In today’s hyper-competitive landscape, staying ahead of the curve requires constant innovation and strategic agility. Private equity (PE) and venture capital (VC) firms have evolved from focusing on just the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) growth to also being concerned with top-line growth.
PE/VC investors are also realizing their increasing role in the business of talent management. In the high-stakes world of private equity (PE) and venture capital (VC), a single decision by either deal team or operating team, can make or break a multi-million-dollar opportunity. Yet, a concerning trend emerges. New research by Kingsley Gate, hosted in conjunction with FT Longitude, showed 30% of senior PE/VC executives have never had an explicit discussion about decision making before joining their firm – 5 percentage points higher than their global cross-sector peers.
This research finding is surprising given decision making is absolutely fundamental to senior executives’ remit. It underscores the lack of clarity around decision making in the executive hiring process and the impact it can have on the operating executives at the portfolio company level as well as the investors, ultimately hindering both talent retention and overall company performance.
The talent pool in private equity and venture capital is fiercely competitive. Top performers are not just looking for lucrative compensation packages; they seek stimulating environments that foster growth and leverage their expertise. In this context, decision-making approaches emerge as a crucial, yet often overlooked, factor influencing both talent acquisition and retention.
In this article, we will explore the findings from our recent research on the importance of decision making in executive roles in private markets.
Missed Opportunities
A Bain & Company study found if you want to outstrip your competitors, your company has to make better decisions than they do, make them faster and execute them more effectively. Investors constantly evaluate a pipeline of potential deals and missing the window of opportunity can be catastrophic.
Protracted decision making, where approvals drag on and internal debates stall progress, can be the difference between securing a lucrative deal and watching it slip away to a more agile competitor.
Operational Bottlenecks
Beyond the missed opportunities in deal flow, indecisive business environments create operational gridlock within PE/VC firms. A key factor contributing to this is the lack of clarity around who decides what.
This ambiguity can be particularly detrimental for PE/VCs, where time-sensitive deals often hinge on swift execution. Additionally, when employees are unclear about decision-making authority, they become hesitant to take initiative. This can lead to frustration and undermines collaboration and ownership, a crucial element for success in PE/VC firms where diverse perspectives and teamwork are essential for successful deal evaluation and portfolio management.
Disengaged Talent
Senior executives in PE/VC firms are driven by a desire for ownership and the ability to make a significant impact. Research by Gallup indicates that employees who are highly engaged in decision making are 6x more likely to be engaged at work overall.
For PE/VC firms, the consequences of disengaged talent can be dire. Kingsley Gate research shows that that 73% of senior executives within PE/VCs have either resigned (33%) or considered resigning (40%) from a job because they were not sufficiently empowered or supported to make decisions.
Such a disengaged sense of ownership and impact can result in a high turnover cost for the firm as well as a decrease in the overall company performance.
The above findings highlight the need for organizations to prioritize discussions about decision making during the hiring process and throughout an executive’s tenure. By understanding an executive’s decision-making style as well as the organization’s decision environment, companies can increase the likelihood of a successful hire and foster a culture of effective decision making.
“Instead of simply portraying a corporation’s decision-making culture using vague adjectives like “data-driven” or “transparent” during an interview, aim to depict the company’s current decision environment candidly, and then compare that with where the organization wants to go.
For example, an energy company we know offered this flavor of self-awareness during an interview:
“In our highly regulated industry, we need and want to make decisions in a deliberate, measured way. We sometimes move slowly or involve a high number of people so that we can accurately weigh risks and trade-offs. Going forward, we believe that having one single accountable party for every decision will improve our processes and speed without sacrificing thoroughness.”
Creating a strong decision environment requires reflection, self-awareness, and a commitment to action. But, assessing your decision-making approach should be an ongoing process, as the decision environment may need to evolve as the company grows and faces new challenges. Our research found that only 33% of senior PE/VC executives reported that their personal style of decision making aligned with that of their organizations’ decision environment.
By prioritizing culture and decision making, companies can increase employee satisfaction, productivity, and overall business success. This includes creating a language and dialogue around decision making to ensure that potential candidates and existing employees have a clear understanding of the decision environment.
