Feb 2016

Why talent capital should have equal billing to investment capital

It is difficult to argue that the tech start-up culture in the UK is truly blooming. Discussion around Silicon Roundabout, the Northern Powerhouse and innovation in general dominates the news agenda, but this tend to be focused around the theme of finance; how it can help these organisations to grow and how accessible it is compared to in the US. The makeup of the leadership team is often left out of these conversations even though it can have a significant impact on the overall success of a company, as well as an investor’s willingness to invest. Having said that, in our experience, it does seems that businesses are painfully aware of its importance and are starting to give talent capital the equal credence it requires.

Talent is hard to find

Investors are finding it increasingly challenging to find and attract those rare, world-class individuals who can lead through every stage of a business and, as such, build the unicorns of tomorrow. Our recent report, A Board Fit For Purpose, found that finding talent is cited as a major or moderate barrier by 81% of VC and CVC respondents and sourcing candidates with the right skills and experience is the biggest challenge when making senior hires. Having the right people in the right place to propel the business through its next phase of growth is vital so these stats are particularly shocking. We see some organisations attempting to mitigate this issue by “over-recruiting”, i.e. bringing in high profile individuals at the early stage to prevent a struggle once the company starts to grow. But, this can be a very difficult route given how notoriously hard to find these individuals are.

Leadership drives decision to invest

The decision to invest in a company is not an easy one, even for the most seasoned investor. It is based on a complex range of factors with every one being of varying importance depending on the individual organisation. The process is especially complicated with early stage companies who do not yet have a proven business model or are not yet generating high levels of income. This is part of the reason why the leadership team is so important. 90% of VCs and CVC respondents rank the quality and strength of the leadership team as a top three factor in their decision to invest in portfolio companies and 85% said they were unlikely or highly unlikely to back a company that lacked the right skills.

But, it’s not just about having the right CEO. Many investors also want to see that the Chief Technology Officer or ‘product person’ can deliver on time and in the right way. The overall leadership team needs to be ‘backable’; they need to have a good understanding of the company’s vision, and understand the market inside and out, whilst also being as outward and customer focused as possible. Having said that, the leadership team doesn’t have to be perfect from the outset – many VCs and CVCs see themselves as adding value by helping to strengthen executive teams. It’s about having talent with the potential to grow and expand their skills set alongside the needs of the business.

With this in mind we have outlined below how you can ensure your leadership is the best.

Be prepared

In a fast growing, early stage company, it is often difficult to think about the ever-changing need for talent, especially when looking a few years into the future. But, given the length of time it can take to get the right people on board, it is essential to get the ball rolling as early as possible. By defining roles and responsibilities clearly and aligning your performance indicators to your overall business objectives, you can spot gaps early on. This will help you to be open and honest with investors from the outset about where your limitations might be, where skills are needed and what value they can add. You can then agree up front how best to address these gaps and ensure all parties are aligned.

Training and development

Replacing members of your leadership team as the company grows is not always the best, or easiest, option. Putting in place training or mentoring programmes to better develop your existing talent is often just as effective. Using non-executive directors to share their experiences and knowledge can often be a good route to go down for this sort of activity. They bring a wealth of experience and can have an objective viewpoint about the organisation.

Keep your A-Team

Make sure you understand who is absolutely critical to the business and work damn hard to make sure you keep them. Regular check-ins to discuss their motivations and address their concerns are vital. Thinking creatively about how to incentivise these individuals is also important. For example, stock options are clearly important, but if the value created on paper is going to be locked up for a significant period of time, executives may need partial exits as new rounds of funding are attracted. Making sure your incentives suit the individual is one way of helping you to keep hold of your top talent.

Never settle for second best

Businesses need to make sure they are aiming high when it comes to senior talent – be ambitious about the calibre of people you want to attract and never settle for second best. The processes used to find your top talent should be the best and most rigorous possible. They should be constantly reviewed and improved to ensure you are finding the very best talent. By taking an exhaustive approach to finding executives, you will ensure that you find a world-class candidate rather than just the best available which can lead to difficulties further down the line.

As high growth companies and their investors become more systematic and innovative in their approach to talent, the positive impact on their growth trajectory is becoming more and more evident. In order to be a truly successful business in the UK, your leadership team needs to be able to spot new opportunities in new markets as well as get on with existing personalities and investors. Vital funding and support from investors, together with high quality leadership teams offer young and innovative companies a winning combination and the potential to become world-leading businesses.

If you’re interested in reading more about this topic, download our latest report, A Board Fit for Purpose, here.

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Intramezzo  Report – A board fit for purpose.

Can your leadership team help you reach the next milestone?

It is undeniable that the global tech industry is booming, with investment continuing to flow into disruptive start-ups around the world.

But, to produce a true tech giant, investment is not the only critical factor. Businesses also need world-class leaders to guide them through hyper-growth and give them every opportunity to become the tech unicorns of tomorrow.

In light of this, we have drawn upon our latest research to create an e-Book, explaining how, and why, start-ups can leverage their executive teams in order to grow their business.

Download Report

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