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.
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.