Should CFOs Venture into Private Equity?

Since our previous publication, an exciting trend to emerge among our private capital clients is their increased willingness to make a creative CFO hire. While we have seen the emergence of preferred archetypes for Private Equity and Venture Capital CFOs, there is also greater appetite to test the norm.

To better understand the CFO hiring playbook, Russell Reynolds Associates analyzed hiring trends in our database of over 3,000 European Private Equity and Venture Capital backed companies. We have advanced our understanding of the model CFO for each stage of investment across the European landscape.

Interesting trends are most evident across measures of individual demographics, qualifications, training foundations and routes to hiring.

Ten percent of Private Equity CFOs are female versus 13% in Venture, which is also against 16% in PLC. Whilst this is not hugely distinguishable, it is potentially indicative of a positive trend from Private Equity to Venture Capital and an inclination for earlier stage companies to be more active at the start in their thinking around diversity. As expected, when looking at age statistics, the average age of a Venture Capital CFO is younger than a Private Equity CFO.

Tellingly in Private Equity, the leading qualification for CFOs is the ACA, with only one in five across Europe holding the MBA. Meanwhile, MBAs are dominant among Venture Capital CFOs, with three in five portfolio company CFOs holding such qualification. This lends to the thesis that Venture Capital CFOs typically span across companies in broader, commercial roles beyond their core finance position.

Doubling down on the training background of Venture Capital versus Private Equity CFOs reveals early divergences. A key differentiation is that 25% of Venture portfolio CFOs started their career as investors, yet only 5% of Private Equity CFOs bring this experience.

It is a well-known fact that the CFO is the most frequently upgraded function following a buyout, with successful candidates overwhelmingly likely to be externally hired. External talent is recruited into Private Equity companies in nine out of ten instances, relative to 76% of time in Venture portfolio companies. This is caution to incumbents and internal candidates, whose promotion prospects are disproportionately slim.

However, existing data is only representative of hiring propensities to date, without being able to forecast future trends and movements. It also does not allow for – to coin a topical phrase – our ‘lived experiences’. We are observing a genuine, consistent demand from clients for profiles that may not fit the standard archetype that has come before.

For example, we recently appointed a highly impressive CFO into an established Private Equity backed data and services company. Her career spanned investment banking, strategy consulting, and PE/VC investing before transitioning into her first CFO position. The reason such a move worked well was down to both the quality of the individual and the client’s preparedness to provide ongoing support through a robust, experienced Board and resources to build a strong finance capability.

Another recent example of ours is from working with a high growth Venture Capital backed Unicorn and placing a more traditional PLC/ buy-out CFO. This individual has onboarded successfully, owing to their technical capability but also because they demonstrate the leadership and cultural characteristics, i.e., flexibility and adaptability, that one needs to thrive in a high-performance, high-growth company.

Read more about Private Equity:

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Authors

• Jessica Gosnell works closely with private equity companies to build best-in-class leadership teams for their portfolio companies. She is based in London.
• Emily Taylor executive searches for financial funds with a particular focus on senior-level investment professionals. She is based in London.
• Courtney Byrne is a research associate based in London.