Top Venture Capital Firms’ Newest Tool: Recruiting

Innovative Venture Capital Firms increasingly provide more than just funding. One of the most significant developments in the new platform model for venture capital: recruiting.

Startups need funding, and VC Firms often provide it. If a startup fails, its backers lose their investments. Increasingly, VC Firms are looking for ways to make sure that doesn’t happen.

Founding a startup can be expensive. Over 1 in 4 startups fail because they run out of money. Venture Capital (VC) firms provide startups a way to access the capital they need. VC firms need the startups to sell or become rapidly profitable to get their desired return on investment.

In other words, both startups and their VC backers are invested in the startups’ success. That’s why VC firms are connecting their portfolio companies with tools and services to solve their greatest problems.

The primary problem after funding? Hiring.

Founded in 2011, Gravy Analytics saw how location tracking was going to disrupt marketing. They built a location-based intelligence platform based on that idea. They began expanding rapidly, and by 2017, they needed more engineers than they could find in the DC Metro Area.

Savano Capital connected them with hatch I.T., since we specialize in recruitment process outsourcing (RPO) for software startups. We sourced qualified software engineering candidates in the region that could work with Gravy’s tech stack. Gravy interviewed them and brought them on as direct hires. The partnership, facilitated by a local VC firm, helped Gravy scale rapidly.

This type of facilitation is a growing trend in venture capital. In order to give startups an edge in the market, VC firms are evolving into platforms that provide different services for startups. VCs partner with incubators, coworking spaces, law firms, marketing agencies, and more to connect their startups with expert resources that can facilitate growth. In a market where venture funding is abundant, startup founders want these partnerships and connections in addition to capital.

A major component of this platform model is recruiting.

The two biggest challenges startups face are finding enough funding and finding enough talent. In fact, according to research by CBInsights, over half of all startup failures are due to lack of funding or an inability to build the right team.[1]According to First Round Capital, startup founders spend 50% of their time hiring new talent.

That is a huge time commitment for founders who need to focus on product-market fit, product development, customer acquisition, and financing. That’s why major VC firms like Andreesen Horowitz, First Round, Unusual Ventures, and ATX Venture Partners are beginning to offer recruiting services to their portfolio companies.

First Round created a page where potential candidates can fill out a profile and get matched with open jobs at their portfolio companies. Andreessen Horowitz has a talent team of over 25 people that focuses on executive and technical hires. Unusual Ventures has the Get Ahead Platform that provides services like customer development, marketing messaging, and recruiting to their portfolio.

Another VC, ATX Venture Partners in Austin, Texas, has a two pronged approach to ease the burden of recruiting:

First, they partner with recruiting firms specializing in executive search, sales, and IT, and negotiate rates with them.

Then they have their partners refer candidates to a platform they created called “talent bench.” The candidates fill out an application, complete an intake form and get added to a searchable dashboard that all of their portfolio companies have access to.

Mike Meyers (Director of Portfolio Success, ATX Venture Partners), said:

“the two most important items for [a VC’s] portfolio is determining how to increase the founders’ probability to win, and how to lighten the Founder’s backpack along the journey. Hatch I.T. has created a business and model that accomplishes both. They work with founders in full alignment to help them find the best talent, while not trying to squeeze prices.”

These types of recruitment support programs are becoming more common, particularly on the West Coast. However, hiring assistance from VCs is typically targeted towards finding executives. Executive roles are critical hires at the foundation of a startup, but product and technical teams are the structure that enables a startup to grow.

VC’s are starting to recognize this gap in technical hiring and are connecting startups with recruiting firms that focus on software engineering hires at startups.These firms understand the available local technical talent pool and work hand-in-hand with the executive team to make sure there is a product and culture fit.

For example, several VC’s in the DC metro area have partnered with hatch I.T. to help their portfolio companies understand and navigate the technical talent in the D.C., Maryland, Virginia (DMV) area.

Steve Frederick, General Partner at Grotech Ventures, had this to say about the relationship:

“Hatch is a firm we’ve referred to numerous Grotech portfolio companies because they offer solutions outside the norm of traditional recruiting partners. The fact they are hyperlocal and specialize in building out teams for product-focused startups has proven to be a benefit to the growth at several of our portfolio companies.”

So how can Venture Capital firms support their portfolio companies in the talent acquisition process?

Start by connecting with specialty recruiting firms that understand the local market and has experience working with startups. A trusted firm can help a startup decide whether it’s the right time to hire an internal recruiter, adopt an outsourcing recruiting model, like Scale by hatch IT, or hire on a contingency firm.

VC firms typically provide this service through a partnership or cost share model.

In a partnership with an RPO firm or staffing agency, the firm directs portfolio companies towards a particular agency and, in return, the agency gives a discount to those companies. In a cost share model, the VC can cover part of the cost of recruiting, while portfolio companies cover the rest.

However they chose to cover the cost, VC firms can’t afford to ignore technical recruiting. A robust platform that helps with funding and recruiting has the power to turn struggling startups into engines of rapid growth.