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Recruiting the Best Recruiting the Best and the Brightestand the Brightest

Ted Martin, President and Founder

Martin Partners, L.L.C.

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Agenda

• Introduction

• The Landscape Today

• Who are the Stars?

• How do you Recruit the Stars?

• How do you Retain the Stars?

• Case Studies

• Questions & Answers

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Martin PartnersIntroduction

• Specialize in the New Economy

• Follow the private equity community

• Recruit Stars

• Build Senior Management teams

• Worked for over 130 start-ups

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The Landscape Today

• Stars in corporate America today are cautious

• Experience is back “in”

• “3 MBA’s and a Business Plan” is dead

• It’s as robust as ever (if you build a real business)

• VC’s have been burned

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Pre-NASDAQ CrashJanuary 2000

“I just faxed a term sheet to a company I

know nothing about and haven’t met

anyone, but the Big Boys are in and we’re

getting in, too!”

Quote from a prominent San Francisco VC:

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Post-NASDAQ CrashNovember 2000

Quote from the same prominent San Francisco VC:

“Anyone who gets funded in this market

today probably has a great business and

will make it.”

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Evolution of Compensation

• Pre-InternetBase + Bonus + Equity 1 2 3

• InternetBase + Equity 2 1

• Post NASDAQ CrashBase + Bonus + Equity 1 1 1

8The Landscape TodayVC Funding

SILICON LUKEWARM

• B2C Content Site

• B2B Vertical Exchange

• Internet Consulting Firm

• Econets

SILICON HOT

• ASP’s• Optical Networking• Always-On Internet• Wireless Infrastructure• Internet Stability• Application Services Software• Broadband• Genomics

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Out of business

quick

Will survive too long and

ultimately lose

Chance to create

exit strategy

No Limits

Star Management

Team

Mediocre Management

Team

Hot SpaceLukewarm Space

The Importance of Management Teams

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Business Plan Best Practices

• Typical VC spends 5-10 seconds per plan

• Should answer the following questions on first page:• What is the opportunity?• How will it be captured?• Who will execute it?• What is the “hook”/unique differentiator?

• The Elevator Pitch

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The Recruiting Elevator Pitch

…is the single most compelling, succinct explanation of your company and why someone else should be interested in your company.

• Less than 2 minutes long

• Has a “hook”

• Entire Company is well-versed

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“Tell me more.”

Desired Reactions

“That sounds unique.”

“That sounds innovative.”

“What a great idea.”

“Call me tonight, here’s my cell phone number.”

“Are you funded?”“Where do I sign?”

“Can I please take a pay cut to come on board?”

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Undesired Reactions

“Aren’t there already 100 of these out there?”

“Didn’t one of those just go under?”

“So, how do you make money?”

“Isn’t that a totally dead category?”

“Whoa…start over.”

“That sounds exactly like xyz.com.”

“I’m not following you.”

“Here’s my floor, gotta go!”

“Who would ever buy that?”

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The CEO’s Objective

Build the best Senior Management Team possible in the shortest amount of time.

Quality

+ Speed

= Highest Probability of Success

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Great People

The undisputed, most important factor to the success of your company…

Assuming you have:• Funding• Strong BaM partner• The right strategic

alliances• A hot space• Path to profitability

16Strong Teams are Key to Success

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Not market-driven

Long time frame

Reasons for Business Plan Rejection – Biotechnology Ventures

Weak management team

Unpatentability

Inadequate technical expertise

Money commitment too large

Other

Source: Prairiefire Knowledge Event #1 – How to Build a Business Plan

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Who Are the Stars?

• Everyone says he/she is great, whether they personally like the individual or not (“player”, “keeper,” “total stud”, “superstar”)

• NO major decision occurs in the company without their input

• They get counter-offered when they try to resign

• Direct reports want to follow them to their new company

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The VC Dream Team

• The CEO is a passionate entrepreneur

• President/COO is an experienced GM operator

• CFO has IPO and/or deal experience

• CMO has branded a company and its valuation

• CBDO has formed partnerships and strategic alliances

• CSO has built a sales pipeline and a sales team

• CTO has built and managed a development team

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Building the VC Dream Team

• “Chiefs” have experience (learned on someone else’s nickel.)

• Ideal hire was trained at a large/medium sized firm, made a move to entrepreneurial land and after they’ve succeeded in that environment, now YOU hire them.

• Hire relevant industry and function experience at the “Chief” level.

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• A Player

• A referenced Star

• Pedigree in education and training

• F500 Big Name Company experience behind entrepreneurial experience

• “AA” - Analyst Appeal

Ideal VC “Chief” Profile

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Hiring Risks

Risk: Doesn’t get it

Risk: Takes too long to learn new industry

Risk: Peter Principle

Risk: Not meant for start-up

• First move from large corporate to start-up pace

• A Star in a non-related industry

• Hasn’t done the job before, a career step up

• Failed in previous entreprenurial companies but was a star in earlier large corporate

22BaM Experiencevs.

Start-up Experience

How different is it?

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Start-Up Skills• Creates and drives process versus facilitates process• Flexible/Adaptable• Team player• Accountable• Intelligent/Street Smart• Innovative/Creative• Moves fast (hair on fire)• Multi-tasking across functions• Sees the Big Picture (forest and trees)• Makes the commitment (hours, priority)• Passionate about the business• Integrity/Honesty

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Finding a Star

1. Exhaust your own personal networks • Board members, VC’s, bankers, lawyers, consultants, friends• Networking Events (First Tuesday, Orbis, etc.)• Professional Associations (CSA)

2. Post internet job descriptions and screen online resumes• i-Street Reporter, The May Report, ePrairie, MBA sites, etc.• JobsOnline.com, Monster.com, Headhunter.com, etc.

3. Contingency recruiters

4. Retained search firm

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Retained Search Firm Fees

• One-third of first year cash compensation (base & bonus), including sign-on or guaranteed bonus.

• Bill two or three retainers during the search.

• Warrants in addition to cash fee or in place of part of cash fee.

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Market Demand for Retained Firms

• We know where the Stars are

• We know how to attract the Stars

• Quality and speed = Search Management

• Closing/negotiation skills

• Option: Go straight to the retained firms

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How Does Martin Partners Findthe Best and Brightest?

• We don’t find stars posting their resumes or hitting online job boards (yet).

• Motivation to leave, motivation to join

• References - (if smoke, then fire)

• References - (offline, not from candidate)

• References - (are they helping a friend?)

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Courting a Star• Every Star has multiple calls, multiple opportunities and knows it • Sell! Avoid “Institutional Arrogance”• Go after them with all the strategy and tactics you would use to land your

biggest customer• Maintain your focus- easy to forget how important a hire can be when

caught in the throes of fund raising, etc.• Must move quickly today - talent is scarce and the competition is fierce• Keep momentum! Lack of communication with a potential candidate,

regardless of the reason, can cause you to lose that candidate• Be creative, find a way around obstacles• Closing/Negotiation skills• Stay in touch until you see them in your office• Involve team members in process, but avoid democratic decision-making

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Interviewing a Star

• Everyone inside interviewing the person should be on the same page, spend the time upfront with your team

• If references are done upfront, it is a very different interview

• Get to a business conversation as soon as possible, see how they think

• The Vacuum Cleaner Test

• Accurately reflect the culture

• Look for process creation versus process facilitation

• Don’t air your dirty laundry

30The Offer Gap: What you are willing to pay versus

what the candidate is willing to accept.

• The market is efficient based on the laws of supply and demand.

• Price/value correlation needs to be understood.

• The pain of learning through losing a star.

• If you’re willing to buy more house than you can afford, why shouldn’t you stretch beyond the internal norms to add the Star?

• Bridge the Gap - someone else will!

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Employment Reputation

• How have you treated previous candidates?

• How do you treat employees?

• How have you treated employees you have had to let go?

• It’s a small marketplace, and a bad reputation in any of these areas could keep you from hiring, or even interviewing, the best talent

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How Much Does the “Chief” Cost?

Two years ago, post first round: • $150k-$200k base + 2-4% for President• $125-150k base + 1-2% for Chief• Average: $150k + 1.5%

One year ago, post first round:• $200-300k base + 3-5% for President • $150-225k base + 1-3% for Chief• Average: $200k + 2%

Current:• Same as above with + 25-50% bonus

CTO Exceptions:• $325k base +2%, turned down

The closer the company is to a liquidity event, the lower the equity percentage.

The closer the company is to concept stage, the higher the equity percentage.

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Negotiation Variables

• Vesting: 3 or 4 years• Termination Without Cause: Defined • Termination Without Cause or Job Responsibility Diminished: 50%-100% vest• If Change of Control: 25%-75% vesting of unvested options• Severance: 3-12 months• If Terminated within 12 months of a Change of Control, options 100% vest• Non-compete: 12-24 months• Ability to purchase additional stock?• Vacation: 2-4 weeks• Health Plan• Bonus: Paid out when / how?

Bottom Line: You get what you negotiate.

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“Cause”

Cause is defined as:

“...in the course of your employment by Company, engaging in activities consisting of embezzlement, defalcation, diversion of corporate assets or opportunities for personal profit, or participation in any felony.”

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How Do You Retain Stars?

• Deliver on what you sold during the interviewing process (H&H)

• Courtship versus reality

• The long-term incentive means a lot, keep it positive

• Culture

36What Does the Functional Leader Want?

• Part of a great management team

• Develop the skill base to get to the next level

• Have fun, like their job, feel like they’re in a

winning company

• Feel like what they do makes a difference

• Make lots of money on the liquidity event

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Case Study #1Startup Situation

B2B started with co-founders seeking VC money. VC money comes in with caveat that outside CEO be hired. Co-founders created the technology platform.

Searches

1st Search: CEO

2nd Search: CMO

3rd Search: CSO

- Company goes public -

4th Search: CHR

5th Search: CTO

6th Search: COO/Pres.

Observations

CEO moved quickly, changed positioning often

Team gets along extremely well, flexible

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Case Study #2Start-up SituationB2C started with co-founders receiving first round VC money behind the concept.

Searches1st Search: CMO 2nd Search: Chief Merchandising Officer 3rd, 4th & 5th Searches: Split company into multiple divisions, hire a GM (CMO) for each division6th Search: CBDO7th Search: Chief Communications Officer

- Secured BaM partner -

ObservationsCEO moved quickly to reposition company multiple timesRequires flexible and adaptable management team

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Case Study #3Start-up Situation

Wireless infrastructure has a founder with concept and angel money. Needs CEO from the wireless space to compete in VoIP market and secure first VC round.

Searches

1st Search: CEO

Observation

CEO search results in complete repositioning and secures key partnership in streaming media.

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Case Study #4Start-up Situation

Software company founder secures first round VC funding and builds management team.

Searches

1st Search: CMO

2nd Search: Chief Services Officer

3rd Search: CFO

4th Search: Head of Product Management

Observations

Company is already profitable before second round funding.

CEO and 1st round VC at odds over second round.

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Key Do’s and Don'ts of Hiring

DO: Treat them well upon exit, it’s a small world with lots of repeat stops.

DON’T: Keep someone too long if you’ve made a mistake.

DO: Exhaust your personal network in search of great talent.

DON’T: Hire your nephew, cousin, and father-in-law as your management team.

DO: Pay attention to the “fit” once you know you have a referenced Star.

DON’T: Hire someone because you know them and like them without doing work references.

DO: Trust your gut instinct if the references are good.

DON’T: Overrule your gut instinct.

DO: Move quickly on a Star.

DON’T: Hire without involving the other members of the management team.

DO: Stretch for the Star, buy more house than you can afford.

DON’T: Make a low ball offer if you really want the candidate.

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Good Luck and Congratulations!