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The startup game has changed, and today’s growth companies are raising more than ever. According to Fundz, the average round size for a Series A in 2020 was $15.7 million. TechCrunch notes that just five years ago, that number was $11.8 million, and a little over a decade ago, only $5.1 million. The same goes for valuations; according to Crunchbase, Series A companies are now seeing $60 to $80 million valuations, with the target endgame being a $1 billion-plus exit.
The goal is more — more cash, more growth and more multiples. If managed improperly, however, more will not lead to better. While the average check size has grown among venture capital (VC) firms, the success rate of their portfolio companies hasn’t. Harvard Business School notes that in spite of the increased cash infusion, 75% of VC-backed startups still fail.
Failure can be attributed to a variety of unforeseen or unavoidable factors, often coming from external circumstances out of our control. However, as leaders and investors, we must ask ourselves, What are those things in my company that I can control, especially at critical moments of growth? And with that question comes a look inward into the construct of the organization itself. One of the most often overlooked but integral components of this is human capital.
Related: Going Social: Why Businesses Must Invest More in Human Capital
Founders Circle Capital surveyed 25 hyper-growth companies and found that one in four employees leave in a given year — that’s a 25% turnover rate and more than double overall industry attrition. One can only imagine the impact that repeatedly hiring, training and retraining can have on an innovation-led company trying to grow at a lasting warp speed. It simply isn’t sustainable.
The bottom line is that when startups and their investors partner to raise capital and fund scale, there is an opportunity to take a look at their existing human capital structure and plan a more purposeful road map to support its growth. Here are five keys to managing human capital through hyper-growth.
1. Tie your internal shoelaces
Before thinking about the “what next” understand the “what now” For example, have you identified the existing team members who are integral to your company’s future success? Have you put together growth-supportive compensation packages to ensure their continued commitment?
2. Hire an internal recruiting team
Investors expect their capital to be put to work expediently and efficiently. With that, comes the need for rapid but effective hiring. However, the support to manage such hiring is often an afterthought, a mad scramble for resources once an event is complete. Prior to a fundraise, transaction or growth launch, it is important to put the recruitment team in place and set the foundation for its human capital alignment.
3. Create a new company archetype
As your company grows, its core may continue, but its characteristics will inevitably change. It’s like a baby turning into a toddler. It’s so important that as your company continues through key phases of its growth life cycle, leadership defines what it wants post-growth to look like, how it wants to behave and what it wants to be known for. In short, the company needs to create a new post-growth archetype.
4. Pre-allocate a percentage of your fundraise for change management integration and training
As the company turns on the growth fire hose and starts running a flowing stream of investment cash, it will inevitably take on a new and more mature persona. Companies know that with growth comes growing pains, and it is within their power to plan accordingly. Change management is necessary, but many times, it comes into play only at the point when dysfunction arises. Often, that can be too late.
5. Define your growth rubric
Successful growth isn’t just about revenue, eyeballs or market share. So, create a comprehensive growth rubric — the key components that leadership will continuously measure the company against to define successful progress. This growth rubric can be used before, during and after transition phases, benchmarking against individual success metrics while course-correcting where needed.
Related: 4 Ways the Pandemic Changed Our Approach to Human Capital
The growth company of today has a unique opportunity to develop a more self-aware plan. As part of the securing of capital, it is up to the company and its investors to develop a comprehensive strategy for healthy scale. Every VC has investors to appease, and their reports are chock-full of metrics such as revenue, compound annual growth rate (CAGR) and customer acquisition. As leaders, we have an opportunity to also hold ourselves accountable on internal metrics such as hiring efficiency, retention rate, employee satisfaction and rate of internal promotion. Human capital is the engine under the flashy hood, and it is ultimately what will make the fast car last throughout the growth journey.