“Admit it, you VCs are really just glorified recruiters”, declared one of my recruiter friends the other day in a pejorative, self-deprecating way. It made me pause, because the barb rang true. After all, seven of my seven portfolio companies are in the middle of recruiting senior executives to add to their teams – and I, along with the other VC co-investors, am knee deep in trying to help out: participating in weekly recruiting calls, screening candidates, pumping our networks for leads, etc. After a few years of observing this business, I’ve learned that this is a common phenomenon throughout our portfolio and others.
So how did I suddenly become a glorified recruiter along with my other, more glamorous brethren? I guess it’s the old yarn – business success is 10% inspiration and 90% perspiration. There are a lot of people with good ideas out there trying to start businesses, but very few execute them successfully. Those that can are typically led by an outstanding team that many investors would back in almost any situation. A good team doesn’t make a company 10% better; it makes it 1,000% better (at roughly the same cost!).
In fact, the “VC as recruiter” phenomenon is arguably the fundamental value-add a VC provides to a start-up. Would Netscape have been nearly as valuable and successful a company without Jim Barksdale? Where would Google be without Eric Schmidt? If I had been the VC that gave Larry Page and Sergei Brin money rather than John Doerr, would I have been able to convince Eric Schmidt to join these two Stanford PhDs and take the CEO gig at Google – never mind known that he would be the perfect fit there? Don’t bet on it.
So I guess we VCs should really embrace our roles as “glorified recruiters”. Rather than shirk from the task, I think we can learn a lot from recruiters about how to assemble teams, putting the right mix of ingredients together, interviewing more effectively.
And while I’m on the topic, there’s another main value-add VCs try to bring to the table that should be demystified. You’ll hear many emphasize the power of their "rolodex" and their skills as super "business development" executives. When I first heard the term, "business development", many years ago and asked my manager what it meant, he smirked and observed, "That’s just a fancy term for sales". I guess that makes VCs glorified salespeople as well!
We are looking for VC – and we find someone who doesn’t want to have input into putting together the team who executes a project, then we don’t want to know. As we are proving, you can start a business with no money (things just move slower), but you can’t start a business without the people!
I want a VC who will add value and expertise to any task that needs it, when and where it does. Recruiting is possibly the most important part of that because any project or business is no more than a collection of interconnected people carrying out a task or working towards a shared goal. Having the right people will make or break a business faster than anything else…
I think Vcs have to attach the same value to recruiting talent and leveraging relationships as to due diligence, term sheets, and all the other stuff they do. I don’t think that any one aspect is more important than the other.
Whenever a new realization happens we (most of us) tend to emphasize the new found wisdom over the old, as we try to wrap our mind around the new implications, whereas what we need in principle is a balance between our old and the new views.
Regarding recruiting, this is a bit off-topic, but an interesting post here on expanding the role of women in venture capital …
You make a good point on the importance and value of a good management team. The problem that I have come across is that it is difficult to get the attention, let alone support of a VC with out good management team in place. The catch is that it is just as difficult to recruit/attract the right people for such a team with out money.
Jeff, great post. Companies live or die based on the strength of their executive team. Guy Kawasaki has a great post about The Art of Recruiting at http://blog.guykawasaki.com/2006/01/the_art_of_recr.html
Nice post Jeff. When I speak with entrepreneurs, I tell them that the value we add is essentially in three areas. Your post hit two right on the head w/ recruiting and BD/sales (i.e. intros to customers a company may not otherwise have). The third is future fundraising, which really includes strategizing when to raise and who to approach, as well as the actual intros.
Re: the question of why not let outside specialists handle recruiting, consulting, etc there’s a short answer here and a long one. The long one is really beyond the scope of a blog comment and is the overarching question of whether VC’s are simply investment “pickers” or if they are actually involved in some value creation. The short answer is that sometimes VCs do rely on specialists to do a retained exec search or market analysis, when appropriate and worth the cost. When a VC investor gets involved in these areas himself, it’s “free” help from the perspective of the company spending invested capital.
Daniel’s comment on your post is very narrow-minded.
Imagine how many more deals you could do with your LP’s money if all you had to do was screen plans, do the due diligence and write checks. Then, imagine how hard it would be to raise another fund when your portfolio is in the toilet because you didn’t help them strategize, or recruit, or use your network to build profitable relationships.
As an entrepreneur I would never want an investor that was not actively involved in “adding value” to my business.
Jeff, great post but I’m finding this whole thing pretty weird.
Why not just focus on what you do best (fund raising, asset allocation, term sheets) and hire specialized recruitment firms to take care of investee hr challenges?
It’s like, everyone keeps talking about the value-add thing, but I must be thick or something. Consulting is for consultants, recruitment is for recruiters, vc is for people who manufacture financing packages to compete against other financial products.