Does Your Funding Source Impact Your Talent Attraction?
Updated: Feb 17
With unemployment at record lows in Silicon Valley it is a candidate’s market and tech startups are competing for top talent like never before. Historically, candidates in the startup market haven’t delved very deep into the detail of how a company is funded, but more and more I hear them asking not just how much capital a company has raised, but who they’ve raised it from. Candidates know that good backing means a higher probability of a good exit. When faced with competing offers from equally exciting startups, the potential for stock appreciation can be a deciding factor. Winning investment from a prominent venture capital fund can make a real difference when it comes to building brilliant teams and attracting the best talent in the market.
As a rule, companies backed by reputable and well-known funds will recruit the best talent. But the relationship between your funding and your recruitment effort isn’t quite as straight forward as that. Startups need to think about recruitment earlier in the fundraising process, leverage their funding as a recruitment tool, know how to make themselves attractive in other ways, and work with recruiters who understand the funding–recruitment equation.
Reputation is everything … except when it’s not. If a startup raises funds from a prominent investor it can go a long way to validating their business and its future potential – it instils immediate trust in the company because candidates assume well-known venture capitalists are smarter investors. But what happens when an investor has a high-profile failure on its books? WeWork is an interesting case in point – they went from a $47 billion valuation at the beginning of 2019 to a failed IPO by fall and, at the latest rescue attempt, a valuation closer to $8 billion. SoftBank, the Japanese fund that are pumping money into WeWork, are now a big name with a tarnished reputation. The cash they invested in WeWork, as well as Uber, will have allowed those teams to recruit the best candidates across all fields. Now, not only are those teams’ shares worth a fraction of what they anticipated based on the IPO valuation, their jobs are on the line too. The failure of WeWork, and the problems Uber are having (share price down 40% since IPO at the time of writing), will impact the recruitment efforts other companies within SoftBank’s portfolio – candidates won’t trust that SoftBank-backed companies are such smart money anymore.
The amount raised is also important … but bigger isn’t always better. Big investments imply a high valuation. This can impact candidate decision-making in one of two ways. Some may be attracted to high valuations as an indicator that the company is doing well and en route to a successful exit. For others, a high valuation will actually be a disincentive. They assume a lot of growth has already happened so there is less room for their stock to appreciate. A smaller investment from a higher profile investor can actually be more advantageous for recruitment, particularly for startups moving in to the US market from overseas. I work with a lot of startups from New Zealand and Australia who have to work harder to recruit talent in the US because their investors aren’t well known there, despite being able to recruit the cream of the crop back home. But help is on the way – several big US funds, including Salesforce Ventures, are looking to launch, or have already launched, funds aimed at startups in Australia and New Zealand. Not only will these funds be positive for local startups, they will focus attention on the venture capital firms already working there, and will help the recruitment efforts of tech companies coming out of the region.
Top talent won’t be as drawn to companies who have raised funds from lower profile or unknown venture capital funds. They’ll need to be clever about they attract talent rather than just relying on their backers, but there is plenty that can be done to boost their appeal. The way candidates experience the recruitment process is vitally important – we’ll look at exactly what that means in another blog post, but done well, better than higher profile rivals, it can go a long way toward attracting good candidates. The profile of the leadership team, how they present themselves during the recruitment process, and their choice of recruitment partner can also be key.
I’m seeing more and more scrutiny of tech startup funding by top talent in Silicon Valley and beyond. I have three key pieces of advice for startups in this space:
1. Think about recruitment earlier, when you are raising funds. Be strategic – a smaller investment from a higher profile backer might create more value in the long term if it allows you to recruit better sales and marketing talent.
2. Leverage your funding as a recruitment tool – use the reputation of your investors to your advantage by communicating really well with candidates throughout the recruitment process.
3. Don’t just rely on who your investors are, or how much you have raised, to secure yourself the best talent. Ensure your recruitment process is second-to-none by placing candidate experience above anything else. We have one of the tightest talent markets in recent memory, pushing that interview back or being late can be the difference between securing A players and B or C players.
Get in touch with an expert at TSE for further advice.