Leadership Needs Shift Dramatically as VC Moves to Wartime Footing

These are tumultuous times for VC investors and the businesses they fund. According to Ben Dewar, a partner with NU Advisory Partners, that makes linking businesses in the industry with next-generation leaders fascinating, important, and genuinely transformational. With that in mind, Mr. Dewar sat down with Hunt Scanlon Ventures managing director, Drew Seaman, to discuss the trends he’s been observing in recent work for VC firms and their portfolio companies.

May 17, 2024 – Over a 20-plus-year search career, Ben Dewar of NU Advisory Partners has led hundreds of recruiting engagements across every corporate function imaginable. Along the way, he has recruited dynamic executive talent into CxO and VP roles for VC-backed, PE-backed and public high-growth technology and consumer companies. From that perch, he has witnessed up close and personal just how transformational great talent can be – and what happens when businesses, or an entire sector, can’t tap the fresh perspectives that talent brings.

“Compared to a placement at, say, a Fortune 500 company, a world-class executive can make an outsized difference at a smaller, venture-backed company,” he said in a recent one-on-one interview. “In fact, two of the main reasons I enjoy working in venture are impact and immediacy.”

Prior to joining NU Advisory as a partner five months ago, Mr. Dewar spent nearly a decade at True Search, where he built and co-led the firm’s people, talent, and legal practice. There, he specialized in chief people and chief legal officer searches for growing businesses across the tech and consumer sectors, across all asset classes. He also led searches for investment, talent, and legal professionals into investment firms.

Covid Years: A Dramatic Outlier

So, what is Mr. Dewar seeing now, in 2024, as the landscape for VC continues to shift – and, with it, a long list of changing requirements for talent?

Capital flows have declined sharply over the past two years, he said, albeit from abnormal highs. “Venture capital firms have raised significantly less money over the past few quarters than they did during 2021 and 2022,” he noted.

Related: Building the Best PE and VC Leadership Teams in 2023

“Global funding was $58.5 billion in the fourth quarter of 2023, down 25 percent from a year earlier. Exits from VC-backed companies are down, too,” he said. “But the overall numbers are very similar to where they were in 2019. The COVID years were just a different era – a dramatic outlier,” he pointed out.

Barbell Pattern, Fewer Searches

As a result, VC firms have been shifting their allocation of funding toward ‘barbell’ patterns of investment. “At one end of the barbell, investors are making early bets on very young companies that will take many years to reach an exit opportunity, IPO or otherwise,” Mr. Dewar said. “At the other end, VCs are doubling down on the proven winners within their portfolios – those with solid financials, sustainable growth and grounded valuations,” he added.

How PE and VC Firms Can Develop a Go-to-Market Recruitment Strategy
Private equity and venture capital firms are closing more and more deals particularly. As a result, competition for talent among start-ups, emerging technologies and portfolio companies has never been more competitive, according to a report from Chapel Hill Solutions’ Julian Rives. “Typically, most PE and VC firms approach recruiting and talent acquisition reactively – or hiring when a new role or need arises,” the study said. “In order to beat competitors and hire the best athlete talent, HR leaders at PE and VC firms need to shift to a more proactive approach through talent mapping.”

Companies in the middle of the barbell are the ones facing new struggles, he observed. “With a dramatic shrink in available new capital, they are trying to continue growth with fewer resources, while slowing burn rates and driving toward profitability – all at once.”

One result: Tighter belts are forcing many portfolio companies to scale back on executive searches. Firms watching their expenses are increasingly forced to focus on filling and upleveling only the positions deemed truly critical to the survival of the business, Mr. Dewar said, rather than investing in broader upleveling across entire executive teams.

Finding Adaptable Talent for VC

“We look for candidates who can steer a rocket through stages beyond the hyper-growth of its launch,” Mr. Dewar noted. “No matter how huge a company’s potential, it needs leadership to execute against opportunities.”

Related: The Outsized Role That PE, VC And Tech Play In Executive Recruiting

Venture-backed businesses, he said, must invest not only in great ideas, but also in great management teams. Last year, he said the most robust changes he observed occurred within the CEO, CRO, and CFO functions.

“With funding uncertainty, we seek executives who will adapt to changing times,” Mr. Dewar said. Venture is traditionally a space filled with founder-led businesses that seek executives with a strong growth orientation.

“As the VC sector moves into more of a wartime mentality, success requires leaders with different mindsets,” said Mr. Dewar. “Executives can’t rely anymore on predictable flows of money; they must demonstrate the capacity for leadership in up-and-down funding environments and they must bring more discipline in their deployment of scarce resources.

In short, he said, today’s climate demands leaders who adroitly balance a growth mindset and financial restraint.

Fielding the Right Team

It’s now crucial for leaders at VC-backed companies to have at least some experience in financial management and revenue generation. “In an environment where access to capital is tighter, businesses will prosper by managing their money better and making money more sustainably,” Mr. Dewar noted. Leaders, therefore, must bring deep business acumen to every role across the executive team, not just those with titular financial responsibility.

Fielding the right team at the right time is crucial to navigating challenging markets, Mr. Dewar says. “Traditionally, VC-backed CEOs have looked to hire other executives from within the venture ecosystem. In this time of new challenges, that’s changing: Companies are now looking far beyond the usual suspects to find the skills to ensure their success. Specifically, there’s a new appetite for candidates with private-equity backgrounds, who know how to grow businesses with financial rigor,” he said.

Anticipated Turnaround

So, how should search professionals navigate the reduction in searches?

According to Hunt Scanlon data, there has been a significant decline in the overall number of executive searches since the industry’s peak of 2021. “Search professionals who continue to focus on the fundamentals of great client service will navigate the slowdown best,” Mr. Dewar noted. He said reconnecting with clients and candidates and helping them in small ways will also be a value add. “It’s about finding ways to stay top of mind for when those searches arise.”

Because so much of the VC downturn is tied to larger and more global issues, he said it has been difficult to predict when venture search work will break through again. “Optimism levels are high for a continued improvement throughout 2024,” Mr. Dewar said, adding that “many investors and clients think the second half of 2024 will be more active than the first.”

“On the bright side,” he concluded, “there will always be terrific careers in venture. While the entire sector is experiencing a downturn, it is fundamental to the future of business. A turnaround will come again and it will not be long before it is a growing asset class once more.”

Reprinted from with permission from ExitUp!

Contributed by Scott A. Scanlon, Co-CEO, Drew Seaman, Managing Director – Hunt Scanlon Ventures

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