Investors (and Managers) as Headhunters: Sources of New-Venture Executives

How much of a role do investors play in helping portfolio companies find executive hires?

A year and a half ago, two students of mine conducted a survey of entrepreneurs regarding how much value their VCs were adding to their ventures. One finding: 25% of the entrepreneurs complained that their VCs did not contribute enough value regarding the recruiting of senior executives. (On the list of complaints, only partnership contacts and sales contacts were higher, at 29% each. Many more details can be found here.)

This year’s CompStudy survey provides a richer picture of investor involvement in recruiting, and suggests that most of the investors’ value-add is concentrated in 2 positions.

Each chart below shows how the 240 IT ventures from this year’s survey found the members of their management teams, focusing on three potential sources: whether the person was referred to the venture (1.) by the current CEO (or, for CEO hires, by the previous CEO), (2.) by a non-CEO member of the existing management team, or (3.) by an investor in the venture.

The first chart shows the sources of executive hires across the full top-management team.


Investors provide leads to a significant subset of hired executives (an average of 18% of executive hires). However, they trail both the non-CEO members of the management team (who referred, on average, 29% of executive hires) and CEOs (36%).

The next 2 charts show the breakdown for each position, first for C-level executives and then for the next level down. For instance, in the C-level chart immediately below, 40% of CTOs were referred to ventures by the ventures’ CEOs, 33% by non-CEO members of their management teams, and 15% by investors in those ventures.


Here is a similar chart for the heads of sales, marketing, business development, and human resources.


Across almost all of these positions, investors consistently served as the source for 10-18% of executives. The major exceptions were for the CEO and CFO positions, for which the percentages jumped to 28% and 30%.

Of possible interest: In parallel with our IT survey, we also conducted our annual Life Sciences survey. The sources of executives in our 166 Life Sciences ventures showed very similar patterns across these positions, suggesting that the patterns are common to new ventures rather than being specific to IT ventures.

Why are investors much more likely to refer CEO and CFO hires than to refer executives from other positions?

  • Is this because investors are better at finding candidates for those two positions than for other positions? Why?
  • Is it because investors see those two positions as being the most crucial “levers” by which the investors can affect, drive, or control venture performance?
  • Or are there other reasons?

Finally, are there other important patterns *you* see in the charts and data?

Postscript: In case it sheds more light, Mike DiPierro did a breakdown for me of how the sources of C-level executives change as the venture raises new rounds of financing. That chart is below. (The data include approximately 50 ventures that raised 0-1 round, 120 that raised 2-3 rounds, and 70 that raised 4 or more rounds.) Investors are the green bars again.

8 Comments
  1. Huh, I’m surprised that referred by recruiter/headhunter didn’t show up in the top 3 sources. Regarding why VCs source more CEOs and CFOs, one possible reason is that is who they know. They meet a lot more CEO/CFOs in their normal course of business (i.e. those are the two folks who generally make pitches and with whom they work once invested) than they do CTOs, etc.

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  3. The CEO is the critical role for an early stage company and it is the one investors place the most emphasis on as they imagine the organization and senior management team. Thus, VCs will commit a meaningful amount of time recruiting CEOs. In many cases, investors will invest in a deal with a handful of prospective CEO already in mind. As such, the survey results are not surprising for the CEO role. The CFO role is a different story. Perhaps the survey data can be attributed to the transferable nature of a CFO’s skills. Searches for CFOs tend to be more industry experience agnostic in their requirements, which allows the VCs to tap their network more broadly than they can for roles where specific industry domain expertise is placed at a premium, such as with Marketing or Sales executives.

  4. I wonder how many executive hires are referred by founders, i.e. slice the leads between founders, investors, other employees, and other sources.

  5. VCs expect the CEO to be aligned with their line of thinking. Largely the lead investor (when mutiple VCs are involved) takes the interest to recommend a CEO at the time of funding or soon after. One worry VCs have is the lack of transparency on their fund companies operations. So CEO & CFO are two key pillars to ensure that transparency. I have repeatedly heard from VCs that “no surprises”. As regards to recommending other executives, it is just an incidental process – if they have some one readily available they will forward the same. Like the public corporation VCs prefer the CEO to pick his team as much as possible to minimize the conflicts with in management teams. I have had VCs recommending the recruiters to CEOs rather than finding candidates themselves.

  6. Interesting data. As a VC, to me there is both “stated” reason for spending more time on CEO/CFO hires then other management positions and then a practical reason for spending time on CEO hires. The stated reason is that finding a CEO gets the VC the most bang for the buck. The VC gets a leader, someone to set direction, etc.. However, from a practical perspective, I’ve found that spending time on other hires can cause friction with the CEO. The reason is that most CEOs, especially good ones, have their own rolodexes of people they have worked with and want to bring on for their current company. For instance, a CEO may have a VP Sales he’s worked with successfully in the past. Given the good experience it should not be surprising he would want to work with him again.The bottom line is that if a VC brings in the right CEO, the rest of the management hiring needs may be adequately taken care of by the CEO. Obviously there are pitfalls here, but more often then not, the CEO is able to put a well-functioning team in place by himself without the need of VC involvement.

  7. Thanks a lot for sharing the valuable information with us.

  8. Thanks a lot for sharing this with us. Keep the sharing alive.

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