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Start-ups can pay off in the long run

Finance South East – The Sunday Times

  

Becoming a non-executive at the birth of a start-up venture often requires a leap of faith, but it can offer a multitude of rewards.

 

Start-up companies often require a different sort of non-executive: someone who has been there, done that and is happy to share his or her contacts and experience – possibly for a tiny fee.

Finding such people, and the executives who sit alongside them, also requires a different sort of headhunter, said Rosemary Forsyth, founder of the Forsyth Group, a technology search specialist.

Forsyth is sometimes willing to forgo her own fee, or at least to defer it. It sounds like a marketing ploy – cashflow matters to start-ups, so anything that improves it is welcome – but it’s really more of an investment strategy.

“Because I was placing a lot of people in early-stage companies, I saw them becoming multimillionaires,” she said. “I thought right, I am taking a fee, but why don’t I take stock options instead?”

“I have just done a deal recently for a C-level [board level] appointment where I took equity in lieu of fees. I’ve done quite a few on that basis.” She is starting to ask different things of senior candidates as well: why not consider a non-executive position as a route into the chief executive’s chair?

“We once placed a non-executive director who went on to become a chief information officer and then chief executive,” she said. “From the business founder’s point of view it was perfect because he had the right person sitting on the board and did not have to go to market again.”

It also provided something of a safety net for the new chief executive, who managed to start building his connections with an up-and-coming growth company as a non-exec without leaving the security of his existing executive position. By the time the start-up had the budget to pay him, he was already familiar with its business and its founder.

This type of changeover, which was at an American company, is still rare, but is likely to become more popular as entrepreneurs look for a chance to see their potential replacements in action, and experienced executives seek more security when making the move, said Forsyth.

“Getting to know you is quite good for both sides and there are a lot of people on the market at the moment who are extremely talented,” she said. “Of course, this is a situation in which you have to manage expectations very carefully, as you can’t have all the non-executives wanting to become the chief executive.”

Hiring non-execs as potential chief executives also means that the search process would be almost a cross between hiring an executive and appointing a non-exec. “We would look for something a little different,” Forsyth said. “For example, the potential candidate would probably be at board level in his or her current company and looking for the first non-executive position.”

Candidates would also have to be able to show that they would add value in both the non-executive and executive roles. Although the long-term aim may be an executive position, start-ups cannot afford to have a non-exec who is coasting along, biding his or her time. Candidates also need to have something of an entrepreneurial nature, because they are likely to get equity rather than cash in return for their involvement.

On the other hand, it offers a gentle, less risky way for candidates to ease themselves into a start-up because they don’t have to take a big salary cut, as they would if they went straight into the executive role.

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