Coming off of banner years for fundraising in 2021, VC and PE firms were flush with cash. And while much of that dry powder has yet to be deployed, recent market activity – like public tech stock corrections and the almost 40% valuation cut Instacart took last month – and macroeconomic factors like surging inflation, raised interest rates, and the war in Ukraine have talent partners on watch. We spoke with our community members to learn how they’re responding to the shifting landscape and what they’re focusing on in the meantime. Lower valuations aren’t translating to lower comp expectations The VC and PE worlds are vastly different in many ways, but there’s one issue that’s affecting both, and it shows no signs of slowing down: Inflated compensation expectations. For the better part of two years, comp has continued to increase as outsized demand for talent pits companies against each other to try to land their executive hires. In this environment, both VC and PE talent partners are tracking comp on a regular basis and suggesting their portcos reevaluate comp at least twice per year, if not more. VC Some VC talent partners were expecting dips in comp expectations as tech stocks began sliding late last year and into 2022, but have seen no such decline. In fact, it’s been the opposite. In early-stage VC, our talent partner community has seen the tradeoff of less cash comp for more equity at Seed vs Series A all but disappear. Candidates evaluating Seed companies want the same cash comp they’d get at Series A with all of the upside that comes with the risk of Seed. To counter this, founders have had to get really good at attracting talent and selling the risk as a way to make a name for yourself. PE On the PE side, we’ve heard a rising challenge is maintaining compensation equity within the portfolio as every new hire is making more than the last. No one wants to deal with fallout from learning a newly-hired CPO is making more than their CEO who was hired a year ago, so talent partners are coming up with strategies to avoid these problems. First, asking about comp expectations earlier on in the hiring process can help weed out candidates whose expectations are completely out of line with what you’re able to offer. And since most executive candidates are passive and haven’t expressed interest in moving on from their current role, some talent partners have gotten creative with structuring offers to help lure them away, such as: Presenting candidates with multiple offers for the same role with varying levels of cash comp vs equityGuaranteeing bonusesSplitting bonuses up from annual to quarterly payouts to get closer to make it more like base comp when cash expectations are highNegotiating severance or double trigger acceleration VC is already seeing warning signs One thing is clear: VC is much more worried than PE. As IPOs slow and tech stocks slide, some are worried about less LP money being allocated to venture and resulting difficulties in fundraising. As a result, our community members have shared that they’re being much more cautionary with founders. Take the money now Even with high levels of VC dry powder, that capital is being deployed much slower than it was a few months ago. Founders are either going to have to maximize their current runway or do what it takes to get additional funding. But it’s not always that simple. Founders don’t like dilution, and even if they didn’t care, the bar in securing new funding is being raised. For instance, founders need to prove traction if they want to raise an A round, and it could get even tougher if markets continue their decline. With an uncertain future and potential difficulties in securing funding down the road, many are being advised to accept the current reality, bite the bullet, and raise right now if they can. As with many other things in life, building relationships can help. Some talent partners have started recommending that founders become more involved with their investment community so they’ll have an easier time securing funding if and when they need it. Pump the brakes on hiring If companies can’t raise as easily, then they’ll have to work with what they’ve got. With payroll being a major expense on any balance sheet, talent partners are now advising founders to be more discerning with their hiring plans. The past few months have seen a shift from trying to hire the best person for a role to evaluating if the role is even needed. If it can be done by a current employee for a while, sometimes that’s the best course of action. Then, when financing becomes easier to get, they can continue their previous hiring plans. PE sees blue skies ahead In contrast to their VC counterparts, the PE talent partners in our community are running full steam ahead. They haven’t seen any slowdowns in their hiring and aren’t expecting any major shake ups in their world any time soon. But that doesn’t mean nothing’s changed. This hyper-competitive environment has required some shifts in their role and approach. Less time, more impact Most talent partners aren’t running a ton of searches in-house in the first place, but that number has gone even lower in recent months. With so many portfolio companies and, generally, so few resources, focus has shifted from executing in-house to setting up search firms for success and managing those relationships. Search firms have seen an explosion in search volume and are having trouble keeping up with all of their search work themselves, so getting direction and guidance on profiles, points of differentiation, and keeping the search on track are more important than ever. Talent partners are also getting more comfortable with sharing responsibilities for candidate sourcing and network building across the firm. Investment teams have a lot of knowledge about their market — including talent — but it can be difficult to get this information out of them. By collaborating with the Talent team to build benches, they can help place A+ players at current or future portcos. The added benefit is that the Talent team will have more time for other impactful work, improving the Talent offering and thereby helping the Investment team better compete for deals. Sourcing great candidates We surveyed our talent partner community at the beginning of the year, and a major concern was whether the candidate pool would grow along with the expected growth in executive roles. There’s been a lot of talk about where to source great candidates and keep them warm as the wells begin to dry up. Here are a few things our community is trying: Using external data sources like Pitchbook and Capital IQ to look at recent exits, announcements of changes, and retirementsPublishing roles they need internally each month to put the expectation on investment team members to help identify great candidatesBuilding custom dashboards in Thrive to track and communicate with investment team members about who they met each month, who referred them, and how they were referred Looking ahead With so much still in flux, it’s hard to predict how things will look even a few months from now. But if recent history is any indication, there’s one thing that pretty much everyone can agree on: comp’s going to the moon.