Building the Best PE and VC Leadership Teams in 2023
March 8, 2023 – In 2022, we saw significant growth and increase in the number of deals by private equity and venture capital firms within the life sciences and healthcare sectors. Additionally, a recent article discussed a newly emerging area of investment for PE in clinical trials and research.
Part of the biggest challenge PE and VC firms are up against is getting a return on investment quickly and consistently. All of this starts with the right leadership in place or “best-athlete” talent to lead these start-ups, tech companies, and more through periods of intense innovation, growth, and change, according to a new report from Chapel Hill Solutions’ Julian Rives. The firm offers some things to consider in 2023 and 2024 when recruiting and building an all-star leadership team for PE and VC firms.
“When it comes to finding and selecting the right sort of talent, typically private equity firms and venture capital teams will over-index on past experience and overlook other essential attributes,” said Mr. Rives. “While experience is an important part of a candidate’s background, many other factors will contribute to an executive’s performance outside of a career in Fortune 100 companies.”
For example, says Mr. Rives, to successfully lead a portfolio company, CEOs and other C-suite executives will need to:
- Have a change-oriented and agile approach to leadership.
- Hire, engage and motivate high-performers that can deliver results.
- Drive growth in revenue, operations, and profitability – with a proven track record.
- Implement organizational structures that are impactful, but not overly siloed or too flat.
“Strong leaders in portfolio companies and private equity will own the strategy around growth and focus on aggressively achieving these targets,” Mr. Rives said. “This means portfolio company leaders will need to have the tenacity and ambition to not only achieve these organizational goals but maintain them as well. Since portfolio companies are pressured to scale and perform quickly, the best-athlete talent must be ambitious, direct, disruptive, and a game-changer.”
Julian Rives is managing partner of Chapel Hill Solutions. The firm has grown in the executive search marketplace for 25-plus years, recruiting leaders and top talented individuals in its network to enhance its clients’ workforce. Chapel Hill Solutions focuses on the healthcare and life sciences industry, including all phases and business areas within the pharmaceutical, biotech, clinical research, medical device, and healthcare disciplines.
Additionally, leadership skills like confidence and influence are critical, according to Mr. Rives. “Leaders that have the most impact in portfolio companies must be persuasive and confident and be able to build consensus and buy-in across every stakeholder level,” he said. “This leadership style will often transcend through the organization and create a culture steeped in performance, passion and persistence. These are just some of the skills that will make a leader an ideal match for managing a portfolio company, but the biggest challenge for PE and VC firms is how to recruit them in today’s talent landscape.”
1. Define the Leader’s Responsibilities and Build a Profile for the “Perfect” Candidate.
Mr. Rives notes that this is the most crucial step when embarking on an executive search for a senior leader. This sets the groundwork for everything that follows in the search process and provides the benchmark or gold standard that every candidate will be assessed and measured against. Chapel Hill always advise the PE and VC firms they work with to be as thorough as possible at this stage. Define precise characteristics and set the criteria that the ideal candidate will need to be successful including:
- Specific hard or soft skills of management
- Leadership style
- The talent they may be able to attract to the organization
- Alignment not only between vision and values but also passion and purpose
More often than not the best type of talent is discovered through successive and proactive personal outreach. Chapel Hill has spent nearly 30 years cultivating relationships with these types of leaders in the life sciences industry, especially within the Triangle / Triad region. The firm has built a level of trust with these candidates that cold-calling and job advertisements can rarely achieve.
Related: Transforming Portfolio Companies and Driving Value Creation via Human Capital
2. Remember, “Best Athlete” Talent May Not Always be the Most Qualified.
As Chapel Hill mentioned earlier, part of the biggest trap that PE and VC firms fall into when recruiting and building a senior leadership team is over-indexing on career pedigree. “Career trajectory and history are important, but they are just two of the many requirements required to be successful,” said Mr. Rives. “When we conduct executive search for PE firms, we always recommend they place more stock in cultural fit over career experience. Often the best athlete candidate for the role will not check all the boxes in terms of career trajectory but will be the best cultural fit for the role and the organization.”
Demand for Top Talent in the Private Equity Sector Continues
While financial engineering, inorganic growth, and market expansion remain important tools in the private equity toolbox, talent has emerged as key to growing companies and achieving the investment thesis, according to a newly released report from Bespoke Partners. Yet unlike strategic assets, intellectual property, or other resources that fuel growth, talent can be notoriously difficult to optimize. Bespoke Partners’ report is designed to help private equity partners and the leaders in their portfolio companies understand essential talent market trends based on granular data from the sector.
The private equity sector is on the downside of a historic surge in deal volume, according to the Bespoke Partners’ report. “The talent market for private equity portfolio companies has experienced profound impacts from that surge as well as the pandemic-induced disruption that immediately preceded it,” the report said. “As 2022 drew to a close, the Fed’s aggressive interest rate hikes and volatility in company valuations contributed to a sharp curtailing in private equity deal volume began to ease what was the tightest talent market in recent memory. These factors form the backdrop for the trends in the talent market for private equity portfolio firms in the software and SaaS sectors.”
To read Bespoke Partners’ full Private Equity Talent Benchmark report please click here!
Cultural fit is one of those things you can’t force, train or develop in a leader, according to the report. For example, the firm explains that finding a good cultural fit between employer and employee is comparable to online dating. “On paper, someone may look like a great match and more than qualified, but in person if there is no chemistry, the relationship will fizzle in just a few short months,” said Mr. Rives. “When it comes to cultural fit, we tell PE and VC firms to trust that initial gut instinct you get when meeting a candidate for the first time.” Usually, he says, it comes down to asking yourself the following: “Do you enjoy how this person thinks and views the world, and want to be more closely aligned and connected to them and their ideas?”
“At the end of the day, PE and VC firms should always choose and hire for fit over all other criteria,” said Mr. Rives.
3. Set Realistic Expectations For Salary
As uncertainty continues to ripple through the economy, Chapal Hill notes that high-performing leaders and top talent become more risk-averse and are less likely to make a career change. “As a result, the inventory of available talent decreases as demand continues to increase,” said Mr. Rives. “The market accommodates for this gap in terms of salary. As the talent market slowly begins to stabilize in 2023 and 2024, salaries and influence will begin to level out, but until then PE and VC firms must understand that we are still in a candidate-driven market.”
As a search firm, Chapel Hill see countless offers every month within the Triangle / Triad market in life sciences for what makes a competitive offer. “When we work with PE and VC firms building a leadership team for a life sciences portfolio company, we use these insights to advise and guide them on putting their best offer forward and winning the war for talent,” Mr. Rives said.
Related: How Talent is Driving Private Equity Success
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media