Most people with any knowledge of the venture capital industry can safely conclude a few things about its participants. VCs tend to be brainy, for example, and secretive, and most partnerships try, at least on some level, to be somewhat egalitarian. Firms themselves like to perpetuate the idea that every firm, every team, has its own inimitable chemistry, and that venture capital is principally a people business, wherein VCs are ultimately as good as their networks.
What does not go hand in hand with the venture industry is talk of executive recruiters—and that is no accident. Though VCs freely admit to using search firms to find, screen and hire skilled operating executives for their portfolio companies, many VCs are reluctant to admit that they use those very same headhunters to find new partners. For an industry that so emphasizes who you know and how much pull you have, it’s akin to showing too much leg. One executive recruiter who spoke with VCJ was so chewed out by a venture client for disclosing their relationship that she later pleaded for her comments to be struck from the record. And a VC contacted by this magazine about his firm’s search for a new general partner asked: “Do you have to report this?”
“It’s a delicate and private business,” says Jon Holman, a recruiter based in San Francisco. Holman has hired nearly 30 general partners and roughly 150 startup CEOs. His clients include Accel Partners, Lightspeed Venture Partners and about 55 others, including Mayfield Fund, where in the last two years he has helped place Managing Directors Navin Chaddha and Raj Kapoor and Principal Chamath Palihapitiva.
The issue extends beyond the perceived stigma of turning outside for help. As readers may know firsthand, the process of finding a new GP can be exasperating. “Think of it this way—it’s like trying to introduce a seventh friend into a group of six best friends and hoping that they all really like this person,” says Holman, characterizing the process as “painful and ridiculous.”
Holman has worked exclusively with venture capital firms since 1981, and he has seen his business transformed dramatically during that time. In the 1980s, his work focused almost entirely on CEO searches. When he did place the occasional GP, it was a matter of plucking someone from an investment bank or operating position, not another venture firm.
In the 1990s, “There were suddenly enough firms, enough turnover and enough people retiring to turn general partner searches into a business,” Holman says. But the same rules still applied, meaning he still hired from banks and public companies. “You weren’t going to pry a GP from an existing fund. That just didn’t happen.”
What a difference a downturn made. With more firms winding down or suspending fund-raising efforts—like Mobius Venture Capital and Worldview Technology Partners—there are lots of names for recruiters to pick over. VCs are also more willing to jump ship than they were in the past because of internal dynamics, which have a way of becoming much more annoying when performance is lousy. Sometimes other firms simply make better offers.
A lot of them will do it gratis. I know a firm that hired a GP from a recruiter [who did the GP search for free] and ended up doing five or six C-level searches with that recruiter in the last few years as a result.
George Hoyem, Managing Director, Blueprint Ventures
The number of executive recruiters who say they’ve poached general partners from one firm and placed them at another is further evidence of the trend. Holman’s most recent poaching was Chaddha, who announced just last month that he was leaving Gabriel Venture Partners to join Mayfield. Tony Scott, co-founder of the international executive search firm ChampionScott, says he places one to two partners or principals a year at corporate venture funds, like Hitachi, or traditional outfits, such as DCM-Doll Capital Management. Connie Adair, the head of Dallas-based executive search firm Taylor Winfield, also says she regularly does partner searches. Some of Taylor Winfield’s clients include Woodside Fund and Hummer Winblad Venture Partners. Then there is Carol Dressler, who has a long list of high-profile venture clients, including Menlo Ventures, Foundation Capital, Sutter Hill Ventures and General Atlantic Partners. Dressler, who works from an office in Palo Alto, Calif., has placed roughly 14 GPs since buying out her predecessor in 1997. Earlier this year, she worked with ComVentures to place its newest partner, Baris Karadogan, formerly a senior associate at U.S. Venture Partners.
Big ticket item
Placing a GP isn’t cheap. Holman charges from $150,000 to $300,000 per search, depending on a number of factors. “It’s sort of like high school algebra,” he offers. “If there are 15 to 20 people on the planet who fit the criteria of the client’s search, it’s going to be harder than some others. If I have to look all over the country, it’s going to be harder.” Harder costs more, naturally.
Dressler will not publicly disclose how much she charges for GP searches, saying only that “it’s a premium over a CEO search fee.” But given that most CEOs negotiate annual salaries in the range of $300,000 to $400,000, and that most search firms charge one-third of a candidate’s first year’s salary, her prices are likely close to Holman’s.
Adair charges a flat fee of $100,000, collecting one-fourth when a client signs with her, and one-fourth in each of the following three months. She is paid in full in four months regardless of whether or not her work is finished.
Sound too pricey? How does free sound? George Hoyem, a managing director at Blueprint Ventures in San Francisco, says some recruiters will do a GP search “gratis” because they know it will pay off down the road when the GP they’ve placed needs to find C-level talent for his or her portfolio companies. “I know a firm that hired a GP from a recruiter [who did the GP search for free] and ended up doing five or six C-level searches with that recruiter in the last few years as a result,” he says. In fact, the recruiter is currently doing another GP search for the venture firm at no cost because of all the work the VCs steered his way.
It may be in a recruiter’s best interest to do a search for free on an informal basis. Think about what would happen to a recruiter who is hired to do a GP search and poaches someone from a venture firm that has repeatedly contracted with him to find CEOs for its portfolio companies. He will have killed his relationship with that VC. “You don’t want to bite the hand that feeds you,” says a Silicon Valley VC who asked not to be named. “On the other hand, a recruiter can make a quiet referral in the background so the other partners don’t know, but the guy who goes to the new firm is in debt to that recruiter.”
Why not DIY?
There are people available because of the pruning going on for performance reasons or chemistry reasons or new-direction reasons.
Neal Dempsey, Managing Director, Bay Partners
Considering the fees, some VCs may rightly ask if it’s worth the cost. Given the number of venture firms now using recruiters, the answer appears to be yes.
For starters, regardless of how big a firm’s network is, meeting new people is always a good thing. Even Mayfield hired someone it already knew when it hired Raj Kapoor, Fong says it still made sense to do a search. (Kapoor co-founded Mayfield portfolio company Snapfish, a photo-sharing service.) “We don’t regret using Jon [Holman], because you want to meet other people,” he says. “It helps expand your network.”
Recruiters are also helpful when it comes to breaking into new territory, which plenty of firms have been doing these days, whether it’s shifting from early to late stage or from Silicon Valley to India. “We used recruiters for some of our international needs and we have been very happy with the results,” says Tim Draper, founder and managing director of Draper Fisher Jurvetson. “Domestically, we have done our own recruiting.”
ChampionScott, which has offices in Silicon Valley, Boston, Beijing and London, has helped a number of VCs find senior principals and general partners in Asia. Going abroad can be especially tricky, owing to cultural conundrums. “We’ve seen a lot of people hire former bankers out of Hong Kong—which is wrong for Mainland China—and American-born Chinese who don’t speak Chinese any better than I do,” Scott notes.
Then there’s the age-old challenge of so-called groupthink. “Almost always, VCs first look to who they know and whose backgrounds are similar [when hiring],” says Scott. Though not always successful, headhunters push their clients to branch out and seek people with new points of views or different experiences.
Recruiters also help save face, frankly. “When firms need to pull in an established VC, it’s not politically helpful and may be extremely awkward to recruit someone who is working elsewhere,” says psychologist Linda Tirado of Strayer Consulting in Los Gatos, Calif. Through Tirado doesn’t recruit GPs, her firm has long worked with venture firms in a variety of ways, including mediating internal squabbles. “It’s easier if recruiters can bring in candidates and do the introductions,” she says.
One Silicon Valley GP says he used a recruiter because it’s awkward for one GP to approach another about a job—even if they already know each other. “You don’t want to embarrass yourself,” he says. “If one of my colleagues asked me if I was considering leaving my old firm, I probably would have said, ‘Fuck you. Why would you think that? Do you think we’re not doing well?’”
Consider the real-life example of Todd Brooks, formerly a managing director at Mayfield, who is putting together a new fund. Brooks knows plenty of VCs, but he turned to Adair to help him “broker conversations with people on an opportunistic basis,” as he explains it. Says Adair: “People like Todd turn to me as a mediator, an in-between person that allows them to stay out of the [screening] process. I can learn whether [a VC at another firm] may be loose in the socket. I also know who might want to talk, but who might not necessarily want to open his or her kimono to the rest of the world.”
We don’t regret using [a recruiter], because you want to meet other people. It helps expand your network.
Kevin Fong, Managing Director, Mayfield Fund
Another reason VCs look to recruiters is because finding new talent can be an enormous time drain. “Before hiring Baris [Karadogan], we’d been looking ad hoc for six months,” says Roland Van Der Meer, co-founder of ComVentures. “We weren’t seeing enough people with the specific skill sets we needed and we finally said, ‘We need to be disciplined about this and interview lots of people and pay for it and hold people accountable to meeting candidates.’” In the end, he says, it worked.
Which underscores another benefit: A headhunter can keep a firm’s existing partners from strangling one another during the hiring process. “Everyone knows that five VCs equals seven opinions,” notes Scott, who says that a big part of his role with firms is to “make sure that everyone is on the same page, to the extent that that’s possible.”
A recruiter’s first priority is to help firms understand what, and who, they most need. Is it someone who understands wireless, or someone who understand India, or both? Is it someone who has been in a venture fund or who comes from the operating world?
Getting all of a firm’s partners on the same page doesn’t mean they’ll stay there. Holman says that on two separate occasions he worked with partnerships that started the recruiting process only to decide not to hire. By that time, he was already paid.
Trusting the process
And that brings us to how the recruiters work. While each professional has his or her own style, all will tell you that unanimity is seldom in place when they first walk into a firm. Their first challenge is to get partners to agree on what Mr. or Ms. Wonderful looks like.
It’s a tall order, can take dozens of hours and typically involves numerous private sit-downs with every partner, during which each person voices what he or she thinks is best for the firm. Afterward, that anonymous feedback is delivered to the partnership, which starts another series of group discussions. Naturally, some firms try harder than others to give everyone’s opinion equal weight. Some firms are egalitarian, while others are driven by senior partners.
At Bay Partners in Menlo Park, Managing Director Neal Dempsey “clearly has the most influence” at the firm, says Holman. Holman also says that in hiring General Partner Atul Kapadia in 2003 (a search that Holman managed) “Neal was clear not to force anything on anyone, understanding that he [Dempsey] would be gone long before” Kapadia. (Dempsey has said he plans to retire in a few years.) Kevin Fong, managing director of Mayfield, says most hiring decisions are driven by him and Managing Director Yogen Dalal. “It’s like how we make a decision on a deal,” Fong explains. “There are lots of different perspectives, and while there’s more consensus than not, you never have 100% consensus.”
When some semblance of agreement is achieved, the next step is name gathering. Most VCs firms have a wish list of two or three people they’d like to hire from the get-go. In fact, says Holman, “chances are [a venture firm] has already taken a pass at those people” before he is called in for help. Dressler sometimes calls those people even if they’re not interested. “I tell them, ‘I know you’re not leaving or you’re on a partner track, but you’re my client’s poster child. Can you recommend anyone?’”
We weren’t seeing enough people with the specific skill sets we needed and we finally said, ‘We need to be disciplined about this and interview lots of people and pay for it and hold people accountable to meeting candidates.’
Roland Van Der Meer, Co-founder, ComVentures
The next step is expanding on that inventory. The recruiters say that a list of 150 names is not uncommon because the process is so complicated. “Firms do a lot of deals over the years with a lot of different people,” says Holman. “Some are people who they’d love to work with. Some over their dead bodies would they want in the firm, but they still want to do deals with. You want to know these things before you pick up the phone.”
Once the recruiters make that first call, the long slog is on. It’s phone calls and more phone calls. “We never have more than 50 phone calls out that are unresolved,” Adair says, explaining that she has either called a candidate three times and they haven’t phoned back, or she’s been contacted and knows that a person is interested.
As things start to click into place, in-person interviews are set up (usually around 20 to 25 of them) and as stronger candidates begin to emerge, social outings are encouraged, and invitations to board meetings are made.
Searching for a GP is typically more intense and takes longer than most other types of searches. Scott says that typical CEO searches take three to four months, while a GP search takes on average five to six months and some go on for “well over a year.” Says Fong of Mayfield: “There isn’t really an ‘aha’ moment. These things happen over time.” And given the structure of venture firms, no one wants to make a hiring mistake.
Not for everyone
While more venture firms are using recruiters, they aren’t for everyone and don’t make sense in every situation. Bay Partners used a recruiter successfully back in 2003 to find General Partner Kapadia, but Dempsey believes it’s generally better to “grow your own.” That’s what Bay did with Eric Chin and Neil Sadaranganey, who joined the firm in 2005 as a venture partner and entrepreneur in residence, respectively. The firm promoted both of them to partner in July.
“There aren’t a lot of great quality people like that out there,” notes Dempsey. “Instead, there are people available because of the pruning going on for performance reasons or chemistry reasons or new-direction reasons.”
Another issue to keep in mind if you decide to work with a recruiter is that you’re letting the world know you’re looking for a partner. So, if you don’t fill the position quickly it could cause other VCs to wonder if there’s a problem in your partnership. One IT-focused Silicon Valley venture firm had a search underway in the past year, prompting some candidates to “scratch their heads,” says a Valley VC who asked to remain anonymous. “If they had approached me, I would be thinking: ‘Why can’t they decide? Is the group dysfunctional? Are there politics going on?’”
Whether you hire a recruiter to find a GP or take on the task yourself, it’s not a simple process. “It’s like asking someone to be a marriage broker where he has to find someone that will get along with two to 10 husbands and wives simultaneously,” quips Bill Tai, a general partner at Charles River Ventures who was lured to CRV by a recruiter.
So if you have to pay a headhunter top dollar to find a new partner, you can at least take some solace knowing that he or she will earn every penny.
Additional reporting by Lawrence Aragon.