Where The Talent Game Starts ---- VCs used to hire outside recruiters for
staffing help. Now they're so desperate for people, they're putting
recruiters on the payroll.
By Jim Evans, [email protected], 27 September 1999
Copyright © 1999 The Industry Standard
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Strangely enough, the old saying "cash is king" does not really apply to the
Internet Economy. This isn't because cash isn't important – clearly, it is.
It's just that the kind of capital the folks in the venture-capital world
are talking about these days is human capital. People are paramount. Great
management teams, the venture capitalists say, are much tougher to come by
than money, and they'll push any advantage they can to find the right
executives.
Enter the executive recruiter. Traditionally, VCs have worked hand-in-hand
with recruiters to find CEOs and to build management teams, but that isn't
enough anymore. Now, the firms are bringing top-flight recruiters in-house
and putting them on the payroll to work solely for portfolio companies. Some
recruiters and former recruiters say that no accomplished recruiter would
ever limit himself or herself to a job within a firm working with a limited
roster of companies; nevertheless, a number of them are jumping at the
chance to get closer to the deals. In just the past few months, recruiters
from some of the best executive-placement agencies have joined VC firms,
incubators and holding companies. Internet Capital Group, for one, lured
Rick Devine from Heidrick & Struggles and John Bohmer from Russell Reynolds.
Softbank hired Rayna Brown, the former head of human resources for
tech-media conglomerate Ziff-Davis (a company Softbank controls), to take
responsibility for the recruitment of positions created by its new
incubator. And eCompanies, the Southern California incubator started by
ex-Disney executive Jake Winebaum and EarthLink's Sky Dayton, just hired
Marijo Bos from Russell Reynolds. Armed with specialized recruitment talent,
the firms with an in-house recruiter say they can differentiate themselves
from the rest of the pack and offer their entrepreneurs a service that
others, which offer only a check, can't.
One of these firms is Softbank, which recently announced the launch of a
physical incubator, much like eCompanies or Bill Gross' Idealab. One of the
challenges for incubators is actually getting the people to do the job of
building them. Entrepreneurs will come to Softbank with an idea, but without
an infrastructure around which they can build a company, it's just an idea.
That's why Softbank hired Brown. Being a recruiter for Ziff is no small
task: The company has over 3,000 employees in its publishing businesses, and
it devotes a lot of energy to producing conferences and research. In short,
Ziff's a handful. Brown had a staff that shared in the responsibilities, but
she was charged with handling the most delicate tasks at the highest levels
of Ziff's executive-search processes. Through parent-company relationships,
word got out about her ability to nail the right senior management. When
David Bohnett, founder of GeoCities (a Softbank investment), decided to give
up the CEO position at the community site, he asked his board for help in
finding a replacement. Eric Hippeau, chairman and CEO of Ziff and a
GeoCities board member, quickly suggested they turn to Brown. It was a smart
move. Brown kept files on industry executives she had identified as
prospective CEOs and periodically met with them to develop contacts for
future posts. So it was easy for her to recommend that GeoCities consider
former U.S. News & World Report publisher Tom Evans. After approval by the
GeoCities board, Evans was named CEO. Gary Rieschel, the executive managing
director of Softbank Technology Ventures, had been watching her moves. Soon
after the GeoCities search was completed, he pitched Brown on joining
Softbank at a new incubator it was starting, called Hotbank. Rieschel had
decided that the quickest way to get the startup to market would be to hire
someone to do that full time. Brown accepted.
Now Brown handles all recruitment and human resources duties to get the
startups in strong shape for hiring and retaining management and other
staff. "I am the sounding board for founders, CEOs and entrepreneurs at
Softbank," Brown says. "I say 'Here's where you go for payroll' and 'Here's
where you go to handle benefits.' It saves them a lot of time so they can
concentrate on running their businesses." In fact, Brown's first step at
Softbank was to interview the partners and entrepreneurs in the firm's
portfolio companies to determine what they needed. Not surprisingly, not all
were at the same stage, and some needed little or no help at all. The point,
she says, is that she's there and can help with everything from senior-level
executive recruitment to the most seemingly mundane – but critically
important – details. "We want to be the kind of firm that can build the most
important companies on the Web from the ground up," Rieschel says. "Hiring
Rayna is about how we can better serve our entrepreneurs."
For Brown, the evolution is natural. Venture capitalists are essentially
company builders, so it makes sense for VC firms to take the next step and
hire people themselves to fill the upper-management positions of their
portfolio companies. In the old days, VCs offered only cash and strategic
advice. Now, they have to offer more.
"Everybody has cash now," Brown says. "VCs have to offer something
competitive and something that's not offered everywhere. If they can, then
that's their advantage."
In some ways, you could consider the headhunters at VC firms
super-recruiters, saddled with the task of filling the ranks of a wide range
of companies and positions. But some doubt that an "all-world" recruiter
could be satisfied with simply being another employee at a VC firm. One
recruiter from a leading search firm says he's deluged with offers from VC
firms, but most of the opportunities lie just below becoming a full-blown
partner with the ability to invest in companies. "You'll sit at partner
meetings and help close deals, but you won't be the one making the final
decision on which companies in which to invest," says the recruiter. Others
agree. David Beirne has been at the forefront of VC firms' movement toward
recruitment. Before joining Menlo Park, Calif.-based Benchmark Capital as a
partner two years ago, he headed Internet recruitment firm Ramsey Beirne.
Since he joined Benchmark, Beirne has tirelessly extolled the process of
finding and keeping managerial talent. Without the people, Beirne says,
there's nothing. But, he adds, no "great" recruiter would ever leave an
executive-placement firm to recruit for a VC firm without a legitimate piece
of the pie. "There's no way, if you are a top-tier search professional, you
are going to join a VC firm and just be a search guy," he says. "I was
making $10 million a year as a recruiter. If you're great, you don't need to
do that." However, even if VC recruiters can't invest, they do get a nice
share of the pie in each of the companies they help staff. In fact,
recruiters increasingly are taking stock options for payment. But Beirne and
others argue that by joining a VC firm and not having control of
investments, staff recruiters give up more than they're getting.
Recent VC recruit Rick Devine says he took his in-house position because he
was interested in launching a full-fledged recruiting department. Devine had
been a headhunter at Heidrick & Struggles when he was called by
business-to-business holding company Internet Capital Group in Wayne, Penn.,
to head the search for another partner. As the search advanced, the firm
turned its search on him. Devine is up front about saying that his goal
isn't to be a venture capitalist. He just wants to be a great recruiter. And
part of being a great recruiter, he says, is having an investment in a
client's success, in both the literal and figurative sense. "Of course, a
good recruiter always feels that way," he says. "But it's intensified when y
ou are on the inside."
"When you are an investor in the company," he adds, "there is no confusion
about objectives and intentions. You have a direct connection with the
companies."
So far, Devine's staff within ICG has grown to six (including Bohmer from
Russell Reynolds), and will soon increase to 16 to handle the 40-plus
companies with which ICG is involved. "ICG is doing nothing short of
building the biggest and the best business e-commerce recruitment firm in
the industry," Devine says. That's a lofty goal, but Devine says ICG is one
of the few firms that understands that "capital is both cash and people,"
and that cash "isn't the only currency of success." Are these just
catchphrases? Maybe. But the increased focus by VC firms on executive
recruitment seems to confirm what folks like Beirne have been preaching for
years: It's all about the talent.