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Hiring CFOs for the Private Equity Sector

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September 22, 2022 – A recent trend to emerge among Russell Reynolds Associates’ private capital clients is an increased willingness to make a creative chief financial officer hire. While the firm has seen the emergence of preferred archetypes for private equity and venture capital CFOs, there is also greater appetite to test the norm.

To better understand the CFO hiring playbook, Russell Reynolds Associates analyzed hiring trends in its database of private equity and venture capital backed companies. Interesting trends are most evident across measures of individual demographics, qualifications, training foundations, and routes to hiring.

Ten percent of private equity CFOs are female vs. 13 percent in venture, which is also against 16 percent in PLC. While this is not tremendously distinguishable, it is potentially indicative of a positive trend from private equity to venture capital and an inclination for earlier stage companies to be more active at the start in their thinking around diversity. As expected, when looking at age statistics, the average age of a venture capital CFO is younger than a private equity CFO.

Convergence of the Archetypal Private Equity and Venture Capital CFO - Chart 1

Convergence of the Archetypal Private Equity and Venture Capital CFO - Chart 1Tellingly in private equity, Russell Reynolds found that the leading qualification for CFOs is the ACA, with only one in five holding the MBA. Meanwhile, MBAs are dominant among venture capital CFOs, with three in five portfolio company CFOs holding such qualification. This lends to the thesis that venture capital CFOs typically span across companies in broader, commercial roles beyond their core finance position.

Doubling down on the training background of venture capital vs. private equity CFOs reveals early divergences. Russell Reynolds found that a key differentiation is that 25 percent of venture portfolio CFOs started their career as investors, yet only five percent of private equity CFOs bring this experience.

Convergence of the Archetypal Private Equity and Venture Capital CFO - Chart 1

It is well-known that the CFO is the most frequently upgraded function following a buyout, with successful candidates overwhelmingly likely to be externally hired. Russell Reynolds found that external talent is recruited into private equity companies in nine out of 10 instances, relative to 76 percent of time in venture portfolio companies. This is a caution to incumbents and internal candidates, whose promotion prospects are disproportionately slim.

Convergence of the Archetypal Private Equity and Venture Capital CFO Chart 2

“However, existing data is only representative of hiring propensities to date, without being able to forecast future trends and movements,” Russell Reynolds said. “It also does not allow for – to coin a topical phrase – our ‘lived experiences.’ We are observing a genuine, consistent demand from clients for profiles that may not fit the standard archetype that has come before.”

For example, the firm recently appointed a highly impressive CFO into an established private equity backed data and services company. Her career spanned investment banking, strategy consulting, and PE/VC investing before transitioning into her first CFO position. “The reason such a move worked well was down to both the quality of the individual and the client’s preparedness to provide ongoing support through a robust, experienced board and resources to build a strong finance capability,” Russell Reynolds said.

Another recent example is from working with a high growth venture capital backed Unicorn and placing a more traditional PLC/ buy-out CFO. This individual has onboarded successfully, owing to their technical capability but also because they demonstrate the leadership and cultural characteristics, i.e., flexibility and adaptability, that one needs to thrive in a high-performance, high-growth company.

Russell Reynolds’ continual advice to both private equity and venture clients is to:

  • Begin with a broad search landscape.
  • Meet candidates early on ranging from the ‘bullseye’ cohort to those with more lateral experiences.
  • Use references and assessment tools to fully understand behaviors and personas.
  • Build a best practice on-boarding program using the data collected through the search processes.

Related: Executive Search Review Special Issue: Financial Services Recruiting

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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