When it comes to recruiting healthcare executives, experience breeds intuition. It works for horse racing, too. It is not my intention to show that experience will improve your chances of winning at the track. When discussing the best investments, healthcare venture capitalists use horse racing analogies. Venture capitalists would rather bet on the horse than the jockey. According to their logic, the people are the most important part of a business.
The success of a healthcare venture capital company is dependent upon their ability to hire and keep a top-performing Jockey (a.k.a. “the CEO.” It would be so simple to win the Kentucky Derby or bring home a ten-bagger return. My experience in healthcare executive recruitment and working with venture capital firms has given me insight into the company’s CEO needs. To identify and recruit the CEO and build a strong support team for him/her requires extensive network, real-time research, experience and thoroughness. This article is designed to provide outcome-driven insights to the healthcare venture capital company that decides to hire a healthcare executive recruitment firm to find a portfolio CEO.
Recent quarters have seen an increase in new capital investment by healthcare venture capital firms. In March 2008, the Health Care M&A Monthly reported that there were thirty healthcare services deals. In 2007, there was $9 billion in funding for venture capital deals in healthcare. This included more than 480 deals. These firms are required to conduct an accurate and thorough executive search in order to find, recruit, and retain the CEO. Healthcare venture capital investment is increasing. Healthcare venture capital firms often retain a recruitment firm for healthcare executives to help with CEO search efforts. However, they can also mimic the process of top healthcare executive recruiters. healthcare logistics companies
The best exit strategy is to use the insights from healthcare executive recruitment firms processes.
1. The healthcare venture capital firms will work hard to find a CEO to lead their portfolio businesses. They may also be open to conducting an internal search for a CEO. This is a way to place a healthcare venture capital company’s CEO who is familiar with the business and has previous experience. Many times, healthcare venture capital firms will admit that they “don’t know everything” about the business, segment or pool of available CEO talent. If there were any doubts at the beginning, it becomes obvious that they must bet on the jockey who will run an unfamiliar race. The firm should duplicate the search method that healthcare executive recruitment firms use for CEO assignments.
High-growth, venture-backed companies require top-level healthcare executive recruiters to find and hire their leaders. A healthcare venture capital company’s internal search process should evaluate the experience and knowledge of the executives it has introduced to the venture capital firm. This will reduce the chance of making a mistake in hiring. The firm may choose the CEO from its personal rolodex. But, benchmarking well-known CEOs against a wider pool of CEO talent will be valuable.
2. The healthcare venture capital firm should consider succession planning and CEO contingency early on in its investment. A portfolio company’s success depends on its ability to attract key CEOs, top leaders, and board members. A common practice for a healthcare venture capital company is to find and hire a veteran and industry-experienced member of the board, who can lead the business if the CEO fails. While immediate needs are fiduciary, succession and contingency planning should also be considered. Some people believe succession planning should fall below the CEO. However, venture capital firms in healthcare are more interested in financial carrying and developing new ideas than future leadership talent. The board should discuss succession and contingency planning. This is because if the CEO succeeds, the new board member will be able to continue his or her fiduciary duties. This board member can also step in if the CEO is unable to control the business or market. This strategy can dramatically reduce downside risk.
Many sleepless nights will result if the CEO loses control over the business, the market, or if the healthcare venture capital company did not plan properly. These sleepless nights are when an unprepared healthcare venture capital company will mistakenly pursue one of the three options.
o Retain a healthcare executive recruiting firm. The search for a healthcare executive recruiter is often done quickly because the healthcare venture capital company needs to find a savior. Venture capitalists may choose to not retain a recruitment firm for healthcare executives because it can be perceived as too complicated during times of panic. Both of these scenarios can lead to multiple exits.
o Talk to someone that the healthcare venture capital company has dealt with in the past. This option does not focus on growth, but on building a floor that minimizes investment loss.
o The healthcare venture capitalist will assume control of the business and serve as CEO. I have found that poor planning combined with a reactionary jerk are not conducive to a positive cash flow.
A risk-taking venture capital firm in healthcare is only as successful as the Jockey they hire. Venture firms often turn to healthcare executive recruitment firms for key resources, but there are times when venture capital firms choose to do their CEO search internally. Healthcare venture capital firms should follow the best practices of top healthcare executive recruitment firms when conducting their own search. Healthcare venture capital firms will reap the benefits of a thorough and impartial executive search process that is tied to succession and contingency plans at board level. This will help to build strong businesses and provide solid returns.