The Importance of Executive Search for Venture Capital Funds
Among 400 active French investment funds, 14% are venture capital (VC) funds whose role is to finance emerging high-potential startups in innovative sectors.
The significant increase in unallocated liquidity in recent years, (USD 1,476 billion worldwide at the end of 2019), means a substantial choice of investors for startups looking to raise funds.
Thus, VC funds are now focusing on non-financial aspects in order to stand out and attract promising startups, and are turning to executive search firms to improve returns throughout the life cycle of an investment.
Talent recruitment for the fund
In the field of VC, a candidate’s ‘soft skills’ are not valued in the same way as they are in other investment professions. Historically, VC funds have focused on personality, empathy, intuition, and entrepreneurship. They have also attached significantly more weight to the candidate’s knowledge of the fundraising industry or new technologies, rather than their technical financial skills.
However, we have found that the increased competition within VC markets has resulted in the best recruiters identifying those candidates that have a broader, multidisciplinary skill set. Top-performing candidates have an ability to assume multiple roles and can intervene in several areas including strategic marketing, planning, finance, teams, products, growth models, operations, and business development.
Finding quality candidates with these multiple skills can be challenging as such people are rare. It is therefore recommended that an executive search methodology be employed for such an assignment, to ensure all suitable candidates are identified and engaged.
Talent assessment of a target startup before providing the capital
Before deciding to invest in a startup, the VC fund must conduct due diligence in order to estimate the target company’s chances of success. While it is necessary to assess the soundness of the financial plan and the business strategy, misreading the target’s human capital component can be extremely dangerous.
It is a well-known fact that 90% of startups end in failure. This is mostly due to poor leadership, poor communication and the lack of a shared vision. Thus, assessing the leadership competencies of existing team members is key.
The best executive search firms offer assessments (leadership advisory services) to highlight the strengths and weaknesses of the existing team and how well they align with each other. This includes identifying any development needs and whether people have the necessary skills, competencies and motivations for the position they occupy in order to execute the growth strategy set for them.
Recruitment for the “scale-up” of the startup
Roxanne Varza, director of Station F and identified by Forbes as one of the 40 most influential French women, believes that "the top 10 employees are really the most important".
It’s therefore vital to undertake a more comprehensive recruitment process for the senior leadership team of a startup through an executive search methodology. This will ensure that those appointed possess the appropriate leadership skills, experience and expertise as well as personal motives that are closely aligned to the job.
Some funds appoint executive search firms to provide consulting services around their and their portfolio companies’ leadership pipeline. This involves the regular assessment of the leadership team, at all levels, aimed at identifying each individual’s career concepts and motives, decision styles, complexity motives and emotional behaviors. This process allows top management to understand which managers are currently suitably positioned, ready for promotion to the next level, or are currently not well positioned, and needing development or redeployment.
Finally, once the investment has been made, the ambition of accelerated development may make it necessary to involve a coach or mentor to support the leaders of the business. Engaging an external professional coach will help develop any shortfall in leadership skills to enable growth, clear vision and strong organizational objectives. In addition, such coaching can help identify and overcome any conflict amongst the senior team that might impede the success of the business.