Recruiting the Best and the Brightest

1. Recruiting the Best and the Brightest Ted Martin, President and Founder Martin Partners, L.L.C.

2. Agenda • Introduction • The Landscape Today • Who are the Stars? • How do you Recruit the Stars? • How do you Retain the Stars? • Case Studies • Questions & Answers

3. Martin PartnersIntroduction • Follow the private equity community • Specialize in the New Economy • Recruit Stars • Build Senior Management teams • Worked for over 130 start-ups

4. The Landscape Today • Stars in corporate America today are cautious • Experience is back “in” • “3 MBA’s and a Business Plan” is dead • It’s as robust as ever (if you build a real business) • VC’s have been burned

5. Pre-NASDAQ CrashJanuary 2000 Quote from a prominent San Francisco VC: “I just faxed a term sheet to a company I know nothing about and haven’t met anyone, but the Big Boys are in and we’re getting in, too!”

6. Post-NASDAQ CrashNovember 2000 “Anyone who gets funded in this market today probably has a great business and will make it.” Quote from the same prominent San Francisco VC:

7. Evolution of Compensation • Pre-Internet Base + Bonus + Equity 1 2 3 • Internet Base + Equity 2 1 • Post NASDAQ Crash Base + Bonus + Equity 1 1 1

8. The Landscape TodayVC Funding SILICON HOT • ASP’s • Optical Networking • Always-On Internet • Wireless Infrastructure • Internet Stability • Application Services Software • Broadband • Genomics SILICON LUKEWARM • B2C Content Site • B2B Vertical Exchange • Internet Consulting Firm • Econets

9. The Importance of Management Teams Lukewarm Space Hot Space Mediocre Management Team Star Management Team

10. Business Plan Best Practices • Typical VC spends 5-10 seconds per plan • Should answer the following questions on first page: • What is the opportunity? • How will it be captured? • Who will execute it? • What is the “hook”/unique differentiator? • The Elevator Pitch

11. The Recruiting Elevator Pitch …is the single most compelling, succinct explanation of your company and why someone else should be interested in your company. • Less than 2 minutes long • Has a “hook” • Entire Company is well-versed

12. “Tell me more.” Desired Reactions • “That sounds unique.” • “That sounds innovative.” • “What a great idea.” • “Call me tonight, here’s my cell phone number.” • “Are you funded?” • “Where do I sign?” • “Can I please take a pay cut to come on board?”

13. Undesired Reactions “Aren’t there already 100 of these out there?” • “Didn’t one of those just go under?” • “So, how do you make money?” • “Isn’t that a totally dead category?” • “Whoa…start over.” • “Who would ever buy that?” • “I’m not following you.” • “That sounds exactly like xyz.com.” • “Here’s my floor, gotta go!”

14. The CEO’s Objective Build the best Senior Management Team possible in the shortest amount of time. Quality + Speed = Highest Probability of Success

15. Great PeopleThe undisputed, most important factor to the success of your company… Assuming you have: • Funding • Strong BaM partner • The right strategic alliances • A hot space • Path to profitability

16. Strong Teams are Key to Success Reasons for Business Plan Rejection – Biotechnology Ventures Weak management team Not market-driven Long time frame Money commitment too large Unpatentability Inadequate technical expertise Other Source: Prairiefire Knowledge Event #1 – How to Build a Business Plan

17. Who Are the Stars? • Everyone says he/she is great, whether they personally like the individual or not (“player”, “keeper,” “total stud”, “superstar”) • NO major decision occurs in the company without their input • They get counter-offered when they try to resign • Direct reports want to follow them to their new company

18. The CEO is a passionate entrepreneur The VC Dream Team • President/COO is an experienced GM operator • CFO has IPO and/or deal experience • CTO has built and managed a development team • CMO has branded a company and its valuation • CSO has built a sales pipeline and a sales team • CBDO has formed partnerships and strategic alliances

19. Building the VC Dream Team • “Chiefs” have experience (learned on someone else’s nickel.) • Ideal hire was trained at a large/medium sized firm, made a move to entrepreneurial land and after they’ve succeeded in that environment, now YOU hire them. • Hire relevant industry and function experience at the “Chief” level.

20. Ideal VC “Chief” Profile • A Player • A referenced Star • Pedigree in education and training • F500 Big Name Company experience behind entrepreneurial experience • “AA” - Analyst Appeal

21. Risk: Doesn’t get it Risk: Takes too long to learn new industry Risk: Peter Principle Risk: Not meant for start-up Hiring Risks • First move from large corporate to start-up pace • A Star in a non-related industry • Hasn’t done the job before, a career step up • Failed in previous entreprenurial companies but was a star in earlier large corporate

22. BaM Experiencevs.Start-up Experience How different is it? WILDLY DIFFERENT

23. Start-Up Skills • Creates and drives process versus facilitates process • Flexible/Adaptable • Team player • Accountable • Intelligent/Street Smart • Innovative/Creative • Moves fast (hair on fire) • Multi-tasking across functions • Sees the Big Picture (forest and trees) • Makes the commitment (hours, priority) • Passionate about the business • Integrity/Honesty

24. Finding a Star 1. Exhaust your own personal networks • Board members, VC’s, bankers, lawyers, consultants, friends • Networking Events (First Tuesday, Orbis, etc.) • Professional Associations (CSA) 2. Post internet job descriptions and screen online resumes • i-Street Reporter, The May Report, ePrairie, MBA sites, etc. • JobsOnline.com, Monster.com, Headhunter.com, etc. 3. Contingency recruiters 4. Retained search firm

25. Retained Search Firm Fees • One-third of first year cash compensation (base & bonus), including sign-on or guaranteed bonus. • Bill two or three retainers during the search. • Warrants in addition to cash fee or in place of part of cash fee.

26. Market Demand for Retained Firms • We know where the Stars are • We know how to attract the Stars • Quality and speed = Search Management • Closing/negotiation skills • Option: Go straight to the retained firms

27. How Does Martin Partners Findthe Best and Brightest? • References - (offline, not from candidate) • We don’t find stars posting their resumes or hitting online job boards (yet). • Motivation to leave, motivation to join • References - (are they helping a friend?) • References - (if smoke, then fire)

28. Courting a Star • Every Star has multiple calls, multiple opportunities and knows it • Sell! Avoid “Institutional Arrogance” • Go after them with all the strategy and tactics you would use to land your biggest customer • Maintain your focus- easy to forget how important a hire can be when caught in the throes of fund raising, etc. • Must move quickly today - talent is scarce and the competition is fierce • Keep momentum! Lack of communication with a potential candidate, regardless of the reason, can cause you to lose that candidate • Be creative, find a way around obstacles • Closing/Negotiation skills • Stay in touch until you see them in your office • Involve team members in process, but avoid democratic decision-making

29. Interviewing a Star • Everyone inside interviewing the person should be on the same page, spend the time upfront with your team • If references are done upfront, it is a very different interview • Get to a business conversation as soon as possible, see how they think • The Vacuum Cleaner Test • Accurately reflect the culture • Look for process creation versus process facilitation • Don’t air your dirty laundry

30. The Offer Gap: What you are willing to pay versus what the candidate is willing to accept. • The market is efficient based on the laws of supply and demand. • Price/value correlation needs to be understood. • The pain of learning through losing a star. • If you’re willing to buy more house than you can afford, why shouldn’t you stretch beyond the internal norms to add the Star? • Bridge the Gap - someone else will!

31. Employment Reputation • How have you treated previous candidates? • How do you treat employees? • How have you treated employees you have had to let go? • It’s a small marketplace, and a bad reputation in any of these areas could keep you from hiring, or even interviewing, the best talent

32. How Much Does the “Chief” Cost? Two years ago, post first round: • $150k-$200k base + 2-4% for President • $125-150k base + 1-2% for Chief • Average: $150k + 1.5% One year ago, post first round: • $200-300k base + 3-5% for President • $150-225k base + 1-3% for Chief • Average: $200k + 2% Current: • Same as above with + 25-50% bonus CTO Exceptions: • $325k base +2%, turned down • The closer the company is to a liquidity event, the lower the equity percentage. • The closer the company is to concept stage, the higher the equity percentage.

33. Negotiation Variables • Vesting: 3 or 4 years • Termination Without Cause: Defined • Termination Without Cause or Job Responsibility Diminished: 50%-100% vest • If Change of Control: 25%-75% vesting of unvested options • Severance: 3-12 months • If Terminated within 12 months of a Change of Control, options 100% vest • Non-compete: 12-24 months • Ability to purchase additional stock? • Vacation: 2-4 weeks • Health Plan • Bonus: Paid out when / how? Bottom Line: You get what you negotiate.

34. “Cause” Cause is defined as: “...in the course of your employment by Company, engaging in activities consisting of embezzlement, defalcation, diversion of corporate assets or opportunities for personal profit, or participation in any felony.”

35. How Do You Retain Stars? • Deliver on what you sold during the interviewing process (H&H) • Courtship versus reality • The long-term incentive means a lot, keep it positive • Culture

36. What Does the Functional Leader Want? • Part of a great management team • Develop the skill base to get to the next level • Have fun, like their job, feel like they’re in a winning company • Feel like what they do makes a difference • Make lots of money on the liquidity event

37. Startup Situation B2B started with co-founders seeking VC money. VC money comes in with caveat that outside CEO be hired. Co-founders created the technology platform. Searches 1st Search: CEO 2nd Search: CMO 3rd Search: CSO - Company goes public - 4th Search: CHR 5th Search: CTO 6th Search: COO/Pres. Observations CEO moved quickly, changed positioning often Team gets along extremely well, flexible Case Study #1

38. Start-up Situation B2C started with co-founders receiving first round VC money behind the concept. Searches 1st Search: CMO 2nd Search: Chief Merchandising Officer 3rd, 4th & 5th Searches: Split company into multiple divisions, hire a GM (CMO) for each division 6th Search: CBDO 7th Search: Chief Communications Officer - Secured BaM partner - Observations CEO moved quickly to reposition company multiple times Requires flexible and adaptable management team Case Study #2

39. Case Study #3 Start-up Situation Wireless infrastructure has a founder with concept and angel money. Needs CEO from the wireless space to compete in VoIP market and secure first VC round. Searches 1st Search: CEO Observation CEO search results in complete repositioning and secures key partnership in streaming media.

40. Case Study #4 Start-up Situation Software company founder secures first round VC funding and builds management team. Searches 1st Search: CMO 2nd Search: Chief Services Officer 3rd Search: CFO 4th Search: Head of Product Management Observations Company is already profitable before second round funding. CEO and 1st round VC at odds over second round.

41. DO: Treat them well upon exit, it’s a small world with lots of repeat stops. DON’T: Keep someone too long if you’ve made a mistake. Key Do’s and Don'ts of Hiring DO: Exhaust your personal network in search of great talent. DON’T: Hire your nephew, cousin, and father-in-law as your management team. DO: Pay attention to the “fit” once you know you have a referenced Star. DON’T: Hire someone because you know them and like them without doing work references. DO: Trust your gut instinct if the references are good. DON’T: Overrule your gut instinct. DO: Move quickly on a Star. DON’T: Hire without involving the other members of the management team. DO: Stretch for the Star, buy more house than you can afford. DON’T: Make a low ball offer if you really want the candidate.

42. Good Luck and Congratulations!