Human Resources: Hiring for growth

Flea market app Carousell is positioned as a convenient mobile alternative to the often tedious process of using online forums and classified listing sites to buy and sell items such as second-hand books and clothing. It is a simple but potentially revolutionary solution for Southeast Asia, where so many people rely on mobile phones as a primary means of accessing the internet. 

Investors were keen to get on board and last November, within 18 months of the Singapore-based team first demonstrating their app, initial funding was secured. Japanese e-commerce giant Rakuten led a S$1 million ($800,000) round alongside Golden Gate Ventures, 500 Startups and handful of angel investors. The capital was intended to help Carousell further develop its product by adding in-app payment options to enable credit card transactions and introducing premium features to open up new revenue streams.

The company is now poised for its second growth spurt with a Series A round of funding, which has been penciled in for next year. However, this time it is not just capital that is required - Carousell needs another vital resource: people.
"It is the number one area where start-ups ask for our help," says Vinnie Lauria, a partner with Golden Gate Venture in Singapore. "Once they put the investment in the bank, the very next question is: ‘These are the people we want to hire with this money, can you help us?'"

The early stages of a company's development are often precarious. With so few resources to spare, one wrong move can be fatal to a fledging business. That is why hiring the right people - either as leaders to shepherd a business to success or as members of a steadfast supporting cast - is one of the most daunting of tasks. For many start-ups, counsel offered by their investors can be invaluable.

Scaling up

The point at which a start-up needs increase its headcount, and by how many, depends on the nature of the business. For example, an e-commerce play will require people to cover sales, customer service, back office functions and front-end functions. One the other hand, a mobile app developer, which might not rely on hiring as much staff to run the business, could be sustained by just a handful of recruits, such as a designer, a back-end engineer and a front-end engineer.

According to Golden Gate's Lauria, most tech start-ups typically need to scale up comes around the time of its first institutional round, which falls approximately nine months to a year after the initial seed round. "If the start-up is going well and they are on their own trajectory, they will usually want to step it up a notch. That would mean hiring more senior people, or country managers if they want to go into other regions," he says.

In many cases, however, start-ups will not have the requisite network, especially if they are expanding overseas, and so they will require assistance in identifying right people. The job is made even harder by the fact that they have fewer external resources at their disposal - such as recruitment firms - than more mature businesses. As a result, the first port of call for a start-up in hiring mode is the start-up community.

"Headhunters are generally out of the reach of most start-ups," says Sean O'Sullivan, managing director with SOS Ventures and co-founder of China-based seed investments platforms Chinaccelerator and Haxlr8r. "If start-ups are well funded it is possible to use a headhunter for a critical role but for most it is going through the network of people they know."

These networks tend to be rooted in academia - sometime formal university alumni networks - social groups, referrals by investors or former work connections. While there are cases of start-ups tapping all four of these channels, the last tends to feature most prominently. Much as the "PayPal mafia" - named for the start-up money-transfer service sold to eBay in 2002 and whose alumni have since set up, joined, merged or invested in a vast array of VC firms and start-ups - have fueled activity in Silicon Valley, Asia's start-up community comprises of numerous serial entrepreneurs.who have built uo invaluable networks for sourcing talent,
Bernard Moon, co-founder of South Korean accelerator SparkLabs, explains that the connections early-stage investors can provide are essential helping start-ups gain access to these networks.

He cites KnowRE, a cloud-based education platform, as an example. The company raised $400,000 in seed funding in 2012 followed by a $1.4 million Series A round led by Softbank Venture in early 2013. SparkLabs has been instrumental in helping KnowRE build out its team, helping to source and then interview a candidate for a sales and marketing position. The successful applicant came from SparkLabs' own network of people it has worked with at various start-ups.

While old school ties are one way of reaching out to talented individuals, Moon argues that professional networks are more important because there is greater familiarity with their abilities in a work context. "If you went to school with them it doesn't mean much," he says. "But if they worked at Yahoo or Google, you know their reputation and their credibility."

However, venture capital firms offer more than just networks. There is also a mentoring function that guides founders through the hiring and firing process. Many start-ups looking to achieve scale will be recruiting staff on a formal basis for the first time and a failure to grasp the fundamentals could see strong candidates go elsewhere. Even defining a clear role and writing up a job description can be a new experience for some founders, but it is not just hiring that is the issue.

"On the flip side, one of our team had to let someone go early on, and we needed to coach them through that process," says Golden Gate's Lauria. The start-up in question had chosen to hire an experienced manager from a large firm to fill a senior role quite early on, but ran into problems when there was a mismatch in expectations.

"The candidate had come from a more corporate background and was definitely experienced, but as soon as he started working, they found they weren't getting great results," Lauria explains. "So they ended up hiring someone right out of college. When it became clear junior person was performing better, they decided to let the first guy go."

This particular case highlights the challenges involved in finding a person who is the right fit for a tightly knit founding team who have known each other for a number of years. Cameron Priest is the CEO of Trade Gecko, a Singapore-based software-as-a-service (SaaS) e-commerce platform that has so far raised $1.2 million in venture funding. The company is currently in the process of expanding into new markets in the region and building a team capable of taking the business to the next level.Priest describes the recruitment process as one of continuous trial and error.

"We made a couple a hires that were not a good fit and we learnt quite quickly what we were looking for," he says. "It sounds cheesy but sometimes we have to ask ourselves, ‘Is this person a gecko?' It is important that we know what a ‘gecko' is; it is part of our internal culture."

Even if one finds a candidate with the requisite experience who fits in well with the rest of the team, the market is still very competitive. Finding the right compensation package becomes the next hurdle. While most candidates agree to join start-ups in the knowledge they will be taking a pay cut, it can still be a challenge, especially for very early-stage companies that have less capital to play with.

Appealing packages

Trade Gecko's Priest explains that the advantage of being in Asia is that talent is more affordable compared to the US or Europe, with the industry standard for a senior role in the region of $8,000 to $10,000 a month. But this can be a hard sell when larger companies may pay $12,000 to $15,000 for a similar role. Traditionally, the lower basic pay offered by start-ups are counterbalanced by equity upside woven into the overall package.

To the extent there is a global industry norm, it sees the first, most senior hires receive 1-3% in equity. Once a start-up goes beyond 25 people, new employees get one tenth of a percentage point. In line with this approach, start-ups are advised to put aside around 15% of equity for employee stock options. However, while this practice is widely accepted in places like the Us and Europe, the idea is not yet universally accepted in Asia.

"The conversation is not as mature here in Southeast Asia as it might be in the US. A qualified senior person in the US would be very interested in talking cash and equity, and will understand the trade-off between the two," says Golden Gate's Lauria. "But here the practice is still pretty nascent, so you don't have that deeper level of discussion."

This can in part be explained by the fact that the region has not seen as many huge exits, so fewer people fully understand what it means to have equity in a start-up. As a result, it is up to the founder to educate employees on the benefits of equity. "The way I explain it to my team is that if we do okay, it is a car; if we do well, it's a house; and if we smash it out of the park, you are going to be very comfortable," says Priest of Trade Gecko.

Equity options are also an issue in China, and not only for cultural reasons. Frank Yu, who is from the US, co-founded Chinese social gaming start-up Kwestr. He does not offer stock options to Chinese employees, not least because of the complex legal restrictions surrounding Chinese ownership of un-listed, foreign-owned companies. Another factor is a cultural preference for cash.

"A lot of compensation is made through cash or cash bonuses upon completion of certain projects," explains Yu. "Cash is seen as more stable and safer. This is particularly true of younger employees who want to save up for something, such as a house."

In a competitive environment, however, even an attractive pay packet with equity upside might not be enough to secure top-level talent. As such, some industry participants stress the importance of start-ups being able to appeal to a potential candidate on an emotional level. If a candidate buys into the founding members' vision for a company, he or she may be willing to take the risk. After all, the equity upside is only worth as much as the business' future prospects.

"One of the things we emphasize when we are competing for someone who has been offered a job at a bigger company is that we have a really big story. We say a $100 million exit would a disappointment for us, the plan is to be the next Salesforce," says Trade Gecko's Priest. "It is about being ambitious, having a big idea and having them believe it."

SparkLabs' Moon reiterates this point, noting that the ability to attract the best people depends on a founder selling a growth story. "The hiring process can be a pure interview or it can be a pitch," he says. "It depends on the whether the person is strong candidate."

Poaching talent

Inevitably, start-ups find themselves competing against each other for hires. However, few VCs have reported any incidences of fierce competition between portfolio companies. Kwestr's Yu, for one, makes the distinction between the hiring norms in the Chinese start-up community versus the expatriate community. While Chinese companies can be more cutthroat about poaching talent, foreign founders are smaller in number and so less likely to experience the same degree of aggressive competition.

"It is still happens but it is not as ruthless as it is in the local community," says Yu. "For foreign teams, there is no more than two degrees of separation between any two people."

Industry participants in other markets claim that poaching other people's talent is a common occurrence. Trade Gecko went to great lengths to hire its country manager for the Philippines. The process began with a search for a strong company that bore some similarities to Trade Gecko, in this case back office support platform TaskUs. It then started headhunting at a senior level, eventually settling on Jed Cirpirano. who worked as director of operation with TaskUs since the company's founding.

"We emailed four times before he responded and at first he said he wasn't interested," explains Priest. "So we got our head of sales to call him and try to sell him on the idea. We explained our vision and how we wanted for him to take a leading role."

Asian start-ups looking to draw from a limited talent pool might want take an even more aggressive approach. One practice that came to prominence in Silicon Valley and has now made it way to Asia is the "acqui-hire," which involves acquiring a company simply as a means of recruiting its founders - without necessarily having an interest in continuing its product or service.

This strategy has traditionally involved well established internet companies. Not only is it a good way to access proven talent but it also provides a relatively favorable exit route for founders who may be struggling to raise a subsequent round of funding. Kwestr's Yu explains that one of his earlier ventures - game developer Shouji Mobile Entertainment - was one such company, having been acquired by internet giant Tencent Holdings.

Acqui-hires are increasingly sought by start-ups as well as established players, although this has yet to take hold in Asia. Some wonder whether it might become more common as the battle for talent intensifies. But at the same time, as venture capital matures in the region and more start-ups emerge, there will be a larger number of experienced professionals available for hire. And as investors complete exits, potential recruits' appetite for risk will grow.

"I get a number of people who are pretty high-level reaching out with the hope of getting something like a COO position with a start-up," says Golden Gate's Lauria. "I recently met a guy on airplane who has a senior position with a Silicon Valley firm but is based in Asia. When I told him I was a VC, he gave me his card and said, ‘This firm is a bit too corporate for me, if anything comes up drop me an email.'"

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• Topics
• People
• Early-stage
• Greater China
• Southeast Asia
• North Asia
• Venture
• Golden Gate Ventures
• Appointments
• Singapore
• South Korea
• China