Entrepreneurial experience gains traction among M&A professionals

News Analysis 21 July

Entrepreneurial experience gains traction among M&A professionals

Entrepreneurial experience is becoming increasingly important for M&A professionals looking to stand out from the crowd, experts said.  

Coming from the startup world is fast becoming a competitive advantage, Alberto Onetti, chairman of innovation advisors Mind the Bridge, said. It has 40 employees and all of them have significant exposure to the startup world, he added.

The firm’s clients are typically corporates, who want to connect with startups and sometimes buy them. “There can be a clash of cultures in deals with corporates and startups,” Onetti said, adding that advisors need to be” bilingual” when they speak to both sides of a deal.

The fast-changing nature of the tech world can be a problem for traditional advisory firms, Onetti said, adding that many of the most interesting startups can be off the radar. In some cases, the most interesting startups are developing business models that are difficult for outsiders to understand, he added.

The most important aspect for advisors who work with tech firms is to develop empathy for entrepreneurs, according to Kristin Tougias, chief people officer of GP Bullhound. Startup experience can be helpful, but it is not the only way of becoming a dealmaker, she said, adding that lead financial advisors to startups often feel as though they combine the roles of financial advisor, legal advisor, commercial strategist and even therapist.

There are now many career paths that combine entrepreneurial and advisory experience, Tougias said. Examples include people who become advisors after working with startups early in their careers; and advisors that eventually found their own technology businesses, she said.

"The startup experience helps build resilience, which is much needed in the advisory business," Tougias said. The crossover between the two worlds is likely to increase in future, she said, although it will stop short of defining successful dealmakers.

Meanwhile, many members of Alvarez & Marsal's Private Equity Performance Improvement team used to be chief operating officers (COOs), chief information officers (CIOs) or chief finance officers (CFOs), according to the team’s managing director Rénald Béjaoui.  

“It is a competitive advantage on the market as it allows us to quickly deep dive into the key value-creation levers and ensure they can be implemented.” Béjaoui said. One advantage is that it helps team members speak as equals to executives at private equity portfolio companies, he said.  

Even traditional investment banks are sitting up and taking notice. Identifying potential unicorns is a key challenge for mainstream advisors, one senior investment banker at a major institution said, adding that advisors with this remit can benefit from entrepreneurial experience.  

The conventional career track still involves aspiring advisors gaining some six months of work experience after completing their business education, this investment banker said. A high percentage of junior bankers on this track end up getting hired, he said.

Top-ranking business school Wharton says that 8.8% of its MBA students in the class of 2021 accepted jobs with startups, while 2.7% wanted to become self-employed or start a business. By contrast, financial services were the most popular choice of industry (35.2%), particularly investment banking and private equity (12.9% and 11.1%, respectively). This was closely followed by consulting (27.2%) and tech (18.6%).

Despite increasing interest in startup experience in the M&A world, research shows that former founders are less likely to receive callbacks from job applications.

Recruiters have expressed concern that founders who thrive in chaotic situations might struggle to adapt to a more structured environment and could be keen to jump back into the startup world as soon as they have a viable idea to test. The trick for former founders is to anticipate these concerns and leverage referrals, the researchers said.

DealTech covers innovation, new technology and emergent trends in M&A and private equity. If you would like to give us any feedback, please contact rupert.cocke@iongroup.com.

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