Finding an MD  

 
Finding the right managing director or chief executive for a private equity deal isn’t like any ordinary recruiting task. Lack of time and the likely need for specialist sector knowledge increase the challenge.  
   
The time available for private equity investors to find a new MD or CEO inevitably varies. If as a Venture Capitalist you are at the early stage of considering investing in a business and you feel you need a management change at the top, you probably have more time than the VC on the edge of completion, or who is already invested, an suddenly finds a new MD is required to move the business on. Lack of time makes it highly unlikely that normal head-hunting firms will be able to fulfil the brief, if only because most of the candidates they source will have to complete a notice period before coming available.  
   
An alternative way to source your new MD is to work through all your own contacts – people who have sent CVs on spec, or people you have worked with successfully on similar deals in the past. You can also ring all your professional contacts – corporate financers, lawyers and the like – to ask if they know of anyone with the particular sector experience you require.  
   
In contrast conducting your own recruitment campaign by placing an advert in a national newspaper is unlikely to be the right solution. Again this is partly due to time pressure. An advert relating to a management buy-in (MBI) opportunity and equity stake will almost certainly generate a huge response – rarely less than a thousand replies. Wading through those is a huge job and a potentially frustrating one, sine many people will respond even if they don’t have the necessary experience and skills required.  
   
A better option is to use an organisation that specialises in recruiting for the private equity. There are a few recruiters who have specialist arms that focus on meeting the needs of VCs. Directorbank, for example, has specialised entirely in sourcing management for private equity deals for seven years. We focus on providing three types of people: chairman/non-executive director, chief executives and finance directors. We currently have around 2,330 people registered, whose details are available in seconds to our subscribers via the Internet.  
   
These people can also provide invaluable insights into sectors and businesses, and the potential strategic options open to them. In fact the database is used extensively as a due diligence tool by subscribers, not just as a pool for finding new management members.   
   
Every potential chief executive, chairman or financial director on the Directorbank database is vetted to some extent. We aim to include people who have held main board positions, experienced periods of rapid growth in their companies and demonstrated strong leadership. Each person is asked to warrant that the achievements they claim are indeed their own.  
   
The skills and experience that future MBI candidates have are crucial in terms of making the right appointment. For example, when it comes to sector experience, most venture capitalists say they like to find as close match as possible. We’re not talking sub-sector experience but sub-sub-sector experience. It isn’t enough to have been a chief executive of another retail business. Was it in garden products or high street fashion?  
   
Of individuals registered with Directorbank, a majority have prior experience of a private equity environment. A manager who has done it before is always in high demand. If you find someone who has been in a highly leveraged situation, who has been given the venture capitalists what they want and successfully exited, then nine times out of ten they will be able to do it again. Someone who has done it three times is a Rolls-Royce candidate.  
   
While success is attractive, this doesn’t mean that someone who has experienced failure at some point or has had to overcome adversity will be ruled out. A chairman of five private equity businesses recently told me that where he finds people who have had a difficult patch in their career and overcome it successfully, he gives them extra points. There is no doubt that some people are successful just because they are in the right place at the right time. People who have seen adversity and dealt with it can be attractive to company backers things can get in highly leveraged situations.  
   
Strong leadership is also essential. Private equity investors are not bothered about an MD being nicer, or whether they fire the whole team, as long as the person can lead and deliver profitable business outcome.  
   
Similarly, investors look for people who aren’t driven to succeed. The MDs and CEOs who are really successful are almost always driven primarily by money. They may run major plcs, but they are happy to take a salary cut and move into a smaller business in return for equity because they know this gives them the chance to become a millionaire or multimillionaire. Someone who doesn’t care where they go and what car they drive, as long as they have an equity stake in a venture capital backed deal, is most likely to succeed.