Spotlight: Why Talent Matters Most During Uncertain Times

June 5, 2023 – Bespoke Partners is an executive search and leadership advisory firm dedicated to partnering with top private equity firms, including Francisco Partners, Clearlake Capital, WCAS, Insight Partners, GI Partners, General Atlantic, CVC Capital Partners, and TA Associates, among many others, to recruit software talent and assess and evaluate teams at every stage of the investment lifecycle, from growth equity to buyout.

Eric Walczykowski is CEO of Bespoke Partners. As a proven growth executive, he has served as CEO, president, board member, investor and advisor for technology companies that achieved over $4.5 billion in successful exits. Mr. Walczykowski recently sat down with Hunt Scanlon Media to discuss what is affecting venture capital and private equity firms today.

Eric, how are current events – the bank failures, the war in Ukraine, what is left of the pandemic, and inflation in particular – affecting the VC/PE space? What concerns you the most?
We specialize in PE firm executive search for software and SaaS companies and have definitely seen some changes because of the economic headwinds and market disruptions. Certainly deal flow has been in a trough since the record high of late 2021. But there are still deals being done and leaders being recruited and we see signs that activity is starting to heat back up. The main changes from market conditions have more to do with what sort of leaders investors are looking for. They specifically want leaders who can drive capital-efficient growth. We detailed this extensively in the latest edition of our Private Equity Talent Benchmark report. This trend is especially true of many companies in the venture sector, where a “grow at all costs” strategy has been the norm. Now these companies are pivoting to focus on profitable growth that makes efficient use of capital. The PE sector has largely focused on this for many years so we see a lot of leaders with PE experience being drawn into VC opportunities.

What do you see as the biggest challenges for recruiting talent for the sector?
It has been an incredibly tight market for seasoned executives who are proven in private equity. That tightness continues and we really see no signs that it is changing, particularly as our clients are seeking the top decile, proven executives. Our Private Equity Talent Benchmark Report shows that average cash compensation has risen almost 20 percent since 2018 and that’s a direct result of upward pressure on salaries because it is a seller’s market. Salaries are staying at this level and we also see that executive turnover is back on the rise after a dip in the fourth quarter of 2022. These are signs of the market tightness continuing and we expect it to be a seller’s market for some time, especially as deal volume picks back up. This puts a significant onus on working with experienced recruiters with a proven track record that can get the top decile executives to take a call. Additionally, the experienced recruiters can help portfolio companies expand the scorecard for consideration of step-ups, public executives and subsector adjacencies.

What roles have private equity firms been hiring for within their portfolio companies?
A very interesting trend in private equity recruiting is the rise of the chief people officer. The CPO elevates the human resources function in a portfolio company to a new strategic level and reflects the importance of talent and corporate culture for executing on the value creation plan and achieving the investment thesis. This in turn mirrors a broader trend in private equity itself, that talent is the chief lever of value creation these days. It used to be that private equity firms could base an investment thesis on proprietary deal flow and financial engineering. But the market has become so crowded that exclusive access to deals is next to impossible to achieve. And financial engineering is table stakes. Everyone does it. So now the primary way to achieve outsized returns is talent. We help our clients do that with their C-level leadership and then the CPO in the portfolio company executes on that same strategy to maximize the impact of talent throughout the rest of the organization.

Is the executive search/recruiting sector desirable for PE and VC firms?
The executive search industry has been going through changes over the last several years. These changes in some instances have been brought on by market inefficiencies noticed by PE firms. I do anticipate that other firms may show some interest in the market. But it is still a services business predicated on a rate times and people-time-hours to drive the financial metrics and the resulting multiples. That said, we are thoroughly enjoying our partnership with AEA Growth, which Hunt Scanlon helped to orchestrate. We have rolled out multiple new innovations with the help of these great PE partners, such as our new strategic resourcing group providing curated executive network access services and our new private equity client services program that tailors talent enhancement programs tightly to client needs.

What trends do you see for PE/VC firms moving ahead in 2023?
We see signs that the second half of the year is going to see a surge in deal flow. It’s always risky to predict the future like this but there are masses of dry powder out there to put to work. Once we see that valuations have truly stabilized in light of the increased interest rates, we will start to see more deals consummated in private equity.

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