VCs/PEs & Your Job Hunt

It keeps coming up–Should I include venture capital firms (VCs) in my job campaign? What about private equity firms (PEs)? Why (or why not)? Who/where are they? What is the best way (data source) to locate them? After I’ve found them, what do I do or send?

I’ve been working on this for several years and have developed a VC/PE-facing strategy you might find useful for your job hunt. This article is combines lessons learned from many successful senior executive job campaigns.

Let’s pin down who and what they are first.

VCs and PEs have money to invest. Some of the money belongs to them (the principals and other owners of the firm); other money resides in investment vehicles (funds) they have raised from outside investors and reinvest. Their investment deals–the funds they invest in enterprises interesting to them–can be extremely complicated and creative, or they can be a very simple/straightforward exchange of equity for the investment. The VC/PE might take ownership control but not management control. Or, it might make a minority investment and provide management assistance. Etc. The ultimate goal is to divest/exit down the road and achieve an attractive gain. Of greatest interest to the senior executive job hunter: Because both have portfolios of companies, contacting them is both an interesting leverage point in a job hunt (one contact = being exposed to more companies than contacting one company) and (because executives associated with portfolio companies have a higher failure rate than executives generally), the demand for executives from the outside is high.

VCs typically invest in early-stage companies, especially high-technology ventures, augmenting the investment capital of the founders, and providing funds for growth/development of the enterprise that a bank would consider too risky. While this is an extremely high-risk investment avenue, the possible rate of return (think: next Google) is correspondingly high.

PEs typically invest in going concerns, especially companies they consider to be under-valued. With a significant capital infusion in exchange for an ownership position (and frequently, operations/financial expertise provided by the PE firm), the money-losing portfolio company can become profitable, the profitable company can be enhanced, major expansions are undertaken (including industry “roll-ups”), costs can be reduced, and so forth. With typical time horizons of three-seven years (variable) after investing in the firm, the PE firm hopes to “exit” the investment at a higher price than they paid. Much higher, ideally. Sometimes it works, sometimes it doesn’t. Sometimes, the PE firm loses its shirt, sometimes they have a very nice payday.

Sorry for the simplistic explanations. Books have been written on both. No need to attempt that here.

Why/why not contact them? Several reasons jump out; you might not have thought of all of them.

Demand for executives generally. More than meets the eye here. I already mentioned that there is a relatively higher rate of executive turnover among executives working for VCs/PEs. That fact alone makes them a higher-percentage target than free-standing (unrelated to VC/PE) companies.

Leverage point in your campaign. Several layers to this, too. We know that contacting the VC/PE is a leverage point because of multiple companies in the portfolio, but there’s more. For some executives, a position at the headquarters of the firm (not just a portfolio company) might also be a possibility. This strategy would appropriate for executives with extensive operations, consulting, financial, and previous experience in the space. Finally–if you have some risk capital (“skin” you would put “in the game”) and have your eye on an interesting prospect–suggesting to the PE firm that you have an interesting prospect you would like to acquire with their help–might be interesting to the firm. (Sidebar. Every one of my PE clients has told me their greatest challenge today is to locate useful prospects. If you have one of those, some risk capital, and you are qualified to run the firm, or fly the financial wing of a CEO who could run it, I suspect you will find a number of PEs who will listen to your story seriously).

Contacts will resonate better with VCs/PEs than most other approaches you can make. Again, there are several reasons why this is so. First, finding the firms is tough enough that most of your numerous senior executive competitors won’t bother to try. Free/cheap/pass-along lists will keep many VCs/PEs and their near-relatives hidden from casual tire-kickers (more on this below). Others have no interest in the risk or have no appreciation of the opportunity …and won’t bother to try. These are great examples of how “self selection,” hubris, and ignorance work to the advantage of those executives who take this channel (a variation on Channel 2–Third Parties) seriously.

VCs/PEs don’t like to engage retainer search firms. VCs/PEs like to spend “OPM,” not theirs. (This might not be a good strategy for you if “OPM” isn’t in your vocabulary). As such, retainers to search firms look like kryptonite to Superman or a crucifix to Dracula. This doesn’t mean they never pay retainers or that they don’t use search firms, just that the major firms (you know the names) don’t generally get the bulk of the searches awarded. When they go to a search firm, the assignments generally go to independent alumni of major firms (the sort of “stealthy” headhunters–plenty of them, especially today–we list in our database. Call me for advice on this or go to www.rsronline.com if interested) who are more flexible on how they bill their clients. In any event, the VC/PE would prefer to pay $0 in search fees if possible, making them more receptive than other firms to unsolicited contacts–good for you.

Significant wealth-building opportunity. I make certain to point this out to the executives I identify as candidates for my PE-related searches. PE firms tend to compensate their portfolio companies relatively well. I say relatively well because they tend to be a bit light on base compensation, but higher than average on the incentive component. The upshot: Executives who cause significant growth/profit improvement are generally paid well for the accomplishment. That’s a sideshow, however. The real money–the wealth-building opportunity–is made when (if) the PE firm exits the investment at a substantial gain. Key executives (usually the CEO and CFO, but sometimes others, too) share in the gain. This share can be significant and much higher than the executive would receive for similar performance at a non-PE portfolio company. Keep in mind that there are probably as many failures as there are successes, though. A share of nothing is nothing.

Who/where are they? How do I locate them?

You’re going to need a good source of data. If you’re interested in comprehensive data (the best available), spend the money to get the data with the best chance of delivering the results you want. Here are the sources I recommend–

Pratt’s Guide (www.investmentbenchmarks.com/pratts_guide.html) $995 for online access.

Galante’s Directory (www.dowjones.com/privatemarkets/gal.asp) $995 for online access.

Amazing how they (ThomsonReuters and Dow Jones) arrived at the same price. We have subscribed to Galante’s for many years. Both are excellent products. Check out their online info. I am aware that a number of business school libraries subscribe to one or the other or both, so check out your school, if you have that connection. If you are a member of a senior executive networking group, a subscription to either service might be in order as a shared and very useful resource for you and your fellow members. The other paid sources I have seen are cheapo imitations and I do not recommend them. I’ll keep an open mind on this and if you find any other comprehensive sources, please give me a heads-up and I will investigate them.

Dun & Bradstreet’s Zapdata service. Worth a look, once you have cracked the SIC codes. Here is what we have been able to determine–

VCs/PEs are listed as SIC 67999904. Current count is 1798.

Investment holding companies are listed as SIC 67269901. Current count is 5476.

Management investment funds (closed end) are listed as SIC 67269905. Current count is 612.

You can order these (some/all) through www.zapdata.com or get them from me as part of my basic consulting session. Ask me about this if interested.

How do you contact them? What do you say?

My letter-writing recommendation also stands here–Snail mail inquiry (1st Class personal letter) without resume on the first contact. One page or less. Keep the inquiry interesting (conversational, entertaining, topical) and low-cognitive. The reader will spend much less cognitive ability reading the letter than you spent writing it. Be sure to ask for a call, in order for the reader to find out more about you. Remember the critical sequence of events–letters lead to telephone calls, which lead to face-to-face interviews, which lead to offers. If you send a resume, nothing is likely to happen–VCs/PEs get plenty of resumes that are quickly disposed of by admin assistants.

Best regards. Call me anytime to discuss this or any aspect of your job campaign.

Ken