Dean Nacey, a Partner at SPMB, works with enterprise and consumer technology companies placing senior level executives. Clients include both venture capital funded, as well as larger, private equity backed and publicly traded companies. SPMB Partner, Bianca Moreno, co-leads the firm’s New York office and focuses on identifying top tier talent across North America’s emerging tech hubs. She partners exclusively with market changing growth equity and private equity backed software and technology-enabled services companies to place C-level and EVP/SVP-level executives.
In the following interview, Mr. Nacey and Ms. Moreno share their unique perspective on private equity and venture capital recruiting in 2023 and focus on the impact of the macroeconomic environment, demand for CEOs, expectations for the PE industry and much more!
How are you seeing demand for operating skills shift across venture capital and private equity given 2023’s macroeconomic environment?
Nacey: Valuations for software companies grew to an all time high in 2022 as investors of all types poured into the asset class. These investments were made with assumptions about future multiples in both venture capital investments and private equity buyouts. With multiples drastically falling over the past two quarters, the board room has shifted operating priorities to ensure future shareholder value. Venture backed companies are being pressured to cut costs and to accelerate their path to profitability, so growth at all costs (while burning capital) is no longer acceptable without a viable plan to turn a profit. Private equity owned businesses are looking to cut costs to increase EBITDA in hope of preserving acceptable Internal Rate of Return (IRR) for Limited Partners. This pressure on profitability and cash flow is maximizing demand for efficient operating skills, much of which you traditionally see in private equity or publicly traded businesses. We are seeing this emphasis in expertise across all of our CEO projects and in many of our CRO, CMO, and CFO projects — across all asset classes.
The need for CEO talent is greater than it’s ever been; what do you attribute this to?
Nacey: We have seen the demand for CEOs more than double this calendar year, and there are a few trends driving this. First, leading and scaling a software business requires different leadership and operating skills today than it did a year ago, primarily because the KPIs a board room and shareholders value have drastically shifted. Efficient, profitable growth is key, and that is not core to every CEO’s playbook. Second, we are seeing many CEOs who have built meaningful wealth the last three years, during historic revenue and EBITDA multiples, decide to step away from day to day operating. Many of these CEOs will operate again, but they are taking time off in the short term to be with family, advise, invest, and generally recharge. Third, there is real burnout at the senior most levels of technology businesses. Many CEOs in place prior to the spring of 2020 never intended to lead a business virtually, via Zoom. The most tenured CEOs are used to leading and inspiring in person while
building teams in an office. This new way of leading can easily result in burn out for even the most experienced executives.
How has the changing macroeconomic climate impacted how you run searches and how hiring managers and candidates engage?
Nacey: Today’s economic uncertainty is making many candidates more cautious than ever about pursuing a career change, especially if they are currently in a good position with a profitable company. In fact, we are seeing candidates’ due diligence activities and requests ramp up much earlier in the interview process (requests for financials, details on profitability, planned investments across functions, and valuation / cap table information). If properly managed, this emerging trend can be quite healthy for both hiring companies and the candidate community.
How do you expect current economic conditions to impact the private equity industry? Where do you see the industry going?
Moreno: Private equity got off to a strong start this year with Q1’23 fundraising matching Q1’22 levels — in stark contrast to venture capital, which is currently operating at a 3-year low. So while private equity has been riding high, the current economic conditions are likely to catch up to the PE industry. In fact, although deal flow was steady in Q1’23, it seems to already be taking a hit as many PE firms are looking toward other avenues to generate returns for Limited Partners (LPs) outside of big exits, such as continuation funds and carve-out sales from portfolio companies. Exit numbers are trending down, the IPO market is essentially closed, and many PE firms are sitting on their portfolio companies longer as they wait for a better market where valuations won’t take significant hits. It may be too early to say, but analysts are predicting that exits will be down materially for the entire fiscal year. As exits decline, fundraising will follow suit as less money is returned to LPs. As the spread between fundraising levels and deal exits continues to widen, there will be less capital to invest. And while the PE market may not suffer a blow quite as dramatic as the VC market, it will certainly be negatively impacted as fundraising continues to dwindle.
How will the rise of artificial intelligence (AI) impact your business? Do you expect mass AI-focused hiring in PE/VC backed companies over the next few years?
Moreno: AI is here to stay. It has and will continue to demand (and capture) attention from tech-focused private equity and venture capital funds for years to come. Today, we are seeing a growing emphasis on AI specifically within B2B enterprise SaaS companies as their focus on establishing AI as a core component of their products and services intensifies. In tandem, we also see AI becoming table stakes for future investment from the PE and VC community. Given the orientation to AI, there is heightened interest in executive talent with experience in AI environments, and we’re finding that today’s most seasoned AI talent sits within the VC-backed ecosystem given the relatively early stage of AI growth. With that said, we expect investors and companies alike to continue to make strategic hires and educated bets on talent across AI as they establish frameworks for robust and actionable AI strategies. However, as with all emerging technologies and frontiers, it’s going to take time for the AI talent pool to expand meaningfully as companies and their leadership teams earn their stripes (from a scaling and growth perspective). The short of the long is that AI is the future of SaaS.