Skip to content

Human Capital: The Smartest Investment Investors Can Make

Posted by Lauren Kendall on March 16, 2021
Originally published on LinkedIn by Jim Urquhart, Managing Director, FinTech at The Bowdoin Group.

The pandemic and an increasingly competitive market have clearly and significantly changed the staffing needs and hiring practices in many industries. But there’s still one question we all want to be answered:

“How are investors approaching hiring in the current landscape?”

I was curious to uncover the answer to this question when I connected with several talented and passionate talent executives at PE firms that are presently re-evaluating and reshaping their strategies and approach toward talent cultivation.

Here are some of the common themes emerging in how operators and investors view hiring in the current environment:

1. Talent is a primary focus, both inside and outside the company.

Investors spend a significant portion of time and energy on attracting, cultivating, and retaining top talent. They engage in ongoing dialogues to identify talent within portfolio companies and across personal networks, and prioritize nurturing those relationships. And because it’s a fairly competitive talent pool when it comes to high-caliber executives, they also see the value in working with companies to grow and groom talent from within, building comprehensive learning and development programs to mentor and support their existing talent base at all levels.

As Todd Markson, Operating Partner at Bain Capital, explained, “Often in our portfolio area, one of our first value creation efforts is to bring in a world-class CHRO and talent team to build a flywheel and build a performance management system so that people can understand what they’re trying to achieve and how to grow.”

It makes sense — talent is the core of what makes companies grow and achieve success. A PE firm can have the best strategy in the world and invest in a great company, but if the right talent is not in place, the firm is simply not going to get the returns it’s looking for.

2. Talent is a powerful differentiator and attractant.

One of the most effective ways investors can differentiate themselves from the competition and show value is through the lens of talent. In the current PE landscape, it’s more than just capital that attracts companies. Increasingly, firms are engaging with businesses early on, and spending a significant amount of time developing and selling their vision for the future.

Operators are finding that companies are attracted to a great overall partner, and an important aspect of that is demonstrating they have the talent, the network, and the ability to hire and build teams to achieve that vision. As Markson points out, “In many cases, we’ve seen ourselves win deals at lower valuations because they’re attracted to that network and they’re attracted to our partnership.”

3. Collaborative teams are more important than ever.

PE firms are increasingly dedicating time to the assessment of talent within the executive team. Investors understand the importance of having a balanced and well-rounded team and are looking at the executive team in its entirety to evaluate their ability to collaborate and work together to lead the organization.

According to Susan Clark, General Partner with TCV, “During the diligence phase we get a slight preview of the exec team and if there are gaps, we’ll pull from our network examples of what we could bring to potentially fill that gap.”

Once those gaps are identified, they go beyond simply seeking to hire that phenomenal CEO, CFO, or CMO. By taking a holistic approach and looking at the entire ecosystem to ensure an individual is the right fit, investors acknowledge that collaboration within the leadership team is a critical component to ensuring effectiveness and achieving future success.

4. Diversity equity and inclusion have taken a front seat.

PE firms increasingly understand that companies that are diverse perform better. Diversity of both thought and perspectives is what is going to grow a company and lead to success, which is why so many executive talent professionals are putting diversity, equality, and inclusion (DEI) at the forefront of hiring conversations.

During diligence, investors are focusing on where companies are in terms of their DEI efforts and taking the initiative to implement best practices for establishing effective programs within those companies to guide and inform the hiring process. For example, at The Bowdoin Group, we work with Quantum Power Skills, a firm that’s helped us ask the right questions and identify untapped pools of talent.

Ishan Manaktala, Operating Partner at SymphonyAI, had this to say: “Our research shows that there are two dimensions of diversity, inherent and acquired, and as long as there is a significant difference in thought, you will get exponential innovation.”

For Manaktala’s team, inherent diversity refers to traits such as gender, ethnicity, demographics, and LGBTQ status, as well as diversity in background, thinking, problem-solving, risk-taking ability, and so on. Acquired diversity, on the other hand, looks at teaming up people from different perspectives, such as mixing a product and services team or mixing a late-stage operator with an early-stage founder.

Seeing the impact diversity has on innovation, an important component to value creation, operators are prioritizing DEI training in order to identify and eliminate unconscious bias in their approach to cultivating talent both within existing networks, and when expanding their search from a DEI perspective.

5. The people who share their ideas are the people who stand out.

As an executive looking to network and engage with busy investors, it’s not enough to simply share a LinkedIn profile or submit a resume. In order to stand out, operators want executives to share ideas and show how they can add value. Rather than making investors or executive search talent do the work to determine how a candidate’s background might fit, talent must present an idea-focused and innovation-driven value proposition.

For example, getting on the radar of search firms that specialize in PE and growth equity is just as important and effective as direct outreach. These specialized talent professionals understand the landscape and make it their business to keep a pulse on which firms are currently hiring.

According to an operating partner at a very well-known PE firm, much of the outreach that he gets is positioned as, “I’m a really good Swiss army knife and I can do all these things.” However, in certain instances, a firm might be looking for very specialized talent with unique skills, like an Allen wrench.

PE firms are looking for more than just a laundry list of facts and figures. They want to know how a candidate impacted the company, and what they did to improve, grow, and expand it. A candidate who can clearly demonstrate how they moved the needle will get investors to take notice.

6. The future is bright.

The pandemic has been hugely impactful in many ways. It has disrupted many industries and paved the way for new and unique business models to come to the forefront. It’s a great time to be an investor, entrepreneur, founder, and leader of a high-growth company. But the pandemic has also changed the way most of us work. It has opened up talent pools and created new opportunities for individuals who don’t have prior PE experience but do have the interest and aptitude to learn. All of this leads me to feel very optimistic and thankful that the PE landscape is able to withstand, and even thrive, in the current environment.

Does this align with how your company is approaching hiring in the current landscape? What resonates, and what doesn’t?

If you’d like to learn more about how private equity firms are thinking about hiring today, find out more in the webinar we hosted on this topic, “How Investors Are Still Hiring Executives Amidst Uncertainty.”