Denice R. Preston
Through an international strategy for acquiring talent, venture capital not just expands the possibilities of entrepreneurship worldwide but helps startups cut down on the rate of churn and even break faster.
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Erik is a co-founder of the world’s largest venture capital fund. He has invested in over 50 startups that have raised over $400 million while achieving six exits. He was previously responsible for restructuring $3 billion within international subsidiaries and M&A deals that exceeded $10 billion. He is the Chief Economist at Toptal.
The two pillars of an adequate venture fund are its capacity to procure high-quality deal flow and enhance the value of its portfolio companies post-investment. While established funds such as Sequoia Fund and Kleiner Perkins can achieve objectives by leveraging their brand, the mf funds must provide more remarkable. One benefit that isn’t getting enough attention is talent sourcing.
Tech entrepreneurs often require help with more than just raising capital. For emerging companies in the top tech hubs in Europe or the US, one of the most significant requirements over money is the capacity to attract and keep the best talent.
As a former VC, I am aware of the need for this. Talent is often the most critical single expense for startups, as it is the fuel that drives all other aspects that creates value. Although talent is plentiful in wealthy cities and in countries where many founders reside, there is intense competition with large companies and other startups for those workers. It’s becoming increasingly costly to recruit locally. It can lead to a high rate of churn, costing startups valuable institution-wide knowledge that they cannot afford to lose.
A New Venture Paradigm
We are aware that exceptional tech talent is available all over the world. However, most US businesses do not wait for talent to arrive. Most of Silicon Valley’s tech professionals and 65 percent of its math and computer science specialists weren’t born in the United States. The Georgetown University study found that 33 of the 50 American AI companies considered the most attractive in the eyes of Forbes contain at least one immigrant founder.
However, visa programs aren’t able to provide American tech companies with all the people they need. Even though it was estimated that there would be 1.5 million vacant US-based jobs in computer science across the US by the end of 2021, only 56,000 H-1B visas for work are granted to this area every year.
However, many investors would prefer — or even require their company’s employees to be local. Sometimes, this is because they don’t have concerns about raising funds to allow their businesses to pay more lucrative salaries for a locally-based team. Sometimes, investors are aware of their local startup community and are confident that they can connect their business with vital resources, including lawyers or prototyping facilities.
Our Global Talent Model
The purpose of my foundation was to assist our companies in overcoming the restrictions of local talent and utilizing all ways that remote work can aid companies in their growth.
Before we established the fund, my co-founders and I created several programs to develop talent all over the Americas. We started our venture in Medellin due to its robust technological ecosystem and the accessible business environment in Colombia. We also had a few partnerships in place. In the following years, we expanded our presence to most regions of Latin America and South America. Our efforts included establishing an educational foundation for children to learn to code and establishing different accelerator and pre-accelerator programs to assist both individuals and local startups in preparing for a global launch.
A weekend-long robotics and IoT hackathon took place in Medellin, organized by Stettler’s fund and local engineering experts. (Credit: Erik Stettler)
The programs ensured that when we set up our fund, we would have an experienced pool of talent from which our portfolio companies could draw. Although we didn’t intend to create a single-source pipeline from education to hiring and then to hire, it was the most effective outcome. Many graduates of our accelerator and coding programs have gone into employment with our portfolio companies or started their own companies, which we helped fund.
How to Transform Venture Capital
There are many concepts we have developed to create a forward-looking VC fund.
Before I get into the details in detail, I’d like to be clear that this method is not outsourcing. Outsourcing is contracting an organization (rather than individual individuals) to create products using its engineering team. I wouldn’t suggest this approach for companies in the early stages since it causes confusion over the ownership of crucial components of the product and can interfere with the learning process inherent in Agile development.
Implementing the method, I advocate not only hiring international talent directly but making a commitment to contribute to developing the global talent pool. Recruitment is the last element of the piece.
Don’t Be Afraid to Start Small
When you are looking for centers of talent, don’t restrict your search to major cities. In the US and around the world, smaller cities are often more robust startup and tech hubs than the main cities primarily government and commercial centers. The startup communities of those cities, such as the Denvers as well as the Atlantas around the globe, are areas that are more pleasant and more affordable to conduct business.
Recruit Respectfully
While there is lesser competition than in the main Western technology hubs attracting top talent isn’t always easy. When you approach potential senior leaders to discuss opportunities for your company portfolio, please do not underestimate the other options they have. You could be competing against multinational corporations that are willing to spend higher than you would initially. You can offer the chance to own something brand new and be exposed to new technology and concepts.
If you’re considering hiring an executive, you should approach them first to get their opinion on the product of your portfolio company and its business model, as well as how you can engage with their local tech-related communities first. Be honest about your desire. If they eventually accept the job, they’ll be expected to utilize their knowledge to help grow the business.
Build Teams Without Borders
Encourage your portfolio businesses to treat their international talent as a member of one team. US team members must spend much time with their counterparts from other countries. If the company is entirely American-based, it must introduce new team members from outside the United States in the United States for at minimum one month after onboarding. If the entire team is remotely located, US leaders should include new senior executives from overseas at any annual retreats or essential events in person.
Remember Legal Jurisdictions
Legally, your company must be registered with the US and the local government. Each will have to set up local subsidiaries to serve as a pass-through mechanism for transferring money via the US to the local members of your team. Team members must have employment agreements with the parent company and the local entity. This allows companies to seek the option of recourse to their local jurisdictions and, if they need to. Shares and option grants can only be offered by this US entity; it is where the financial value is.
