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How to win consulting, board and deal roles with PE and VC funds

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David Teten

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David Teten is founder of Versatile VC and writes periodically at teten.com and @dteten.

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Would you like to work with private equity and venture capital funds?

There are relatively few jobs directly inside private equity and venture capital funds, and those jobs are highly competitive. However, there are many other ways you can work and earn money within the industry — as a consultant, an interim executive, a board member, a deal executive partnering to buy a company, an executive in residence or as an entrepreneur in residence.

Venture capitalists often have an operations background. However, historically most private equity professionals were former investment bankers and other finance professionals. Then private equity players gradually realized that value cannot be created through financial engineering alone. A BCG study of 121 investments found that operational improvement drives 48% of value creation in PE-backed companies. PE funds now almost always require an upgrade in management and change management teams if necessary.

Not surprisingly, the tighter your relationship with the firm, the more money you will earn:

PE fund structural options in working with operating executives
 Image Credits: David Teten

At Versatile VC, we’ve used all these models. We are soon launching Founders’ Next Move, a selective, free community for founders researching their next move, which will be a key tool for working with outside talent.

The simplest path forward is to identify funds in your industry of expertise and reach out. You can explore all of the models below with them. First, start by identifying the firms that invest in companies that you’ve worked with. Then, more broadly, look for investors in the industries in which you have expertise. You can identify institutional investors through one of multiple online databases:

All investors Private equity Venture capital
Preqin (free demo)

Grey House (free demo)

S&P Global Market Intelligence

Pratt’s Guide

Thomson One

PitchBook (free trial)

PrivateEquityFirms.com
(free trial)

Eurekahedge

AngelList (free)

CrunchBase (free)

PWC MoneyTree (free)

VentureDeal (free trial)

Asian Venture Capital Journal (free trial)

Let’s take a look at the different ways you can work with the investment community.

Expert networks

Expert network firms source subject matter experts from various domains and pair them with clients seeking topical or industry insights. They typically charge clients up to $1,200 per hour, and pay the expert $100 to $500 an hour. I founded Circle of Experts, an expert network that I sold to Evalueserve.

The expert network industry has grown an average 4.5% annually between 2015 and 2020, its market size topping $1.3 billion in 2020. While the major clients were initially hedge funds and private equity firms, consulting firms now comprise 32% of total demand for expert network services.

Inex One, an expert network marketplace, has compiled a list of 80 expert networks, summarized in the graphic below:

80 expert networks
Image Credits: Inex One and Integrity Research

The largest expert networks include: GLG, which accounts for approximately 50% of the industry’s revenue; AlphaSights is the second biggest generalist expert network; Guidepoint services six major categories of clients globally across several industries; and Third Bridge hires and retains talent to “democratize the world’s human insights and upend the traditional research model.”

Other notable expert networks include Atheneum Partners, Coleman Research Group, Dialectica, ENG, Lynk Global, Mosaic, PreScouter, ProSapient and Tegus. There are also expert networks with sector or geography specialization. For example, SERMO is a global social media network for physicians to exchange knowledge and share challenging patient cases, and Clarity.fm connects startups to experts in building new businesses.

You also have The Expert Institute, which helps law firms and lawyers find expert witnesses for legal cases, while Kingfish Group specializes in servicing the private equity industry, and CAPVision is a primary research firm with a strong focus on Asia.

As an independent consultant, working with expert networks allows you to interact and learn from professional investors, industry consultants and corporations; earn competitive compensation; and receive referral fees for introducing colleagues. Typically, you’ll share your expertise in five main ways: phone calls, presentations/in-person meetings, surveys, white papers and in-depth consulting projects.

Joining an expert network also saves you both time and financial resources. There is no membership fee to obtain access to potential projects with the expert network’s clients. There are also minimal marketing costs. While you should be proactive about being top of mind for the kind of projects you’d like to work on, the expert network will pair you with a client if there’s a match. You also don’t have to spend time on negotiating or chasing payment, as the client pays upfront and the firm takes care of this for you.

These kinds of engagements also offer plenty of flexibility. The networks’ expectations toward you are minimal: Once the expert network finds a fit between your expertise and a client’s knowledge requirements, they will send a request that you can accept or reject within 48 hours (usually). For confidentiality reasons, the consultation is held strictly between the client and the subject matter experts. Given that you are hired on a per-hour or per-project basis, there is no fixed obligation of time.

The criteria for offering your consulting services through an expert network are fairly specific and summarized below:

Attributes sought How the network assesses you
Relevant experience Industry recognition: Appearing in industry publications, awards

Academic credentials

Published research

Access to unique knowledge Affiliations: Listing specific companies of interest will help you win projects over equally qualified candidates with no obvious links to those companies
Communication skills Consulting experience

Public speaking engagements (industry conferences, speaker panels) you’ve been invited to speak at

Expert networks usually don’t value social and management skills, as experts are mainly hired for the knowledge they possess. This is good news for some people.

The key to success when working with expert and consultant networks for starters includes a detailed, up-to-date profile. Ensure that you’re putting your best, digital foot forward on LinkedIn and your personal website by keeping your availability and biography up to date. Also quantify your achievements by optimizing your bio. The standard format is: “Achieved X by doing Y, which resulted in Z (a number, $, etc.).” For more, see how to write a biography that sells.

You should make it a point to explain how you acquired your expertise, which helps in increasing people’s perception of your legitimacy. Keywords are important too — make sure to mention firms you have touched in the past, such as employers, clients or service providers. It’s a good idea to use terms that are specific to your industry such as industry jargon or technical terms.

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To win even more consultations, apply for open projects — these are listed on the system and also typically pushed to you via email. It’s also helpful to mail your liaison when you have insight into a hot topic — for example, breaking news or a conference you just attended. And make it clear you’re on-call — indicate you’re available on short notice for any immediate needs clients have.

To set your rate, the networks will typically suggest a modest figure — around $200/hour. You’re not beholden to this. If you have unique expertise, the network really needs you and won’t be very price sensitive. If hundreds of people have your expertise, then your rate needs to drop to something in the range of their suggested figure.

The most I’ve paid is £5,000 an hour. The client wanted his expertise — he was among the top five people in the world in his domain (pharmaceutical M&A), so I had to pay it. Another example: This lobbyist for U.S. multinational companies in China writes about how his knowledge of U.S.-China relations and Chinese commercial policy experience allows him to charge between $400 and $1,000 hourly for a call.

When you’re in a consultation, we recommend following a few guidelines:

  • Ask questions to understand the client’s hot buttons and make sure to answer them.
  • Observe compliance restrictions strictly.
  • Review current news. As a subject matter expert, you’re expected to stay on top of recent developments in your field.
  • Acknowledge your limits. It is better to be upfront about what you don’t know or can’t do than to improvise and risk disappointing the client.
  • Offer referrals (via the expert network). The client is then able to obtain specifically what they need, and typically you’ll earn a referral fee.

As a next step, we recommend registering at major expert network websites as well as LinkedIn and job boards, if you haven’t already. Make sure to include your biography and resume. You could also consider becoming a public expert: Profnet and Help A Reporter Out connect subject matter experts to journalists needing an expert opinion for an article or news piece.

To learn more about this space, see Civic’s report on “The rise of the expert economy.”

Interim executives and consultant networks

Interim executives typically engage in projects with a duration of two to six months, as opposed to engaging in short phone calls like experts from expert networks. A few, well-known networks include Business Talent Group, Catalant, Eden McCallum (focus on U.K. and the Netherlands), EIM, Eleven Canterbury, Expert360 (Australia), ForteOne, HighPoint Associates, Alumni Global (U.K.), SMA, Talmix (U.K.), Umbrex and 10EQS. For additional, Europe-based interim service providers, see the Institute of Interim Management.

Particularly relevant is Startups.com, which helps tech startups identify consultants with relevant domain expertise. Bolster is an “on-demand executive talent marketplace” focused on startups and scaleups that connects “high-growth companies with trusted and flexible executive talent.” We also suggest Braintrust (portfolio company), a user-controlled talent network that connects organizations with tech talent who keep 100% of their market rate.

Some networks are more specialized. Accordion Partners consultants “work alongside sponsor management teams — focusing exclusively within the office of the CFO, [ … ] empowering the entire finance function — including FP&A, operational and technical accounting, M&A, and performance improvement.” Tatum Executive Services provides “CFOs, CIOs and senior finance professionals [to help] lead [companies] through any challenge.”

Others specialize in certain target markets. For example, BlueWave connects private equity clients with “third-party resources to meet [their] specific needs in due diligence and value creation.”

For greater insight into the average interim executive profile, consult InterimExecs’ survey.

Direct consulting

There are several other ways to land consulting gigs. You can become an adviser to one of the major consultancies. Some maintain a database of outside consultants (e.g., PwC’s Talent Exchange).

Adham Abdelfattah, an adviser to the senior partners at McKinsey, said, “Familiarity with technology topics is extremely valuable to become an adviser for the top firms. Tech is their Achilles’ heel, and they’re always looking for seasoned talent that understands both technology and management to act as advisers. Basic networking (and even cold emails) with these firms can suffice if the person has relevant expertise. All it takes is one or two partners to want to onboard a person as an adviser once.”

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You can also affiliate with a specialty consultancy in your niche. There is a huge world of smaller consultancies that work with outside, part-time consultants on an as-needed basis. It’s much easier to get on their “call list” than getting a full-time job. TheConsultingBench offers a database of over 600 consulting firms.

Board of directors

When hiring their directors, boards tend to look for: Proven leadership experience; specific skills or experience — for example, a financial background, international experience, position as an active or retired CEO, experience in dealing with challenges faced by a company or CEO; and your network — for example, connections with potential clients.

To become a board member, you must have a history of leadership and/or experience at the C-level. To join a board, at a minimum we recommend sending your resume to all the major recruiting firms, as most top recruiting firms offer a board placement service. Building relationships with major investors in your sector can also pay long-term dividends.

Some resources include: Directors & Boards, which provides “public and private company directors, leaders and owners of multigenerational family businesses and C-suite executives with the knowledge and skills to be successful in their roles.” Another is NACD’s (National Association of Corporate Directors) Accelerate program, which provides participants with “the tools, resources and exposure essential to launching a successful career as a director.”

Faster Landings offers a “Landing Board Seats” program to help candidates get on boards, and the Private Directors Association frequently hosts webinars on board-related topics. The Institute for Corporate Directors in Canada helps its members “perform their director role effectively and make an appropriate contribution in the boardroom ( … ) [by offering] professional development programs that provide value-added director education and learning opportunities.”

Currently, many boards are also aggressively seeking to become more diverse. The 2020 Spencer Stuart Board Index found that in the S&P 500 boards, women directors accounted for only 28%, while only 20% were minorities. The average member is 63 years old and serves for 7.9 years.

In terms of background and function, 17% of new directors are active CEOs or presidents, as opposed to 26% in 2010, whereas retired CEOs or presidents comprise 19% of new directors, compared to 17% in 2010. New directors come increasingly more from financial backgrounds (27% in 2020 versus 21% in 2010) and functional roles (22% in 2020 versus 18% in 2010).

Total director compensation has also increased, with total average compensation rising from $215,000 in 2010 to around $308,000 in 2020. Similarly, the average committee chair annual retainer has increased from $15,000 in 2010 to nearly $23,000 in 2020, while the average committee member retainer rose from $9,600 to nearly $12,000.

Useful resources for women and minorities seeking board seats include: Boardroom Bound, which prepares “talent in the diversity aggregate to engage in governance leadership preparation for the point in time when increasing numbers of companies make diversity and inclusionary practices a primary focus.” Catalyst has compiled a list of “organizations and institutions that offer programs for networking, education, leadership and community” that help executive women interested in board service.

WCD (Women Corporate DIrectors) is “the world’s largest membership organization and community of women corporate board directors,” supporting its members in “connecting with peers and advancing visionary corporate governance.” There’s also DirectWomen, which seeks to “increase the representation of women lawyers on corporate boards” by “[developing] and [positioning] women attorney leaders for board service. It also serves as a resource for companies seeking qualified women board candidates.”

Lastly, Executive Leadership Council is an organization comprising current and former black CEOs and senior executives at Fortune 1,000 and Global 500 companies. Its Corporate Board Initiative “builds awareness, improves readiness, and enhances the visibility of ELC members who are interested in and actively pursue corporate board service.”

Senior adviser networks

Senior advisers are an investor-sponsored group of senior executives who work closely with funds to source deals and/or portfolio companies to provide board service and mentor. For example, I helped build Chambers Street Executive Network, a proprietary adviser network for Goldman Sachs Special Situations Group.

This position typically requires a monthly time commitment of two to 10 hours. Pay will vary based on the service given and may come in as a retainer or service fee (payable directly by the company in many cases, not the fund).

Senior adviser networks offer a low fixed-cost, high-return talent pool option. They differ from the traditional talent sources listed above in four main ways:

  • Duration: The typical relationship is six months to many years, versus one to two hours to three months for experts, or permanent for recruited executives.
  • Illustrative cost: Senior advisers are paid typically on a retainer, as opposed to a $1,000 per hour rate for expert networks, the $300 to $700 per hour rate for consultants, or one-third of compensation for hired executives.
  • Driver of executive compensation: Because of the long-term relationship, you can pay the senior adviser based on value created and continued involvement with client companies instead of length of consultation (experts and consultants).
  • Confidentiality: You can ask outside consultants to sign NDAs, but practically speaking, they present a greater risk of information leakage than long-term senior advisers.

Certain VC funds offer “fellowships” for industry executives. For example, Shift’s Defense Ventures Program offers “eight cohorts of up to 25 Fellows from across the U.S. Armed Services, [ … ] immersion programs focused on venture capital, the technology startup ecosystem, cybersecurity and artificial intelligence.” It is also planning to introduce an “executive seminar, a high-impact week-long version of the Fellowship, for senior leaders of the Department of Defense and U.S. Armed Services” next year.

Private equity deal executives

Another option is to look for a company to buy and partner with an investor to finance that. A deal executive (sometimes called an executive in residence or acquisition entrepreneur) looks for a company to invest in or build, and typically serve at as CEO. The role usually pays a modest retainer with the incentive of a finder’s fee and/or CEO role in the new company.

To become a deal executive, you typically have a history of successfully leading a company at the C-level, or as a direct report to C-level. You must also offer a deal thesis or letter of intent to a private equity/VC firm.

Private equity funds are primarily looking for deals, not executives. In order of “desirability”:

What PE executives are looking for
Image Credits: David Teten

As a deal executive, you should approach PE funds with a well-articulated deal thesis and position yourself as the “gateway” to this deal. It also has to be correctly scoped for it to be credible that you’ll be able to find the right deal.

A good investment thesis includes a few key elements such as: A clear definition of industry, in terms of niche, size, geography, etc.; a transaction rationale consistent with the company’s growth prospects; basic financial markets analysis (trading range, feasibility, etc.); an outline of value-creation opportunities and a plan for pursuing them; an explanation of why you and your team are ideally suited to lead the effort; a roster of 5-20 target companies; the status of discussions with targets (if any); and thoughts on a likely exit (IPO, strategic buyer).

When to walk away from a VC who wants to invest in your startup

Similarly, you should also present a deal memo, which should include a one-page teaser (the cover email), a business plan, an executive profile, and strategic, operational and financial forecasts.

Private equity investors are seeking the “three Cs” in deal executives: credibility, compatibility and deal-catching.

To appear credible and capable of the job, you should have previously held CEO-level positions, or have directly reported to C-level executives. Ideally, you have 10+ years in your target industry or related market and 10+ years leading P&L — balance sheet experience is preferable.

For additional credibility, you should have personal capital to invest to show that you have skin in the game. The specific amount of which should be proportional to your age: A 35-year-old is not expected to have the same amount of savings as a 50-year-old. Ideally, you would have a management team ready, corporate governance skills (board experience), as well as investor relations experience.

To ensure mutual compatibility, your goals and incentives should be aligned with the PE or VC fund, as well as the timeline for realizing the goals and exit strategy. Naturally, having some personal chemistry makes for a more pleasant working environment and allows for greater synergies to be realized.

Deal-catchers are usually entrepreneurial and sales-oriented, with a willingness to relocate, if needed. As a deal-catcher, you’re expected to proactively identify deals. You should also be financially stable, and ideally have a supportive spouse to be able to go without salary during the search for deals. Ideally, you would also have acquisition experience to facilitate the process.

Partnering with operating executives is a successful strategy that is a focus for a small number of firms, many of which market themselves as search fund sponsors. U.S. funds whose core strategy is to partner with executives to execute a transaction and bring in new management upon investing include, Broadtree Partners, Buy+Build Fund, Endurance Search PartnersFrontenac, GTCR, Housatonic Partners, NextGen Growth PartnersPacific Lake PartnersPost Capital Partners, Search Fund Accelerator and TDV.

Private equity/executive intermediaries are a hybrid of an investment bank and recruiter. They work with executives throughout the process to help execute a transaction. For instance, Blackmore Partners helps funds find executives with “full P&L responsibility of $100 million or more in work history. Currently employed in senior leadership positions. 10+ years of industry experience.” Another is Harvey & Company, a buy-side acquisition advisory and principal investment firm that partners with “proven operators that bring exceptional industry experience and connections that can be leveraged to build businesses.” We also have Orbit Partners, which helps “the best investors partner with the best advisers to successfully craft deals.”

Private equity funds or executive intermediaries have a standard process for executing transactions. They typically begin with a feasibility review of the industry by looking at market trends to identify any opportunities, conducting valuation analysis, considering capital intensity requirements and conducting fragmentation analysis for opportunities to acquire smaller players in a given sector.

They then profile executives to assess candidacies, based on the three desired characteristics mentioned above. Lastly, they source companies for the transaction and source sponsors for the transaction.

When the intermediaries decide to source sponsors or companies depends on how they go about pursuing a transaction. They may find the company and get close to signing a letter of intent, then pursue a sponsor. Or, they may find a sponsor and then search for a company, where the executive screens for funds with a track record of pursuing executive-led transactions and interest in the industry (this strategy is more prevalent in larger deals).

Many companies prefer to sell to management even at the risk of a lower price than they might get from an auction. The primary reasons as to why include secrecy, continuity, speed, lower investment banking fees and “dummy insurance” (not looking dumb for selling a company at too low a price). The selling company may prefer to keep a stake in the spun-off company, which can be easier when selling to a known party.

The process for completing a transaction has five main steps:

Step 1 — Launch relationship (two to four weeks): Reach out to funds that are in your industry and value your expertise. Hold initial meetings to begin the relationship and assess the investment thesis.

Step 2 — Finalize partnership between executive and fund (one to four weeks): Refine the thesis with the other party and agree on compensation, economics and exclusivity. Background checks are conducted and a deal origination plan is formulated.

Step 3 — Identify and contact opportunities (one month to a year): There are two approaches to this. In the concept-driven approach, you’ll search for industry inflection points that may indicate an investment opportunity. In the opportunistic approach, you will network through every possible channel to find an opportunity.

Step 4 — Evaluate targets (up to 3 months): The key questions to ask at this time include “Can a deal be made?”, “Can we interest investors?”, and “Can you “drive” the deal?”

Step 5 — Closing (up to 3 months).

The table below summarizes the typical economics for midmarket private equity acquisition, private equity group (PEG), deal finders, investment bankers and other executives:

Fee type Payer Amount Recipient
Transaction fees Capital providers 0.5%-3.4% of deal size* PEG pays a finder’s fee of 1%-3% of enterprise value plus carry to deal finder and the buy-side investment bank (if any). (The company,  specifically the selling shareholders, pay the investment banker seller’s fee.)
Monitoring fees

 

Company 0.2%-4.4% EBITDA (median 1.2%)* ** The company pays outside board members for ongoing services (~$5,000+ per meeting in addition to equity incentives).
Expenses Company Post-deal expenses, not pre-deal The company pays PEG for post-deal expenses. It’s key for buy-side operating executives/investment bankers to get PEG to commit to pay broken deal costs.
Investment rights Usually unlimited co-invest rights for executives involved, with no PEG management fee. Executives will, however, pay pro rata monitoring/other fees.
This does not reflect compensation for an executive’s role as a company employee post-deal. Note that transaction fee and carry are inversely related.
* Robert Seber, Dechert LLP, “Transaction and Monitoring Fees: Does Anything Go?”, 2003.
** The PEG’s fund documents will generally discuss whether a portion of that fee (often half) is set off against management fees that the LP’s would otherwise owe.
Other data based on Akoya Capital, Oberon Securities, and other interviewees.

VC entrepreneurs in residence

Certain VC funds proactively seek out qualified entrepreneurs in residence (EiR). Although the role is constantly evolving, VC EiRs are usually previously successful entrepreneurs who are building a startup leveraging the VC’s support. In addition, they may have responsibilities to support existing portfolio companies and/or evaluate potential deals. Many EiRs are compensated with zero income until they found a company, but there are some who earn a retainer typically in the range of $90,000 to $150,000.

There are many venture capital funds with formal EiR programs. General Catalyst, which has an XIR (executive-in-residence) program, where they “collaborate with world-class executives to create a new business or identify an existing growth-stage business to transform with them.” Foundation Capital selects several candidates to develop businesses for emerging technologies — Ani Chaudhuri writes about his experience as an EiR working with Blockchain technology. VersatileVC offers an entrepreneur-in-residence program for founders seeking to launch a company that fits the firm’s investment criteria.

VC scout programs

Some VCs have formal “scout” programs to compensate people for sourcing investments. One of the best known is Sequoia’s decade-old scout program, which allocated $100,000 to each scout from its $180 million scout fund.

Compensation for scouts generally involves a fixed fee and/or a percentage of returns for deals that go through, but no guaranteed compensation. For example, according to Jason Calacanis’ book “Angel,” the compensation structure for Sequoia’s scout program looks something like: 45% of returns go to the scout, 50% to Sequoia, and the remaining 5% to a bonus pool for other scouts in the program. The application process for joining a scout program can be very competitive, and some programs receive thousands of applications per position.

Jai Malik, venture partner at Republic and ex-corporate Scout for Tata Communications, shares advice on becoming a scout: “I think the most important thing they saw was that I was open to learning whatever it took to get the job done. I think that’s pretty standard with other positions. How well you can show that you are committed to what you want to achieve.”

Other firms with scout programs include Accel, Chapter One, Village Global, KPCB, Contrary Capital, University Growth Fund, New Stack Ventures, Lightspeed, Atento Capital, Backed VC, Harlem Capital and Index.

Some VC funds offer fellowships for students to work for portfolio companies and attend events hosted by the VC. Bessemer’s Fellowship Program places students with “some of the fastest-growing technology companies in the world to acquire invaluable work experience and access to mentors, industry professionals and the Bessemer Fellows community.”

Fellows of the 8VC Fellowship “complete a software engineering internship at an 8VC portfolio company while attending weekly Fellowship events to meet and learn from notable entrepreneurs, executives and investors in our network from Silicon Valley and beyond.” The Soma Capital Fellowship allows students to “[work] for a seed-stage Soma Capital portfolio company as a design, engineering or business intern, then hone [their] idea with Soma’s help in the incubation stage.”

* Disclosure: David Teten is an investor in Braintrust via HOF Capital, where he was formerly a managing partner.

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Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo