The Current Recruiting Process
Currently, the majority of top private equity firms source their candidates from a handful (~5) recruiting firms based in New York and these firms, in turn, source almost all of their candidates from top bank analyst classes (with a few consultants sprinkled in for good measure). Starting about 4 months into banking analysts first months on the job, they begin the antiquated process of scheduling interviews with the gate keeper recruiting firms, sneaking out of work and trekking around the city to make the rounds for 30-minute face-to-face interviews. Then, at some point later, one of the top PE funds decides to kick off their recruiting process; this “kick off” has been inching ever earlier (now happening ~9 months into an analysts job) as firms rush to start their process first, hoping to get a few hour head start before all their competition follows. Some firms will then complete their first and second round of interviews in the following 72 hours. Others will take slightly longer, but likely most PE jobs are filled by the end of March, ~14 months before any of those analysts will actually start at the firms from which they received offers.
The Problem With How It Works Now
The current process introduces a variety of problems which both firms and candidates would value solutions for:
First, the current “race for talent” that has been taking place for years means that firms are hiring much earlier than they would prefer to. There is important information about candidates that could be learned if the process were to start later – talent can change and grow significantly from 9 months into a job to 2 years into a job. Firms would prefer to all hire much closer to the actual start date so that they could have more perfect information about the candidates they were hiring, but because there is a lack of centralization, regulation and alignment of incentives, firms continue to push the process forward. In addition, later blooming candidates would benefit from a process that allowed all of their on-the-job accomplishments to be considered vs. mostly pre-work experience knowledge and accomplishments.
Second, the current process sources from too limited a talent pool, leaving potential top talent out of the process. Recruiting firms are only sourcing from investment banking backgrounds (with a few consultants sprinkled in for good measure) and there are too few minorities, including ethnic minorities and women, in the source pool. This limited talent pool arises from a few frictions:
- Traditional screening “metrics” used as a first funnel by the recruiting firms and candidates have been shown to not necessarily predict outcomes:
- College name and GPA
- SAT scores
- Pedigree of bank where candidate was an analyst
- Ranking in bank analyst class
- The gate keeper firms are themselves biased – they are mostly women, mostly white, mostly wealthy and are incentivized to find candidates that fit the PE firms’ existing candidate profiles since they get paid immediately on candidate acceptance.
- Referral networks are biased. Candidates currently find out about the PE industry and its recruiting pathway from friends who have done it. Since the PE ranks are mostly male, and mostly white, this unfortunately leaves many qualified talents out of the pool since they didn’t know the right baking internship to get, or the right recruiter to talk to.
Solutions a Technology Platform Could Provide
Ideally, the PE talent market should act as a two-sided market place connecting PE candidates to firms looking for talent. The tool should aim to cut out the recruiter function in the channel and monetize by capturing the value that these firms currently capture. The tool would ideally also create additional value by providing firms with access to more and better talent by expanding the initial candidate pools and providing more quantitative screening metrics proven to be tied to more successful outcomes.
- Expanding the pool: Young minority candidates currently have a much weaker network helping them to navigate the “path” to lucrative finance opportunities. Many internships are passed down (literally) from generation-to-generation in fraternities, sports teams, eating clubs, etc.. And unfortunately, once you don’t get the first internship, it is very hard in the current system to rejoin the PE path. By creating a more transparent, and public recruiting platform, could advertise to this currently under-educated group of qualified candidates and provide them with a network to access the advice that their peers already have.
- Changing the initial resume screen: Introduce a set of screening metrics which will actually predict success as an associate at the firm. These metrics should be based on tests (that can be done on the platform) and on skills/questions (that can also be asked through written answers or video answers) vs. pedigree. The measures should be tested over time to show correlation with candidate success at each individual firm. This change in screening method can hopefully help to remove some biases that are known to exist when just looking at resumes and provide firms with a way to find “diamonds in the rough” who either developed later and didn’t necessarily get into a great college, or get a great first job, or who didn’t have access to these opportunities by virtue of their upbringing or financial background.
- Attracting initial users: The value of the platform, initially, will likely be maximized by starting with a large pool of qualified pool of candidates and a handful of good firms, versus having a wide range of firms and only a few candidates. A strategy for attracting initial qualified users is to specifically target the minority candidates (women, black, Latino/a) mentioned earlier. This subset of users currently lacks the offline networks of their male counterparts, and thus may find an online community providing recruiting advice and guidance valuable. The initial platform could be a social network providing consumer-generated recruiting tips prior to signing up any firms to adopt the platform.
- Signing up firms: Once the platform had attracted an active user base of potential candidates, the underlying recruiting product could be marketed to a handful of top firms who would be willing to test the tool in order to gain access to a pool of candidates which they have currently had trouble reaching. Although firms will likely be unwilling to switch from their traditional sources of candidates in one fell swoop, proving initial success sourcing the first few candidates will be an important proof of concept.
- Winning the market: If firms did have success using the tool to source candidates that they would not have accessed through traditional channels, they may be encouraged to use the tool to replace the current “recruiter” function in the channel, in which case users would be forced to follow since it would be necessary to join to have access to the available jobs. The platform should charge the firms (and not the candidates) since they have the higher willingness to pay, it might go against the value of being more inclusive to charge candidates, and the firms already have demonstrated their ability to pay more traditional recruiters. Firms will require both analytics and sourcing value in order to stay with this platform versus another competitor platform. A broad, differentiated, high quality sourcing network will be a longer-term competitive advantage and the social community / advice / information piece will be critical to keep attracting high quality talent to the site.