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Private equity, venture capital, and executive search have always been intertwined at the intersection of value creation and human capital. Indeed, human capital is the most valuable asset of any organization: Without a team of talented individuals working in concert, it is difficult for any startup to succeed, even if it has a killer product or service. With such a team, however, the startup substantially increases its chances of business success.

That said, a leadership dilemma is growing at private equity and venture capital portfolio companies. According to a report from Hunt Scanlon, a persistent global talent shortage across the C-suite is hitting nearly every industry hard. As Hunt Scanlon CEO Scott A. Scanlon says in the report, “Leadership is the new bottom line for private equity operating executives seeking top talent for their portfolio businesses. The [private equity] sector is in the crosshairs of a widening war for leadership.”

Those companies that are able to access this talent, however, have a key advantage against their competitors. This is where search firms come in: They help private equity firms and their portfolio companies recruit the talent they need at this critical juncture. Companies that continue to rely on their own job ads to attract leadership talent are needlessly limiting their reach in an already limited market.

The C-suite shortage only further cements the connection between private equity, venture capital, and recruiting firms. While the future is always difficult to predict, we can expect to see more private equity firms leveraging recruiting firms in the coming years — or even acquiring or building their own executive search offerings. We may even start to see executive search firms launch their own venture capital funds.

A New Paradigm

Private equity professionals have recognized that they need to allocate more time and resources to talent acquisition. They must continuously analyze how human capital is being deployed and whether it is creating the most value for their portfolio companies. Because of this, the talent chief has become one of the fastest-growing specialist roles in the private equity space.

More private equity firms are hiring operating professionals to help portfolio companies identify top talent and oversee an increasingly complex human capital environment. To do this, they are relying on executive search firms to find world-class candidates who can take on this challenging talent chief role.

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We have seen this play out in the past several months. As just one example, executive search firm Greenwich Harbor Partners recently placed the chief human capital officer of differentiated private equity investor Capital Partners. A placement like this can be a game-changer for the private equity firm’s portfolio companies, as it will become easier to identify stellar talent for each company’s individual needs.

Important to this discussion is the question of fees. Private equity firms don’t have too many issues paying to hire world-class executive search firms, but startups that don’t have private-equity backers may not be as well positioned. Because of this, executive search firms have been increasingly open to taking on equity and stock in lieu of fees. It is often a win-win: The startup gains access to quality talent at a difficult time, and lucky executive search firms are rewarded with equity that can grow to hundreds of millions of dollars.

Blurring the Boundaries

Not only are private equity firms turning to third-party executive search firms — many are even acquiring or building their own executive recruiting functions. These internal executive recruiters work on vacancies at the firm’s portfolio companies, ensuring the right talent is placed to maximize the firm’s return on investment.

For example, Diversified Search, which is backed by private equity firm ShoreView Industries, recently acquired nonprofit and higher education search firm Koya Leadership Partners. Private equity firms Kayne Anderson Capital Advisors and ROCA Partners invested $25 million in executive search firm Riviera Partners, while the Carlyle Group took a majority stake in recruitment tech company HireVue. Whether private equity firms are focused on hiring stellar executive recruiters or leveraging technology that makes it easier to identify stellar candidates, this trend will undoubtedly continue.

On the flip side, executive search firms are also starting to dip their toes into the venture capital industry. My company, Cowen Partners Executive Search, recently announced it would be launching its own venture fund this year. The fund will primarily write seed investment checks between $5,000 and $25,000 and target niche markets, community-based businesses, and minority entrepreneurs. We predict this could be the beginning of a broader trend in executive search firms leveraging their own talent to fund exciting growth companies.

While private equity, startups, and executive search firms may be tied at the hip, we are entering a new world where all of these actors are shifting their roles. There isn’t increased competition per se. Rather, intelligent actors are experimenting with new ways of getting the most out of their talent.

Whether you work for a private equity firm, startup, or executive search firm, or you simply enjoy watching this space, the landscape will no doubt offer a fascinating view in the next few years. The one thing we can predict with extreme confidence? Talent will continue to be one of the most — if not the most — critical assets for any organization.

Shawn Cole is president and founding partner of Cowen Partners.

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