This is a republished version of executive search firm Intramezzo’s Georgina Worden’s article on corporate venturing talent featured in our World of Corporate Venturing supplement. Intramezzo is doing a survey on the Talent Agenda, which can be answered here. Read our interview with Worden on the survey’s plans.
The short history of corporate venturing has already included a notable boom and a bust, but activity is again on the rise. A CB Insights report found that venture capital (VC) funding has hit its highest mark since 2001, with corporate venturing involved in 15% of deals and accounting for 30% of total US venture capital funding.
While the activity is good news for corporate venturing units, it brings with it significant, if welcome, problems regarding high-level recruitment. Thousands worldwide are looking for the best talent to fill bespoke roles in a relatively new sector. Identifying and recruiting talent has pushed itself to the top of the corporate venturing agenda and, with ideal candidates for top jobs requiring a blend of financial, corporate and entrepreneurial qualities, corporate venturing groups require a strategy for sourcing and retaining talent as much as they need the talent itself.
The chief problem in corporate venturing hiring is finding a mix of strategic and financial expertise, an understanding of corporate culture and an alchemic ability to make money.
Claudia Fan Munce, director of IBM Venture Capital, said: “Attracting talent and building the right team is at the very top of the success factor of a corporate venture team. You need people who have a multiplicity of skills. You need people who can evaluate a company for its merits in terms of tech and for its business model. You need to maintain a relationship with key players inside the ecosystem. At the same time you need to be able to evaluate from a financial investment perspective – not always aligned with the strategic interests of the corporation.”
This dislocation of strategy between the corporate parents and their corporate venturing units is a recurring theme when talking to industry leaders within corporate venturing. Ideally they would be hiring people who are fully versed in a company’s culture and detail, but the motivations of the corporate, based on quarterly targets rather than seven-year strategies, can be at odds with functioning corporate venturing.Such motivations are not hard-wired, and the right talent can be trained, but there are other ways of synchronising the heartbeats of the corporate and entrepreneurial sectors.
A people business
Greg Becker, of Silicon Valley Bank, said: “Increasingly, what we are doing has to do with people. You have got to hire the best people – people from financial backgrounds but also people who are more entrepreneurial in how they approach things.” It is this entrepreneurism that drives innovation and is essential to explosive growth.
The opportunity for entrepreneurism is also a recruiting tool that can widen the pool of available talent. If you are looking for a successful, experienced CEO then the question candidates are likely to ask is why they should leave their existing, presumably successful, company to join your business. The draw of potential, the challenge of building a venture, can naturally appeal to those with a more entrepreneurial spirit. By searching in a slightly broader way you can increase your options even while the market for talent becomes more competitive.
There are other ways of maximising possibilities for top-level hires. Spreading the net wider, either in terms of geography or sector expertise, can lead to rewarding appointments. We have worked with many corporate venturers who have hired across continents in order to find people with the right skills and connections to help their enterprises. They considered these benefits more important in the long term than any drawbacks associated with a long-distance hire.
Flexibility of employment terms is also worth considering in the search for the right talent. One of our clients, the European venture arm of a major multinational, had an urgent requirement for someone who could deliver a particular process. We found a candidate with extensive experience in both the industry and in growing early-stage companies. The candidate was appointed on an interim contract before developing his own growth strategy. As a result, he was made permanent CEO and put the new business plan into motion, leading to a £35m ($53m) exit with a 10-times return. But the original hire was possible only because of the flexibility of the contract offer.
Key to investment
When thinking about funding rounds and exits, the key to investment, often ahead of product and forecasts, is a confidence from corporate and private equity investors towards the leadership team of the new enterprise.
Legendary investor Arthur Rock says: “The problems with companies are rarely ones of strategy. Good ideas and good products are a dime a dozen. Good execution and good management – in other words, good people – are rare.”
Tellingly, Rock will look at the résumés rather than the financial projections when examining a company. That is why sourcing talent is so important in raising the ceiling of possible returns. Good people may be rare, but they are also key.
Another issue to consider when hiring is that of carried interest, or carry. A JPMorgan and J Thelander survey found that only three of 60 corporate venturing units questioned included carry as a payment component to their executives, although some large corporate venturing groups, such as Intel, have started to offer carry-like incentives. In contrast, the survey also found that financial VCs received an average of 23.9% of the profits generated by their deals.
This can be a stumbling block when seeking a hire from institutional VC, and also a block to retaining talent whose heads could be turned by the potentially huge rewards that appeal to the natural entrepreneur. Should the market continue to grow at a faster rate than the supply of outstanding executives, the issue of carry will be hard to avoid.
The concern is that carry could create misalignment in the ways investors and the main board deliver their strategies, but it is becoming a real issue within recruitment.
Lessons from venture capital
Evangelous Simoudis, of Trident Capital, believes a narrow recruiting pool was behind the failure of some corporate venturing teams. He considers them to have been staffed with corporate executives rather than experienced venture investors, as many corporations felt their groups most needed executives with a strong corporate background and understanding of business processes. They also did not offer the rewards, and carry, that would have been attractive to talent with institutional VC experience.
Brad Feld, head of VC firm Foundry Group, thinks it is a category error that heads of corporate venture groups are seen to have a job rather than a mission. He told Wall Street Journal: “Most CEOs are on a mission. I think if you are the head of a corporate venture group, you have to be on a mission, frankly in the same way that a really good venture capital firm is on a mission.”
Who to recruit
In deciding who to recruit, and whether to source from the corporate or the financial sector, balances between corporate objectives and the right motives of corporate venturing units must be struck. But new units, without a track record of investing, need to offer added value in order to attract good companies.
The clearest way of delivering this value is through the talent the corporate can bring on board. In recruiting individuals with a network and profile from the investment community, or those who can skilfully manage growth across the venture and corporate ecosystems, corporate venturers can harness talent to make their funds more attractive and dynamic. With Google Ventures and GE Ventures, among others, we are seeing a shift from transactions towards a partnership approach, and partnerships rely entirely on the good people within them.
“Talent is the key” is, at last, a truth that unites the corporate and entrepreneurial worlds.