The rapid growth of the European technology sector has been nothing short of meteoric. There has been a long-term upward trajectory of capital invested into European technology companies with it more than doubling in the four years up to 2019. Investment into the sector for 2020 is projected to have exceeded 2019’s record $38.6bn figure, at over $41bn. Sonali de Rycker, partner at Accel, was quoted in Atomico’s 2019 edition of ‘The State of European Tech’ as describing the current era as a golden age for the sector.
A challenging macroeconomic outlook, loose monetary policy and close to negative interest rates have all helped to fuel the rise of European technology.
As a London based search firm focused solely on alternative investments, we have likewise noticed increasing demand from our venture capital (VC) clients, across funds large and small. Notably of interest has been the number of firms creating an investor relations (IR) function. These are dedicated individuals with the sole purpose of raising capital and managing existing investor relationships. Atomico, Balderton, Dawn Capital, DN Capital, GR Capital, Lakestar, Notion and Target Global are just some of the funds who hired IR professionals in 2020.
This is particularly interesting because up to now VC funds have not commonly made fundraising hires; traditionally they have looked to their partners to fundraise as an add-on to their core investment duties.
Founders face tough challenges when building out this remit, in terms of the quality of personnel and candidate appetite- yet hiring success is still possible. As a consequence we have caught up with many of our VC clients and candidates in order to delve deeper into the new world of European VC IR.
The growth of the European technology sector creates opportunity but no guarantee of success for VC funds. Many agree VC doesn’t scale up very well and lots of firms struggle to find cashflow to spend on various hires. Why then, have so many funds begun to establish a dedicated IR function?
Why are Venture Capital Funds Creating a Dedicated Investor Relations Function?
VC funds have experienced increased demand from sophisticated LPs as yields from traditional investments have disappointed. This often brings complex requirements, especially during the due diligence process, with investors now expecting the same service as they receive from private equity funds.
The growth of European technology has also created a larger LP base. Each investor requires engagement and the expanded LP base represents major co-investment opportunities, all of which necessitate a dedicated hand.
Additionally, as European technology grows so do the number of VC funds. The ratio of LPs to GPs is around 1:4, leaving far more GPs hunting for investment than investors prepared to offer it to them. The competitive nature of European VC can also be observed from valuations, the contraction of asset raising timelines and more pre-emptive term sheets being offered to companies. VC is tough, with many funds running at a loss while searching for the next unicorn. IR hires help funds gain an edge over competitors.
Despite this, the inherent difficulty of sourcing a dedicated IR presence in the VC market is knowing where to start.So how are firms facilitating IR hires and what can they expect from the different candidate buckets?
What Do Venture Capital Funds Look for in Investor Relations Hires?
Generally desired candidate characteristics include:
- A deep and passionate interest in the VC space. This is particularly pertinent due to the general lack of direct VC fundraising exposure available in the market.
- Previous experience in investor relations within private markets is important to most of our clients. Candidates who have been client facing and understand the fundraising cycle, due diligence process and who can quickly take over project management responsibilities are desirable.
- Depending on the seniority of the hire, a fundraising track record and transferable relationships are also considerations.
- An ambitious but humble attitude is also pivotal. Fundraising teams across VC are lean and remits wide. The right candidate should be willing to ‘roll up one’s sleeves’, to help with various and inevitable ad-hoc tasks- regardless of their seniority.
- Entrepreneurial flair and a vision for building out the IR function from scratch.
Yet, often VC founders have more
nuanced considerations, below we analyse the advantages/disadvantages of hiring
from each typical candidate bucket, and the usual push/pull factors of that
Compensation at Associate level: Base of £60-110k and variable bonus (2021)
Average Compensation at Associate level:
Tier 1 Placement Agents- Project Management Teams: Base of £80-£120k and bonus of 100%
Tier 2 Placement Agents- Project Management Teams: Base of £60-90k and bonus of 50-80% (2021)
Average Compensation at Associate level of Investor Relations teams (where there is a split between fundraising and investor relations): £60-80k and bonus of 30-60% (2021)
Average Compensation at Associate level: Base of £70-110k and bonus 100% (2021)
Candidate Pools Conclusion
VC hires are always key hires. The lean headcount of funds makes each hire important to get right, so as to not risk a clash of cultures, work ethic and negative surprises about the new team member.
While each candidate pool is fertile, a number of obstacles and challenges must be overcome in order to identify the best candidates at the best value. Yet recruitment is always a two-way street and candidate interest in VC is far from mainstream.
Candidate Appetite for VC
Many candidates consider VC popular, trendy and exciting. Others perceive it as high risk, difficult and too small a sector.
Having spoken to a majority of candidates across the relevant candidate pools, we have outlined our findings on general candidate interest towards moving to VC IR:
What Interests Candidates in the Venture Capital Space?
Favourable candidates describe VC as being the ‘sexiest’ part of alternative investments. Despite the huge risks of the industry, there is something exciting about potentially being part of the VC fund which spotted Uber, WhatsApp, Spotify, Airbnb or Peloton- and saw them become household names, to big profits.
The rate of technological advancement and its and potential for rapid and life changing developments make many believe VC is the future.
This appeal has even been exacerbated by the increased uptake of technology as a result of the COVID-19 worldwide lockdowns. With 20% of the world population under lockdown in March 2020, hundreds of millions of people were forced to change lifelong habits of in-person meetings and work practices towards the virtual world. This monumental shift in behaviour has transformed attitudes towards technology at an unprecedented and sudden rate.
Another key trend is the appeal of joining lean teams with flat hierarchy structures, allowing for maximised autonomy, freedom and exposure- as often offered by VC funds. This is broadly in line with the arguable bias of the millennial generation towards entrepreneurship.
Linked to this is the excitement of joining a sector with potential for high growth and development, compared to more mature and stable markets.
What are the Challenges Attracting Candidates to the Venture Capital Space?
A majority of candidates are still unaware that London VC funds hire IR professionals.
Risk is another often cited factor: individuals have learned how to manage investors within their strategy or sector and would have the difficulty of learning a different discipline. One VC founder described the difference in PE and VC investments as akin to the difference between building cars and ships.
Lastly, some doubt the long-term success of VC; it is true that a number of funds do not make substantial profits. Few founders generate 10x return funds, and some candidates worry that VC funds can end up hiring an IR professional to only operate a defensive remit.
It is clear that the advent of VC IR in London continues to roll out at a stratospheric pace as a result of a maturing and competitive market.
Hiring IR professionals represents a significant challenge to those unversed in the market. Each candidate pool provides unique challenges.
Not everyone is yet convinced by VC, even during the golden age of European technology.Is the advent of dedicated IR professionals the unicorn VC has been looking for?
Time will tell.