Update: Executive Recruiting Strategies In the Midst of Private Venture’s Growing “Perfect Storm”

By: Peggy Thompson and Jenny Steelman

In last year’s “Rules of the Game Changing in Search for Private Venture Executive Talent,” Summative concluded that that private venture is in the midst of a “perfect storm” when it comes to recruiting top talent to lead venture-backed technology companies.  Over the past year, the storm has grown in size and strength, creating an even more challenging executive recruiting environment.  Summative’s recent observations and our analysis of newly published industry data (see For Our Time-Constrained Clients:  Highlights and Analysis of Venture Capital Trends 2014) provide insight into the underlying causes.

Funding events continue to far exceed exits across all industries, including software.

Number of Deals – All Industries

2014 updated graph 2

Number of Deals – Software

2014 updated graph 1

IPOs were up in 2013 (81 venture-backed IPOs).   But, the big increase in the time to exit via IPO suggests that many were mature companies that had been waiting their turn at the public market for months, if not years. 

While the average timeline to exit via acquisition has improved for venture-backed firms, 2013 M&A activity was down 20% from 2013.

Timeline to Exit
2014 updated graph 3

(NOTE:  Discrepancies between the data in the tables found in Summative’s Rules of the Game Changing for Private Venture Executive Search and the above tables are the result of revisions made to historical numbers by the NVCA.)

The trend of more private-venture technology companies being funded than exiting (injecting fewer “easy decision” executive candidates into the supply pool than required to meet demand) and longer timelines to exit (keeping top operating executives locked in place) continues.  “Easy decision” candidates rolling out of recent successful exits, if they are indeed willing to step back into another private venture company at all, are in high demand, pursued by the hottest, most competitive companies in the industry.

New in 2013 was the capital that flowed back to investors thanks to the improved IPO market.   This resulted in an increase in seed and early stage investments.   In 2013, the number of early stages deals funded was 2,031, up from 1,738 in 2012 and 800 (the 10-year low) in 2003.   According to the NVCA, “In 2013, 56 percent of the financing rounds went to seed and early stage companies, compared with a more typical range of 33 percent, reflecting increased investor confidence in growth trajectory of emerging companies.”

Some speculate that this increase in seed and early stage investments will lead to a Series B crunch:  too many pre-B companies chasing after too few Series B dollars.   While others in the industry believe this may be overblown (see WilmerHale 2014 VC Report), it is safe to say that recruiting for pre-B companies will be more challenging than ever when astute, non-founding executives recognize the increased risk of raising a B-round.

Based on these updates, here are just a few of Summative’s recommendations (with more to follow in subsequent posts) to maximize recruiting results in 2014 and beyond.

The Pursuit of “Easy Decision” Candidates

“Easy decision” candidates are being inundated by calls from recruiters and pursued by the industry’s top “easy decision” companies.   “Easy decision” companies are those that:

    • anticipate an IPO in the next three or so years
    • have delivered disruptive, differentiated technology to a hot market
    • are backed by proven, tier one investors
    • are led by a CEO with at least one previous great exit

Recruiting an “easy decision” candidate is a highly competitive war – even if the hiring company is an “easy decision” company.  Prepare for battle by targeting “easy decision” candidates early and aggressively with a high-touch, personalized campaign to engage and interest them.   While it’s important for “easy decision” candidates to know that the hiring Board or CEO is highly interested in pursuing them as a candidate, it’s also important that they understand the search process will engage a number of top candidates – like them – from across the country.

Continue to Widen the Top of the Candidate Funnel

As discussed in Rules of the Game Changing for Private Venture Executive Search and Improving the Candidate Evaluation & Selection Process, the top of the candidate funnel must continue to be widened to include up-and-coming talent and candidates with profiles not typically contemplated in recent years (e.g., executives on the forward trajectory of their career with no prior early stage experience).   Leverage a knowledgeable private venture recruiter with the intuition honed by years of experience to quickly identify the real gems among the larger volume of candidates entering the funnel.  Accurately assess non-“easy decision” candidates by using smart interviewing techniques, completing multiple back-door references, and having finalist candidates take Profiles International’s ProfileXT, an online assessment tool that reveals how a candidate’s aptitude, behavioral styles, and interests compare to some of the top performing executives in private venture.

Customize the Recruiting Process for Each Stage, Each Profile

Recruiting is different at every stage of a company’s life cycle.   The candidate profile for each functional area of a company is different at every stage of a company’s life cycle.  Therefore, there is no such thing as a “one recruiting methodology fits all” in private venture.   Customize the recruiting process for each search in relation to the stage of the company and the profile of the candidate.  For example, candidate objections and their due diligence on the hiring organization vary by the stage of company.   With the anticipated Series B crunch, if a hiring Board must go outside of its own network to recruit an executive to a pre-B company, be prepared to diffuse the question, “How will the company raise its Series B?” early in the process.

More to follow in subsequent posts…

 

 

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