.4.765
• Kowalewski, A.-S., Kelly, P., Simon, J., & Johnson, R. (2024). International search funds – 2024: Selected observations. IESE Business School.
• Levashina, J., Hartwell, C. J., Morgeson, F. P., & Campion, M. A. (2014). The structured employment interview: Narrative and quantitative review of the research literature. Personnel Psychology, 67(1), 241–293. https://doi.org/10.1111/peps.12052
• Owens, B. P., & Hekman, D. R. (2012). Modeling how to grow: An inductive examination of humble leader behaviors, contingencies, and outcomes. Academy of Management Journal, 55(4), 787–818. https://doi.org/10.5465/amj.2010.0441
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• Simon, J., & Kowalewski, A.-S. (2023). Nurturing leadership in search funds. IESE Business School.
• Stanford Graduate School of Business. (2024). 2024 search fund study.
