Freelance finance professionals with investment banking backgrounds are becoming a strategic resource for PE and VC firms looking to expand their reach. With a deep bench of experienced executives ready to fill temporary roles, they're finding they can fly much faster and farther.
Boutique investment firms usually have partners whose primary skill sets and experience are in the tools of investment banking, but not necessarily in the specific operations of a company or industry where they are placing their investors' capital. Most lower and middle market funds don't have the internal budget to justify keeping senior executives with industry-specific experience on high retainers. This is why many savvy PE and VC firms are turning to the proliferating pool of freelance talent in the investment banking sector.
Professionals who've left the ranks of firms like Goldman Sachs or McKinsey are now working for themselves, finding on-demand employment both through referrals and through online platforms that connect them with employers looking to hire for short term projects. The advantages to an investment firm of hiring interim executives generally fall into two major categories.
Advantage No. 1: Evaluating Investment Opportunities
PE and VC executives can often recognize a great business opportunity and profit potential even if the business itself operates within an tangential to their core focus. Rather than letting such opportunities get grabbed up by competitors, savvy boutique firms are hiring interim, on-demand executives with subject matter expertise to support the due diligence process.
This outsourcing approach enables firms to avoid carrying the long-term salary and overhead expenses of a top executive and gives them the leverage they need to capitalize on timely, lucrative opportunities they might have previously passed on. Especially with the proliferation of so many disruptive technologies and industries, having a diverse pool of freelance investment banking talent not only makes sense now, but over time may become even more essential to boutique firms that want to stay nimble.
One VC firm looking to enter the cyber-security space needed specialized expertise to support market entry due diligence and identify potential acquisition targets. The firm was fully staffed at the senior level, but lacked a mid-level investment professional on its team who could run due diligence efforts. The new market entry was also their opportunity to explore the strengths of a potential hire before making a long-term commitment. They sought out a freelancer with investing experience covering cyber-security, and who had already performed a substantial number of market entry analyses.
Through Graphite, they found a seasoned private equity professional with significant knowledge and experience in the cyber-security space. The firm estimated it saved around $70,000 in overhead costs after paying the professional around $65,000 under contract.
Advantage No. 2: Supporting Portfolio Companies Post-Close
Once a PE firm adds a new company to its acquired portfolio, there's usually some housecleaning needed in the executive suite. Because the goal of PE is achieving transformative value, whatever made the company a target - stalled growth, falling profits or other weakness - reveals the gaps in leadership that made it happen.
The first hurdle: filling the gaps
Filling the gaps created by a shakeup is a key challenge. Some larger PE funds may have a breadth of expertise among their operating partners, who can step into the portfolio companies when needed. However, a boutique firm doesn't usually have as deep a bench to draw from either because they can't spare the executive from their own team, or there's no one with enough relevant prior experience.
When fresh -- but also experienced -- leadership is needed
If a leadership gap arises, or best practices need to be established in portfolio companies, often the fund partners have to rely on other executives or senior management within the company to keep the ship upright until the transformation is complete or an executive search concludes.
Often, when a new company is first acquired, PE fund managers discover that financial controls are inadequate or missing. In some cases the existing bookkeeper, CFO or controller has never worked beyond the founder or family-owned environment, or they aren't using GAAP or other best-in-class reporting structures.
When the need becomes urgent
Whatever may be the issue in company accounting practices, it's a problem of an urgent nature. Because of Sarbanes-Oxley, public companies that lose a CFO or CEO usually have a compelling need to fill the seat immediately. Penalties for late 10K filings and other reports are a threat most boards don't want to have to face. The permanent hiring process can be arduous, taking an average of six to nine months. Rather than letting deals get bogged down, interim executives can jump in within days. They're ready to lead the company, stabilize the finances, and ultimately help identify the next permanent leader.
Fortunately for those firms seeking the interim executive solution, there's a rising tide of interim professional and executive talent available through online staffing platforms, such as our own Graphite. Now that the freelance economy has reached into corporate executive suites, PE firms have much wider opportunities to capitalize more efficiently on their investments with on-demand, industry-specific executive talent.