Human Team Investment Test
Judge the people and their working relationships before trusting the forecast
- Difficulty
- Advanced
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 91%
Hanauer's retrospective lesson is that an economy and an investment are fundamentally about people, human capacity, and capability rather than money alone. An investor does not fund a company in the abstract; the investor funds a group of people who must work together. The test therefore adds direct observation of capability, communication, emotion, trust, and conflict to conventional projections. A spreadsheet may show a convincing hockey stick, but it cannot compensate for two leaders who hate each other and are likely to split immediately after funding. The investor should assess each person's fit for the plan, observe the team's interactions, surface tensions, and stress-test what happens if the relationship breaks. This does not replace quantitative diligence; it prevents quantitative outputs from obscuring the human system required to produce them.
Origin
At the end of the interview, Hanauer says he wishes he had understood earlier that the economy is people and that better people skills are an enormous investing advantage.
Core principles
- 01An investment funds people working together, not an abstract company.
- 02Human capacity and capability drive economic outcomes.
- 03Team relationships can invalidate an attractive spreadsheet.
- 04Empathy and emotional perception are investment advantages.
How to run it
- 1
Assess individual capability
Identify the human capacity and skills the plan requires, then evaluate whether each leader can supply them. Distinguish demonstrated ability from presentation confidence.
Pro tip Ask for concrete examples of how each person handled comparable work.
Watch out A strong market opportunity does not create the capabilities needed to pursue it.
- 2
Observe the team
Watch how leaders share information, disagree, and make decisions together. Treat the interaction itself as evidence rather than relying only on their account of the relationship.
Pro tip Ask questions that require the founders to build on or challenge one another's answers.
Watch out A rehearsed pitch can conceal a weak working relationship.
- 3
Surface emotional risk
Use empathy and careful questioning to identify resentment, distrust, avoidance, or incompatible motives. Determine whether tensions are manageable or fundamental.
Pro tip Compare private explanations of roles, ownership, and decision rights for inconsistencies.
Watch out Ignoring visible conflict because the numbers look attractive transfers that conflict to the investor.
- 4
Stress-test collaboration
Consider how the team will behave under missed targets, scarce cash, strategic disagreement, or a leadership departure. Test whether the operating plan survives foreseeable relationship strain.
Pro tip Model who owns critical relationships and knowledge if one founder leaves.
Watch out A plan dependent on permanent harmony is not resilient.
- 5
Integrate human and financial evidence
Place the people assessment beside the market, product, and financial case before deciding. Reduce or reject the investment when team risk makes the forecast implausible.
Pro tip State explicitly which forecast assumptions depend on specific people working well together.
Watch out Do not use interpersonal intuition as an excuse to skip objective diligence.
In the wild
Two founders present an attractive growth spreadsheet, but their interactions show that they hate each other. Hanauer's example predicts that shortly after a three-million-dollar investment they will be at war and the investor will have to remove one of them.
→ The people test exposes a risk that the financial forecast does not contain.
An investor interviews two founders together and separately about roles, product priorities, and decision rights. Their answers reveal an unresolved ownership conflict, so the investor requires a clear governance agreement and evidence of collaboration before funding.
→ The investment decision reflects the human system needed to execute the plan.
Common mistakes
Investing in the spreadsheet
The projection is an output of assumptions; it cannot repair a team incapable of executing together.
Ignoring emotional evidence
Visible hostility or incompatible motives can overwhelm otherwise sound product and financial logic.
Replacing diligence with instinct
Human assessment complements rather than replaces market, technical, legal, and financial evidence.
Is it for you?
Best for
It is best for early-stage investors evaluating founder teams whose future performance depends heavily on collaboration.
Not ideal for
It is not a substitute for financial, market, legal, or technical diligence.
From the transcript
“you don't invest in a company, you invest in a group of human beings working together”
“being able to understand their emotions better, uh, is you know, in investing, And I think in every domain in life an enormous advantage”
“the spreadsheet says it's gonna go here, but you know, but not noticing that those two hate each other”
From the episode
Second Avenue Nick Hanauer: Masters in Business (Audio)
Nick Hanauer