Nivi · January 17th, 2008
“Nearly 100% of the investors interviewed believe that they add value to their portfolio companies. Unfortunately… only 45% of the entrepreneurs interviewed indicated that they believe that was the case.”
Every investor claims to add value. But how much value do they really add? In particular, how well do they help with recruiting?
18% of executive hires come from investors, says one study.
Noam Wasserman, from the Harvard Business School, presents some interesting data in Investors (and Managers) as Headhunters:
“Investors provide leads to a significant subset of hired executives (an average of 18% of executive hires). However, they trail both the non-CEO members of the management team (who referred, on average, 29% of executive hires) and CEOs (36%).
“The major exceptions were for the CEO and CFO positions, for which the percentages [for investor leads] jumped to 28% and 30%.”
Translation: investors refer 18% of hired executives, employees refers 65%, and “other sources” refer the remaining 17%.
Hire investors for money-add and employees for value-add.
This data is consistent with our advice: hire investors for their money-add. Investors do add value, but you should assume their primary contribution will be money. Most of your value-add will come from employees, not investors.
Find an investor who will make an investment decision quickly, who is humble and trustworthy, who will treat you like a peer, who shares your vision, and is betting on you, not the market. If you’re lucky enough to find more than one of these investors, you can start thinking about which one will add the most value.
Ignore the averages: How will your investors help you?
Finally, this survey is really interesting, but it measures averages. You don’t care how the average investor helps the average entrepreneur. You care about how your investor will help you. And the only way to figure that out is by referencing your investors.