When it comes to startups and high-growth companies, investors are more than just a source of capital. They’re often seen as partners who bring valuable insights, industry experience, and a network of contacts that can be just as crucial as the funding they provide. One area where their influence can be particularly significant is in people decision making, more specifically in recruitment decisions. After all, the people you hire can make or break your company, especially in the early and growth stages.

But here’s the tricky part: how involved should investors really be in hiring decisions? While their input can be incredibly helpful, there’s a fine line between being supportive and being overbearing. In this article, we’ll take a closer look at the role investors play in recruitment, how companies can make the most of having investors on board, and why it’s important for investors to strike the right balance.

The Investor’s Role in Portfolio Companies

Let us start by zooming out and looking at the bigger picture. When an investor backs a company, they are usually bringing more to the table than just money. They have seen what works and what doesn’t in their industry, and they can offer guidance that helps steer the company in the right direction.

Think of it like this: if you are building a house, the investor is like an architect who knows the best materials, the most efficient designs, and even has connections with top-notch builders. They’re there to help ensure your house doesn’t just stand but becomes a home that lasts.

Investors often provide strategic advice based on their broader view of the industry. They might suggest pivoting your business model or expanding into new markets based on what they have seen work for other companies. They also bring in-depth knowledge of the industry, which can help you avoid common mistakes and seize opportunities. For example, if you are an agribusiness, an investor with an interest in the same sector might guide you through the complexities of the field.

The Rolodex of contacts that investors come with can be invaluable — whether it’s potential clients, partners, or key hires. Imagine having access to someone who knows the best talent in the industry and can make an introduction that might otherwise take you months to secure.

With investor’s board seats often comes the responsibility of governance. Investors keep an eye on the bigger picture, making sure a company stays on track with its goals. While this can be both a safety net and, at times it can be a source of tension if the investor’s vision does not align with the company’s.

Finding the Right Fit: Investor’s Role in Recruitment Processes

Now, let us zero in on recruitment. This is where the stakes get high. The right hires can take your company to the next level, while the wrong ones can set you back. Investors often step in here because they know how critical these decisions are.

Investors, especially those with experience in scaling businesses, can often spot gaps in your leadership team that you might not even be aware of. For instance, they might suggest bringing in a seasoned CFO if they see that financial strategy and planning are areas where the company needs more expertise. It is also not uncommon for investors to get directly involved in hiring C-suite executives. Take the case of an agri-SME whose investors notice that while the SME has a good offering and growth potential, it lacks a solid leadership team to take it to the next stage. Through their network, investors can connect the founder(s) with seasoned executives who have taken other businesses through important transitional phases. Those hires can be transformational for any company.

Beyond the day-to-day operations, investors might recommend or even insist on adding certain individuals to advisory boards. This can be crucial when navigating complex decisions or entering new markets. For example, if your business is expanding into a new region or market, having an advisor who understands the new landscape could be invaluable.

Investors might also advocate for building out your HR function sooner than you might think is necessary. They know that as you scale, you will need a robust HR team to manage recruitment, culture, and employee development. From our observation at Agri Frontier Talent Solutions, this remains a critical issue within agribusinesses in Africa. Looking forward it may feel too soon, but in hindsight, founders typically admit that it is one of the best decisions they made, as it lays the foundation for a strong company culture.

Lastly, investors today are increasingly vocal about the importance of diversity and inclusion within their portfolio companies. They understand that a diverse team can bring different perspectives and drive change and innovation and push for this where they can.

How Portfolio Companies Can Leverage Investor Involvement

For companies, having investors involved in recruitment can be a huge advantage — if handled correctly. Here’s how to make they can make the most of it.

One of the greatest advantages of having investors on board is the access to their extensive networks. When it comes to finding top executive talent, investors often know the right person — or at least someone who does.

Moreover, investors often have established relationships with specialised executive search firms. These firms, with their deep industry connections, can be instrumental in finding candidates who are not just seeking a job, but are looking for the right fit. For example, Agri Frontier and its Talent Solutions division, with its extensive connections with potential investors – is often recommended to portfolio companies to fulfill various recruitment mandates. With the help of a search firm recommended by their investors, companies can find candidates who have not heard of their company before. These candidates can turn out to be exactly what the company needs to navigate critical growth phases.

Investors can also boost a company’s credibility, particularly in the eyes of potential hires. When a top candidate sees that reputable investors are backing your company, it can significantly enhance the appeal of your offer. In some cases, candidates who are unsure about joining a company can change their mind when they find out who their investors are. The involvement of well-known investors acts like a seal of approval, reassuring them that a company is worth their time and effort.

When it comes to negotiating compensation packages, investors can also offer vital guidance. Structuring compensation (particularly for executives), especially in the form of equity, can be a complex task. Investors can help craft deals that are both attractive to candidates as well as aligned with the long-term goals of the company. They might suggest innovative equity packages that entice top talent without excessively diluting the company’s ownership structure.

Finally, investors can help in crafting a robust recruitment strategy that look beyond immediate needs and considers the company’s future. They might encourage you to define your employer brand early on or to develop a scalable recruitment process. We’ve seen startups struggle because they lacked a clear recruitment strategy, resulting in a team that did not work well together. A well-thought-out recruitment plan from the outset can prevent these issues and pave the way for smoother growth.

Striking the Right Balance

It may sound like a lot to expect investee autonomy as well as the input, expertise and network of your investors. So, how do you get the best of both worlds?

The key is to keep communication open and honest. If you are the founder or CEO, make sure your investors understand your vision and culture. When everyone is on the same page, it is easier to navigate decisions together. Discussions that go beyond just financials, but also the kind of team founders want to build can help ensure that everyone is aligned.

Investors also need to respect the leadership team’s autonomy. Their role should be more of an advisor than a director when they are involved in recruitment decisions. This means offering suggestions and making introductions, but ultimately allowing the company’s leadership to make the final call. We’ve seen investors who take a step back after making a recommendation, trusting the leadership to decide what is best – from introductions to candidates to introductions to recruitment firms. This kind of respect for boundaries fosters a healthy working relationship. Instead of dictating who should be hired, investors and company leaders should collaborate to find the best candidates. This might involve working together to define the ideal profile for a role, jointly interviewing candidates, or discussing the long-term implications of certain hires.

Investors should be encouraged to think beyond the next funding round or exit and consider the company’s long-term success. This means supporting hires who not only meet immediate needs but also align with the company’s culture and vision for the future. For instance, instead of just looking for someone who can boost short-term sales, think about whether that person can help build a sustainable sales strategy that will evolve as the company grows.

Investors can play a crucial role in promoting diversity and fostering a culture of innovation. This means encouraging the recruitment of diverse talent and supporting initiatives that create an inclusive workplace.

Conclusion

The role of investors in recruitment is a balancing act. On the one hand, their experience, network, and strategic insight can be invaluable assets to a growing company. On the other hand, too much involvement can undermine the leadership’s ability to build a team that aligns with the company’s culture and long-term goals.

The most successful partnerships between investors and portfolio companies are those where both parties work together, with mutual respect and a shared vision. Investors who provide support and guidance without overstepping their bounds help create a strong foundation for the company’s future. By keeping communication open, respecting leadership’s autonomy, and focusing on long-term success, investors can play a vital role in helping companies build the teams they need to thrive.

Ultimately, it’s about finding that sweet spot where investors can contribute their expertise and resources, while the company retains the freedom to chart its own course. When this balance is achieved, both the company and its investors stand to benefit from a successful and sustainable growth journey.

By Wandia Musyimi, Senior Executive Recruitment Consultant.