Increasing VC returns by understanding Talent - The first sign that a management team is not performing at optimum is when market conditions are blamed for loss of productivity. The questions that investors should ask their management team is whether the competition was able to monetize on the opportunities in the given market conditions. Lesser experienced management teams have a tendency to fall prey to confusion when they see a decline in orders, leading to chaos. Our research suggests that of 64 management teams facing a financial crisis, 36 companies had line managers who reported a lack of corporate direction. From a standpoint of human behavior, this can be attributed to dissent amongst the management team. In such times, possible opportunities are missed as the team is preoccupied in solving personal differences. At this crucial time, if the VC has prior knowledge on the behavior of the team, the VC can use preventive measures ahead of time to secure their investments....

1. HireLabs| Perspective VC Series 2.0
The Leadership Talent – A must-have for VC firms
A HireLabs Inc. research report
August 2009
Increasing Returns by understanding Talent
The VCs must ask themselves if their companies are run by management teams¹ that capable of driving
companies as the recession bottoms. Studying the shift in the current unemployment rates in the US,
HireLabs can forecast a recovery in the international labor market – lead by the US – sometime around
Feb 2010. Very few CEOs of venture-backed companies have the experience of riding a company out of a
recession successfully.
The first sign that a management team is not performing at optimum is when market conditions are
blamed for loss of productivity. The questions that investors should ask their management team is whether
the competition was able to monetize on the opportunities in the given market conditions.
Lesser experienced management teams have a tendency to fall prey to confusion when they see a decline
in orders, leading to chaos. Our research suggests that of 64 management teams facing a financial crisis,
36 companies had line managers who reported a lack of corporate direction. From a standpoint of human
behavior, this can be attributed to dissent amongst the management team. In such times, possible
opportunities are missed as the team is preoccupied in solving personal differences. At this crucial time, if
the VC has prior knowledge on the behavior of the team, the VC can use preventive measures ahead of
time to secure their investments.
VCs who are looking to capitalize on the market recovery should predominantly understand the teams that
are running the companies, and assess the teams’ ability² to analyze market conditions and perform.
Saleem Qureshi, President and COO, HireLabs Inc.
¹ Including CEOs with a clear understanding of the financial drivers of an organization.
² Across the board assessment programs will ensure competent workforce and leaders who
can prove critical in long-term sustenance strategies.
Understanding the talent is the key to capitalizing on a market recovery.
VCs invest millions of dollars in companies, but do they really know the psychological profile of the talent that they
are investing in?
When VCs invest, they invest in the ability of a team to execute the business plan that is presented. Unfortunately VCs
rarely understand the team’s ability to perform under various types of stress. These include unpredictable market
conditions, as well as emotional pressures such as discontentment and jealousy.
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2. Since high growth prospect are entertained with enthusiasm, at times, the VC can overlook the management team’s
dynamics.
Rarely the following questions are asked:
• Does the CTO understand the business logic?
• How frugal is the CFO?
• Does the COO understand how to handle the stress of people management?
• Does the CEO understand recruitment?
By assessing the management team, the VC can reduce the risk of its investment by implementing preventative
measures as needed. Understanding the talent is the key to capitalizing on a market recovery.
VCs should assess their talent
Talent management forms a critical business function in the current economic climate
A company’s talent includes everyone from the management down to the intern, all of whom can either become the
savior or the bottleneck. Talent assessment can provide measurable insight into a workforce. The visibility will be
unique in that it can:
• Reveal top performers
• Identify weak links
• Identify critical-to-job success skill sets
• Intelligently provide measurable data
The quality of the management team drives exceptional business performance. Talent management forms a critical
business function in the current economic climate. VCs who are currently using talent management systems with a
dedicated talent assessment tool stand a greater chance at enhancing value to their existing systems by improving
objectivity in talent acquisition and retention.
Since a recession-proof model is a myth, VCs should secure their investments by understanding and predicting their
management’s decision making process, and provide guidance appropriately. This will prove beneficial during both
the economic downturn, as well as the rebound stage.
What should VCs look for in their talent?
To ride into recovery, VC should assess their management teams for the following abilities:
• Ability to collaborate and create revenue-share models
• Ability to be identify and purchase undervalued assets
• Ability to expand their deal pipeline by going after the deals of competitors who are facing a liquidity crisis.
Talent Assessments Lower Costs
-Reduces time to hire
-Reduces cost of hire
-Decreases turnover
-Increases retention through quality of hire
Talent Assessments Increase Productivity
-Aligns core competencies
- Metrics identification
-Data points for reporting
-Global benchmarks mirroring
Increasing the accuracy of your human capital valuations will improve your investment
performance.
In a presentation at the ABVCAP on April 16, 2008, Kevin Thompson of Global Private Equity and Venture Capital
Practice, rightly identified what Saleem Qureshi terms as critical factors in identifying core business models³ of a
venture prospect:
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3. Key Issues:
- At times, traditional executive search is too slow for the hiring needs for Private Equity and Venture Capital firms,
while fee structures restrict awarding assignments until after
acquisition/investment.
- Top talent is always of interest to Private Equity/Venture Capital firms in sectors of choice (current and future).
- Understanding of new investment areas requires understanding of strong indigenous talent prior to acquisition.
- Today, most deals are shopped thus leaving few opportunities for proprietary deals or getting ahead of the investor
pack.
- Executive key attributes for driving performance vary from deal to deal.
Needs Analysis:
- Consider alternate fee structures where both parties “share the risk” of deal/investment happening.
- Understand potential leadership needs ahead of investments.
- Establish new ways to capture and deploy talent beyond traditional executive hiring.
- Instigate talent mapping of future investment areas incorporating knowledge that is both published and that which is
“ungoogleable”.
- Increasing the accuracy of your human capital valuations will improve your investment performance.
- Determine most viable method using executive search firm contacts to identify deals in prime investment sectors
ahead of the general market.
³ Since talent is key to determining any organization directional change, to better manage it, a
sustainable business model must be in place to acquire, develop, and retain key talent.
VC money flowing into well-managed Talent Management companies
The market has seen a sudden influx of capital into companies that address talent management. Saleem Qureshi has
identified that as the market rides into recovery, there will be opportunities in the talent management space. Several
well-managed companies such as SilkRoad and Trovix will be paid top dollar for future profits. Other undervalued
technologies, such as the resume parsing company ItzBig, can be picked up for pennies on the dollar. This is the time
the management team truly increases the valuation of the company.
Funding and valuation will depend on the management team’s vision, and their ability to execute their business plan.
Authoria, a talent management solutions provider closed a fifth round of funding for $22.5 million in October 2007
led by the maverick Tom Taulli, other investors include Horizon Technology Finance, Velocity Financial Group,
Menlo Ventures, Austin Ventures and Van Wagoner Capital Management.
SilkRoad technology, a provider of talent management solutions, under the management of Andrew Filipowski,
recently announced the successful close of $54 million in venture funding in May 2008. The round was led by
Foundation Capital and Azure Capital Partners.
Trovix, a resume parsing technology under the management of Jeff Benrey, was purchased by Monster for $72.5
million in mid 2008.
ItzBig, also a resume parsing technology, in contrast, has seen its valuation drop to as low at $1million after the
departure of Hank Stringer and Jim Hammock.
Moving towards the S.a.a.S Space
Savvy management is rapidly moving towards the S.a.a.S space. Brian Sommer, CEO of TechVentive noted that
S.a.a.S is king in HR, talent management and other related solutions. Companies like Authoria, HireLabs,
SuccessFactor, and Taleo, take an on-demand approach. That is, the technology is delivered via the Web, which tends
to be cheaper and easier. More importantly, it’s a red-hot trend in tech, as seen with Salesforce.com Inc. (NYSE:
CRM) and Taleo Corp. (NASDAQ: TLEO).
With a plethora of IPOs filings for on-demand software – which include companies like NetSuite – a similar demand
for S.a.a.S will be seen.
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4. About Saleem Qureshi
Mr. Qureshi, a serial entrepreneur, devised a methodology of quantifying human behavior through a process of Six
Sigma. He holds a number of patents in the quantification of human behavior. His techniques of pairing and matching
have been used in talent identification and at leadership development programs at organizations including
LeadershipDNA, where he served as Vice Chairman. He recently developed the ‘ iHR’ concept for institutional clients
and government agencies that are looking for an integrated human resource solution to better manage their talent. His
strong background in operations and finance has earned him a seat on the Board of Directors of Medicove, Intelligent
Films, and HireLabs. Mr. Qureshi conducted research in cellular biology. His interests reside in using concepts of Six
Sigma in building intelligent systems to predict human behavior.
About HireLabs Inc.
HireLabs is a talent assessment company that grew out of Stanford University. It has used it’s intellectual property
built over the last 9 years and built a highly scalable technology which is currently provided as a S.a.a.S solutions for
workforce development.
www.hirelabs.com
support@hirelabs.com
1.650.492.5007 U.S
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