HireLabs Perspective: Increasing Vc Returns In Talent Assessment Firms

HireLabs| PerspectiveVC Series 3.0

Increasing Venture Capital Returns in Talent Assessment TechnologiesA HireLabs Inc. Research

The investment's aspirations and potential for growth 2As a rule of thumb, unless a business can offer the prospect of significant turnover growth within five years, it is unlikely to be of interest to a venture capital firm.

Critical factors in identifying core business models of a venture prospect 3Key issues and needs analysis

The Success model and examples 4With a plethora of IPO filings for on-demand software, S.a.a.S will most likely take the same growth path.

Sense On Organizational Growth and Strategy

April 13Summer 2009

HireLabs | Perspective

1

Increasing Venture Capital Returns in Talent AssessmentTechnologiesA HireLabs Inc. Research

The VCs must ask themselves if they have CEOs1 who are capable of driving companiesas the recession bottoms. Looking at the current slowdown in non-farm employment and the subsequent rebound strategies, Hirelabs can forecast a recovery in the international labor market - lead by the US - sometime around Feb 2010 (Q1 2010).

Very few CEOs of venture-backed companies have experience of riding a company through a recession successfully. The questions that investors should ask there CEOs is whether they are able to monetize on market-indicators as the recovery approaches.

Investors who are looking to capitalize on the recovery should predominantly understand the teams that are running the companies, and assess the teams’ ability2 to analyze and perform the market indicators.

Saleem QureshiPresident and COOHireLabs Inc.



1Including CEOs with a clear

understanding of the financialdrivers of an organization.

2Across the board assessment

programs will ensure competent workforce and leaders who can prove critical in long-term sustenance strategies.

2

Figure A – Total Investments for Q2 2008 U.S Region – National.3

enture capitalists prefer to invest in "entrepreneurial businesses". This does not necessarily mean small or new businesses. Rather, it is more about the investment's aspirations and potential for growth, rather than by current size. Such businesses are aiming to grow rapidly to a significant size. Venture capital investors are only interested in companies with high growth prospects4, which are managed by experienced and ambitious teams who are capable of turning their business plan into reality.

The following article from TechPulse360, published on July 23rd, 2009, talks about the increase in Venture Capital returns –

“It’s a buyer’s market for ……. venture investments. Deals sizes are down. The winner maybe venture capital returns. With investing levels down and fear of disaster high, venturepartners willing to take a risk are getting more for their money. And from the standpoint of capital efficiency, startups appear to be getting further with less cash.

In the U.S., the median startup deal size fell 18% in the second quarter to $5 million from $8 million a year ago. This is the lowest it’s been since 1999. The fall is especially deep in clean-tech investing, where the median is now $4 million compared with $10 million last year.

If there is any good news in this beleaguered industry it is this: money is going further. The decrease may ultimately lift returns and give entrepreneurs a greater stake in the companies they build. That could prove an incentive for a patient investor.”



3Data chart courtesy of PWC US.

4High growth prospects = Getting

further with less cash.

3

In a presentation at the ABVCAP on April 16, 2008, Kevin Thompson, Practice Managing Partner, Global Private Equity and Venture Capital Practice – Heidrick and Struggles, rightly identified what Saleem Qureshi terms as critical factors in identifying core business models5 of a venture prospect –

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 PE/VC 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 analyses:

• 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 knowledgethat 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 ofthe general market.



5Since 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.

5

According to a Preqin6 report –

- The global private equity industry's dry powder (i.e., uncommitted assets) continues to exceed $1 trillion

- The rate by which contributions outpaced distributions was 235% for buyout funds in 2008.

- In total, private equity funds are sitting on approximately $1.08 trillion in dry powder.- PE funds are waiting for conditions to improve before putting it to work.- The United States led the world with $608.9 billion in uncommitted capital.- Europe was at $286.3 billion.- The rest of the world was at $183.4 billion.- The buyout sector remains the largest with $507.1 billion in dry powder waiting for

acquisition targets to be identified.- Venture funds have $153 billion waiting to be put into action- Especially with all that venture money waiting to be deployed, put your business

plan together now -- you might actually have a shot at getting funded!

Example of current VC backings:SilkRoad technology is a provider of talent management solutions. This week they announced the successful close of $54 million in venture funding. Many of the requests come from European businesses that are interested in a new Talent Assessment solution.

For VC funding, the businesses should ideally: Have a proof of business model Have operational excellence Be expanding their pipeline



6Preqin makes it possible to track

and follow critical market intelligence in the alternative investment sector.

6

The following observations were noted by Brian Sommer, CEO of TechVentive, from the HR Technology Show –

- SaaS is king in HR, talent management and other related solutions- Clients want to see a true SaaS (software as a service) solution offering

talent assessments- SaaS businesses marketing their hosted solution as a SaaS product- SaaS encouraging their resellers to offer a hosted version of their solution.

Example of current VC backings:Human resources draws VC funding as Authoria gets $22.5 million, Oct 2nd 2007 by Tom Taulli www.taulli.com

The latest funding in the space is a $22.5 million round for Authoria, which "provides talent management solutions," according to the company's website. It's the firm's fifth round. The investors include Horizon Technology Finance, Velocity Financial Group, Menlo Ventures, Austin Ventures and Van Wagoner Capital Management.

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 IPO filings for on-demand software – which include companies like NetSuite – we'll probably see S.a.a.S take the same growth path at some point.



6Preqin makes it possible to track

and follow critical market intelligence in the alternative investment sector.


A talent assessment tool 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

Quality of hire drives exceptional business performance. Talent management forms a critical business function in any economic climate. Streamlining talent management systems with a dedicated talent assessment tool can greatly enhance value to existing systems by improving objectivity in talent acquisition and retention.

There is no such thing as a recession-proof model. What businesses can do is to apply the strategy of identifying key skill sets under different economic conditions, transferring those skill sets to the rest of the workforce, and retaining that talent. This will prove beneficial during both the economic downturn, as well as the rebound stage.

Talent Assessments Lower Costs

- Time to hire- Cost of hire- Job boards- Headhunters- Decreased turnover- Increased retention through

quality of hire

Talent Assessments Increase Productivity

- Metrics identification- Data points for reporting- Global benchmarks mirroring- Lower HR burden of manually

screening candidates- Improved acceptance of HR as a

strategic partner


7

About HireLabs Inc.HireLabs is a talent assessment company that grew out of Stanford University. It has used it’s intellectual property

workforce development.built over the last 9 years and built a highly scalable technology which is currently provided as a S.a.a.S solutions for

[email protected] U.S

Copyright © HireLabs Inc. 2009. All rights reserved.

No portion of this document may be produced in any form without the prior written approval/permission of HireLabs Inc.All products/services names, providers, and solutions mentioned herein may be the trademarks of their respective owners.

1.650.492.5007 International

HireLabs Perspective: Increasing Vc Returns In Talent Assessment Firms

Business

Transcript of HireLabs Perspective: Increasing Vc Returns In Talent Assessment Firms