Executive Hiring Starts the Year on the Rise

May 19, 2023 – After a precipitous drop in executive hiring to close out 2022, the market—overall—seems to have found stability, according to a newly released report from executive recruiting software provider Thrive. Opened searches increased nearly 12.5 percent quarter over quarter in the first quarter of 2023, the largest quarterly growth the company says it has seen in its dataset since the third quarter of 2021. And closed searches increased nearly 3.5 percent quarter over quarter, similarly posting its largest quarterly growth since Q4 2021. “In the past, we’ve found executive compensation lags by a quarter or so, and that trend appears to have held: Median comp fell slightly to start the year, continuing to come down off its Q3 2022 peak,” said the company’s latest Executive Search Quarterly Report.

“This comes at a time where markets are still, seemingly, feeling their way along—
each ending up on a path distinct from the others,” said Thrive. “The NASDAQ, which posted its strongest quarterly gains in Q1 since mid-2020, was a story of ‘strong, then weak, then strong again.’ The S&P 500 was similar with strong growth in January followed by more moderate fluctuations in February and March.”

Private markets were similarly a mixed bag, says the company, citing Pitchbook. Venture capital deal count and deal value continued on quarterly declines, and fundraising levels paced to their lowest totals since 2017. Private equity, on the other hand, saw deal count decline, but deal value increase, while fundraising
levels were flat compared to last year.

Deal Value Up, Deal Count Down

Thrive anonymized and aggregated its data for the report from more than 31,000 compensation and search records to construct the benchmarks, statistics, and trends. The company also cross-referenced relevant industry analysis and sources to understand how leadership recruiting is being impacted by rapidly evolving macro and socioeconomic events, in addition to recent extreme volatility in growth markets.

“While the private equity market looks to be a bright spot in the market, it appears
to be creating that shine in a more concentrated fashion: Those who have the dry powder are deploying it in ways they historically haven’t,” said Thrive. “PE deal value rose 11.4 percent in Q1, but deal count fell 9.3 percent. This opportunistic approach to dealmaking may explain why executive search is still tepid in PE.”

“These contractions in search volume and compensation seem, in part, to be related to a willingness—at least among some players—to forego more expensive debt and pay cash: Reuters reported that the biggest take-privates were conducted with debt ratios of only nine–50 percent, below the typical range of 60-80 percent,” said Thrive.

In venture capital, Thrive said, “everything is taking a little longer.” The report cited CB Insights, which reported in March that the median time between funding rounds has lengthened by at least five months for each round since the beginning of 2021. And Pitchbook reported that Q1 saw only 20 public listings and that exit value totaled just one percent of the value generated in 2021, meaning firms will need to continue waiting for returns. Venture capitalist Tomasz Tunguz, meanwhile, reported that respondents in his go-to-market survey have averaged a 24 percent increase in sales cycle from early 2022 to 2023, said Thrive, adding: “And that doesn’t even begin to examine the aftershocks of Silicon Valley Bank’s failure.”

Finding a Balance

“If it seems like it is taking longer to find its groove, it may be,” said Thrive. “In recent research, AngelList found a positive correlation between the public markets and VC, suggesting VC lags public markets by up to 18 months. As portfolio companies navigate that gap, they’re finding a different path to efficiency and growth than their PE counterparts. It’s been three years since David Sacks popularized the term ‘burn multiple’ and nearly a year since he seemingly singlehandedly got the entirety of the VC ecosystem to pay attention to it. And, given the above, it may matter even more now.”

Against a backdrop of a near non-existing funding environment, Mr. Tunguz’s survey said that VC-backed businesses are looking to find a balance between “growth at all costs” and capital efficiency, with more efficient businesses being willing to increase their burn multiples slightly and less efficient businesses looking to cut theirs drastically.

The Current State of Leadership Hiring
Demand for executive hiring is declining, searches are taking longer, and executive compensation is climbing a bit. A new report from Thrive says that despite search being down from last year, the story could well turn out positively by year’s end.

“Perhaps in part to balance this, investors, boards, and companies are increasing their willingness to evaluate new CEOs,” said Thrive. “Though not quite at the raw number levels of 2021’s fevered hiring sprees, the role has grown in opened search volume for two consecutive quarters now. It’s the first time that’s happened since the market began its climb out of COVID-related hiring freezes.”

Related: Executive Recruiters Pull Off Another Remarkable Year, Remain Bullish for 2023

While assessing leadership talent to help bring burn multiples into balance, it’s perhaps counter-intuitive that there’s not as strong a willingness to fully correct compensation for newly placed executives, said the report. “Part of the explanation here may be similar to what was seen in early COVID: that fewer roles often mean more critical hires, leading to higher compensation,” said the report.

Grow and Wait

Though mid- and late-stage companies did come down off the Q4 2022 highs, VC saw median OTE rise by at least five percent YoY in Q1 2023 across all stages.

“These moves, it’s worth noting, are happening at a time when the mid-stage
VC market is nearly non-existent,” said Thrive. “Tunguz, in his own analysis of his survey, wrote of this dynamic: ‘The new pricing norms, the multiples of ARR which declined from 100x ARR, aren’t broadly accepted. Fluctuations in the public market challenge investors to underwrite outcomes. Second, start-ups who raised Series As in the last 18 months raised the  biggest Series As seen since 2000. Flush with cash, there’s no need to rush to the private markets to raise more capital, especially when valuations might be lower. Better to grow and wait for terms to improve.’”

“This will, of course, begin to change if record-high Series As companies end up in a place where they can no longer afford to wait out the market.”

If 2022 was the story of a potential tech-specific recession, Q1 seems to be asking
everyone to wait on fully committing to that narrative, said the report. The tech-heavy NASDAQ finished up 17 percent in Q1, its best quarter in more than two years.

Buyers Are Being Conservative

That bullish sentiment is also reflected in enterprise buyer surveys. Battery Ventures’ State of Cloud Software Spending found that the bulk of the bearish sentiment related to technology and SaaS in particular is mostly near-term. “And even then it’s a bit of a stretch,” said Thrive.

Among the enterprise, 73 percent expect budgets to be flat or increase in 2023.
And of those who will be increasing budgets, 65 percent plan to dedicate those
dollars to experimental budgets.

“Though the outlook is promising, buyers are being more conservative (89 percent of respondents in Q3 2022 said they expected budgets to be flat or increase), and Battery identified three key themes in that regard: 1) Organizations are less forgiving with self-procurement, meaning pure-play product-led growth and bottoms-up motions will need to explore adding sales-led components. 2) The near unanimous responses for budget reduction were vendor consolidation and get tighter on licenses. 3) Thirty-two percent of respondents said internal approval times for enterprise contracts has slowed down.

“Perhaps feeling a bit of the same improved outlook, technology companies did, for the first quarter since Q4 2021, open a growing number of searches in nearly all functions,” said the Thrive report. “Opened executive searches grew nearly eight percent QoQ, a significant change after three straight quarters of double-digit declines.”

Related: Targeting the Right Talent Pools

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media