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May 21, 2005

Can HR services firms do justice when it comes to hiring VCs?

Recently, we have tracked several appointments and movements in the Indian VC/PE industry in our Venture Intelligence India newsletters. There has been a lot of churn at India-based firms as well as US firms who have been in India for a few years now. Plus, quite a few new US and European entrants into India have recently appointed country managers.

I've been wondering whether VC firms use HR services firms for hiring partners/country managers and if yes, whether HR services firms understand this unique industry well enough to do justice to it.

Which is why this interview with Charley Polachi, Founder and Managing Partner of Polachi & Company a Sherborn, MA-based executive search firm focused on the venture capital, private equity and technology markets, caught my attention.
Venture guys do deals, but they don’t do staff. They are inherently networked and they do much of the staffing for their portfolio companies, but the fact remains that the glory of the business is not about having great partners or a great CEO; it’s about doing a fabulous deal. We can put structure around the recruiting process. Recruiting a general partner for an existing partnership is like finding one spouse for seven or eight people. Imagine trying to get eight people to agree on whom they want to live with for the rest of their life. Second, we can handle all the approaching and rejecting, and both parties can hold up their heads and be dignified regardless of the outcome. We also track the industry more than the industry tracks itself...

...Generally, there are five key criteria VCs use when they go to hire: pedigree, fit, experience, peer review, and familiarity.

Pedigree is very specific firm by firm. There is a list of schools, in some cases several graduate and undergraduate, and if you didn’t go to both of those, you probably don’t need to apply.

Fit is the intangible dynamic of five meetings, three dinners, and a few bottles of wine. We may get a phone call the next morning saying, “This guy is absolutely awesome. He fits.” And I will ask, “Well, tell me more.” And the partners can’t. They just say he fits. But if he doesn’t fit, they can take half an hour trashing him for the wrong socks. They can go on and on about non-fit, but when I ask what constitutes fit, they can’t articulate it.

With respect to experience, the assessment is made on the least amount of information available as to whether or not you have been successful. You’re a hero or a zero based on guilt or glory by association. I can put 50 names on a whiteboard and sit down with four partners and I’m lucky if I have five names left, because everybody has an opinion and they can shred everyone based on what they know from the public domain.

Peer review is confronting this question in the eleventh hour of the search when you’re about to make an offer. The managing general partner leans over and says, “Well what do you think Greylock will think if we hire this guy?” It’s very similar to evaluating a deal that you really like. If, in the process, you find out that Highland, Matrix and Greylock all passed on it, you think to yourself, “They are smarter than I am, maybe I will pass.” Same thing happens in the hiring process. Their question is: “Is this guy going to help us to be perceived as a top-tier fund, or is hiring him going to push us down to a second-tier fund?”

The fifth point is familiarity. Many times, one of the general partners throws a name on the table at the eleventh hour and it turns out to be the name of a roommate from business school. Often, they wanted to hire this guy all along but couldn’t do it because it would be hard to sell to the partnership. So instead they propose the guy at the end of an exhaustive search, after evaluating 15 or 20 others, and settle on him because they know him. They are trying to minimize the risks. They will opt for someone who has lived with them; they will opt for someone they have backed twice.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.