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Thrive is set up by Funding London, a venture capital company bridging the finance gap for early stage businesses based in London. With over a decade’s experience in supporting the startups of London through a variety of funding vehicles, Funding London sensed a need to illuminate the ever-evolving scenario of London’s early stage businesses.

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Early Stage Market · 31 January '17

Early Stage Challenges: Chapter Two

The Recruitment Puzzle

Why is Recruitment important?

People are the lifeline of organisations, the creators and enablers of growth across every sector around the world. This has never been more encompassing than it is today for technology companies. A simple look at the tech giants that make our morning papers reveals skyrocketing valuations per employee, reaching $15m for Uber and $48m for Snapchat.

Paradoxically, while there is a consensus on the value individuals add to organisations, recruitment, i.e. the process through which potential candidates are engaged, is most of the time perceived by early stage companies as a mundane, rather expensive, exercise that is lightly undertaken. In some cases, the realisation that recruitment is indeed a challenging process arrives several weeks and, sometimes, months later.

Over 30% of LCIF portfolio companies are engaged in attracting skilled professionals across a spectrum of roles, making recruitment one of key areas of interest moving forward. At best, recruiting is unexciting, and at worst, it can mean departing from the business plan, shortening the runway as interim professionals are often more expensive to appoint. Nonetheless, our portfolio companies have successfully experimented with the spectrum of tools available, from professional networks to referral schemes, to job boards and job fairs, and even projects with recruitment consultancies.

Why is recruitment particularly important in 2017?

The post-referendum landscape for recruitment in the UK is changing rapidly, while generating polarised reactions, with the positive effect being felt by a number of professions, in particular, education (up 28%), accountancy (up 24%), construction and property (up 21%). Leaving around 53% of UK tech professionals to take the view that Brexit will not negatively impact their career plans. The positivity is diluted by a 17% minority who believes that the worst-case scenario is imminent, and by a third of employers expecting post-Brexit recruitment to pose a significant challenge in 2017.

As the process of defining the terms of UK: EU breakup is just about to commence, it will be difficult to predict and assess the impact of new policies. Our portfolio companies should explore the opportunity to review their strategy, reposition and distinguish themselves in the competitive landscape.

The developments in the technology sector and the current political context will affect early stage companies disproportionately, compared to more established entities, as multiple trends and factors will change the system’s dynamics.

Employer Branding

The prediction is that over 59% of the large corporate will invest even more in employer branding to attract the best talent in the market (Global Recruiting Trends Report 2016 by LinkedIn). Early stage and growth companies will have a financial constraint developing sophisticated campaigns across a variety of markets, internal and international.

High Demand Roles

It a sector-wide acceptance that high demand talent pools across various verticals are shrinking. This will lead early stage companies to work even harder to identifying candidates and partners to meet an ever-growing demand for technical skill sets.

Compensation

Compensation packages for technical professions are increasing annually, as data scientists, engineers and developers can demand better pay. In the UK, the gap for such professions is estimated at somewhere between 50-60,000 and growing. Consequently, early stage companies will find it particularly challenging to successfully match candidate expectations.

Competition

Competition for technical skilled roles is increasing. Large tech giants such as Google and Facebook and early stage enterprises are clashing over the same limited number of graduates and experienced professionals in the UK market.

Immigration Policy in the UK

The introduction of special visa regimes can undermine even further the ability of early-stage companies to attract relevant talent in a larger marketplace, from Europe or globally. The early days of a political process that will most likely unfold and materialise over the following decade, leads to many unknown variables.

Is the new tech visa system going to encourage the inflow of high skilled professionals, enabling business growth, or similar to the Canada, US and Australia be used a system for controlling the internal market?

Are internal market tests going to accompany the tech visa proposals or will the UKBA set a quota such as that for the Tier 2 Visas?

It is challenging to envisage a post-implementation scenario in which the tech visa system will not restrict or even prohibit early stage enterprises from recruiting outside the UK.

Finally, inability to use the short term to rethink the strategy moving forward could lead to cancelled or postponed projects, extensive use of expensive consultants, shortened runways, a dependency of investment capital instead of revenues, inability to deliver set milestones, and, finally, deterring growth investors.

No area of a company’s activity is more important and challenging than recruiting the right candidates for early stage companies to overcome, as human capital is the most important predictor of their success.

How can LCIF better manage the process?

Early stage companies will have to be more ingenious in developing new innovative ways of approaching their potential candidates and better understand their value proposition.

  • Companies should address the discrepancy between the role required and the budget available, and develop their recruitment strategies with the large context in mind.
  • Engaging with candidates has never been more vital than it is today. Early stage companies offer a job, and also a lifestyle, a common goal, an extended family and a healthy culture.
  • The salary is not always the determinant factor, there could be other benefits that could attract the right candidates, including share options.
  • Leading a business is challenging, long days, endless meetings, actual work and, finally, conducting interviews, all in the space of a working day. It is not surprising that founders’ presentation can in itself be a deterrent to potential candidates. Planning interviews on a day that is less stressful, allocate a buffer half an hour could improve candidates experience.
  • There are several new tech recruitment solutions that can reduce the cost of recruiting, from Hired, to our portfolio’s Hackajob which seeks to improve the experience while cutting costs.
  • In some cases, it is cheaper to appoint a recruitment consultancy to support the process than to allocate internal resources. Understanding the underlining real cost of a decision to work with a consultancy is vital.

How is LCIF supporting the portfolio companies?

Plans are in motion to create a shared distribution network to support our companies outreach the right candidates. We are actively involved in discussions with other organisations to understand the space and solutions available, with the view of creating workshops to empower companies with the knowledge required.