It?s no secret that top tier executive search firms have long coveted equity stakes in their privately held clients. In fact, such investment agreements have become incorporated into most such compensation agreements.
And now others are getting in on the act.
Cleveland-based Christian & Timbers yesterday announced that it recently held a $44 million final close on what is believed to be the first executive search firm venture fund raised primarily from third party limited partners. Named C&T Access Ventures, the oversubscribed new vehicle will co-invest with established private equity firms on early-stage deals across a variety of industry sectors.
“Our fund is relationship-based,” said William Trainor, managing director with C&T Access Ventures. “Most of the investors were invitation-only? and we were able to put together a unique group of senior technology executives who will help us [source] deals and help our portfolio companies.”
Among those receiving invites were: Bill Cadogan, chief executive with ADC Telecommunications; Eric Harslem, chief technology officer with Dell Labs-Dell Computer Corp.; Joel Hyatt, executive managing director with idealab!; Tim Price, former president and chief executive with MCI WorldCom Communications Group; Tom Prouix, chief executive at Netpulse Communications and Ron Rosenzweig, co-founder and chairman of Anadigics.
Road Less Traveled
While all of C&T Access Ventures? newfound $44 million was raised via existing relationships, not all of it came in as directly as did capital from the aforementioned individual investors.
Instead, $14 million was committed through an electronic offering circulated by online private placement firm Offroad Capital, which had used Christian & Timbers last year when looking to fill certain senior management positions.
“They used our technology platform to reach a broader universe of investors than they had ever been able to reach on their own,” said David Weir, co-president of Offroad Capital. “They had access to over 6,500 high-net-worth individuals and several hundred institutional investors.”
The C&T Access Ventures transaction represents the first time that the Offroad platform, which has traditionally concentrated on venture capital deals, has been successfully used for fund raising. Last year Offroad hired fund placement veterans Frank “Tripp” Brower and Richard Bowman away from Stephens Inc., and is now in the midst of marketing a $175 million vehicle for Walden Israel. It also has a broader private equity fund in the works for Putnam Lovell Securities.
“The fund-raising business is going to be a major part of our business going forward,” Weir said. “We feel that we?ve got a first mover advantage here.”
Accessing Deal Flow
Thus far, C&T Access Ventures has made a pair of investments and is in the process of finalizing a third. On average, investments will range from $500,000 to $2 million and the fund expects to commit all of its capital within four years.
The first completed deal was for online b-to-b marketplace eLance.com, while the second was for e-mail services firm Zaplet, formerly known as Firedrop. Both investments were made in concert with Kleiner Perkins Caufield & Byers, and each firm retained Christian & Timbers for executive searches.
“Giving equity to a search firm is just what the market demands,” said Anbu Gounder, director of finance with eLance.com.
When asked whether he felt that allowing C&T Access Ventures to participate in his firm?s financing round would encourage its parent company to encourage a more vigorous and thorough executive search, Gounder said he believed such a scenario was likely.
C&T Access Ventures? Trainor agreed with that assessment, but emphasized that not all portfolio companies will receive executive search help just by virtue of the venture investment.
“We act as a financial liaison between the companies we invest in and Christian & Timbers,” Trainor explained. “We are not the search firm ourselves and do not formally make those types of arrangements.”
Dan Primack can be contacted at Story Feedback.