Recruiting During a Supply/Demand Imbalance

Without making any declarations about where we are in the broader economic or tech cycle, it’s fair to say that we are seeing significant “inflation” within the venture-backed technology world. What we mean by inflation in this case is that there is a ton of capital (new, old, alternative) in our system right now that is going into a slew of quickly scaling companies, and the result is that companies are flush with cash and are chasing a very limited resource… talent.

We’ve been building teams for 20 years+ and have never seen a recruiting environment like this.

Most of our CEOs, BODs, and team-leaders consciously recognize this inflation, and yet all too often we see them unconsciously falling into past practices/expectations.

Understand that the recruiting challenge you are facing might have nothing to do with how good your company is…

The environment is fiercely competitive right now, and the market is supporting and rewarding aggressive hiring tactics. We’re in an environment where your competitors are often doing things that are “out of whack with” previous norms, which is leading to significant inflation in salaries, benefits, sign-on bonuses, titles and equity grants.

If you are interviewing a great CXO candidate, understand that the odds are high that:

1. They are talking to other well funded, fast-growing companies.
2. They are receiving coordinated pressure from those companies to make quick decisions.
3. And, some of those other companies will do whatever it takes to land the candidate.

We believe that compensation should never be the primary reason anyone joins a company. Full stop. That said, negotiation favors the candidate in the current market. Candidates often have multiple offers, and at least one company is likely to be in a position to offer a very lucrative package and role expansion/promotion.

Some thoughts…

• Salaries- we’re well into 2021, and 2020 comp reports are not reflective of current offers. Also, you should accept as fact that a good executive/candidate will be offered a “better” offer by another company, and be prepared to sell against it (or pre-sell against it).
• Bonuses- bonuses as a % of base haven’t really changed, though obviously higher bases lead to higher OTE comp. We are seeing more sign-on bonuses used as an initial incentive or as a way to compensate for bonuses/equity that might be left behind at a previous company (given how much valuations have increased).
• Equity-

1. We’re seeing larger grants (%-wise) than the 2020 numbers, on average. Candidates aren’t looking at the 50th percentile number (again, because someone is likely going to offer them more, and now that new, higher number has become a baseline offer).
2. Yes, company valuations are higher. And even though the value of the equity grant might be higher, the % granted is staying the same or increasing. Many of our companies have raised capital at historically high valuations (relative to ARR or stage). Great start-up leaders are optimists, but that doesn’t mean they will accept a lower % relative to market or what others are offering.

Counter offers- given how hard it is to recruit new talent, companies are making more effort and spending more money to retain talent when they resign (or before). We’ve seen more buy-backs this year than we’ve seen in the previous five years altogether. You need to pre-sell against this likelihood.

Titles- because company valuations and equity holdings have grown in value so significantly over the last few years, it’s increasingly difficult to extract a sitting CXO for a lateral move. It happens, but it’s tough to do. More and more first-time CXOs are stepping into the top role, which is often a great/the right solution. These first-time CXOs won’t have the title today, but they are asking and receiving CXO-level packages and titles. Don’t expect that it will be easy or probable to attract a next-stepper with a lateral title and package.

Evergreen/refreshed grants- more companies are engaging potential/current employees with structured evergreen grants. This is increasingly discussed as part of the offer/negotiation. Medium-to-long-term, this will also help deflect potential suitors as your executives’ grants are vesting out.

Coordinated selling- our best companies are organizing their recruiting processes more tightly than ever. Be super proactive, over-communicate, maintain momentum, and don’t stop selling. Leverage the heck out of your BOD and tell them what you need when you’ve got your final candidate… you need them to sell.

Length of search- search length has decreased significantly over the last year (for non-CEO/COO searches). Some of this is due to less travel and easier interview schedules leveraging Zoom, but the pace at which companies are making decisions is substantially faster right now. This means that you need to put in more work to define the role and assess the talent market on the front end, so that you can quickly hire the right person when you see them. It’s less likely you’ll have 5–7 qualified candidates from which to choose as you might have had in the past.