Strategy Session is a feature for Crunchbase News where we ask venture capital firms five questions about their investment strategies.
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Before joining the San Francisco accelerator and venture firm, Kline was honing his skills at venture-backed companies, which include Stripe, as well as AppDirect, where he was the company’s first recruiter and head of talent.
Sweat Equity was founded in 2018 by Dan Portillo and is backed by Greylock’s Reid Hoffman. In the past three years, Sweat Equity has added 20 companies to its portfolio, most recently The Public Health Co. and Bespoke Financial.
Kline said startups need product and engineering talent so they can land their first series of customers to drive revenue — anything to scale faster than competitors and be in high demand.
“Rather than charge enormous consulting fees we ask for an ownership stake, so we are literally putting money where our mouth is,” he added. “We offer not just advice, but we are doing the job of a senior-level executive that you would have to recruit and probably wouldn’t get them at that stage.”
He spoke with me about his approach to recruiting, and finding the right people for traditionally hard-to-hire positions.
The following was lightly edited for clarity and length.
What led you to a career in venture capital?
Kline: I was recruiting for early- to mid-stage for 12 years, and I was working with the founders. I joined Stripe, and my job was building out engineering teams and scaling any new product organization. I helped figure out what new teams would look like. I began looking at a couple of companies a month, and some couldn’t figure out how to go to market without having to hire over and over again. When Stripe grew from 200 to 2,000 employees in three years, I was faced with a choice and wanted to do it all. Dan Portillo reached out to tell me that he was starting a new VC firm. I had always wanted to be an owner of something, but not a recruiting firm. I was attracted to VC, but wanted to be involved in selecting companies and the path to do that. This married all of those things together and was a natural fit for me.
How do you like to work with founders?
Kline: Closely. Building your core team is one of the most vital things you can do. The first 10 to 20 people are your culture and they carry that for years. There is a lot of risk involved. Most people can do the job that is in the description, but it’s harder to have the right vibe, know how they operate together, and match personalities and energy types. If you don’t spend a lot of time with them, you will miss it. I start out working with founders and gain a “sixth sense” for what is important, and what stands out beyond the job description, to be able to find that same thing on the candidate’s side so you can have the right person for the right company.
What is your sweet spot with regard to recruiting for a startup?
Kline: Leadership and executive recruiting. Mostly in engineering and product, but I’ve done legal, finance, marketing; the wonderful thing about being head of recruit and leading it. You meet some of the best people, get to know what “great” looks like across the board and take that framework to any type of role.
What would be considered the “hardest-to-hire” positions for startups?
Kline: Definitely engineering, but what is harder to hire is a great head of recruiting. The pandemic shifted people’s priorities, and the larger companies, even before the pandemic, were making it difficult to leave. We’ve seen massive wealth accumulation and golden handcuffs. It’s not 20-somethings running around Silicon Valley anymore — they have families and mortgages, and a reduced risk is important. The startup landscape has changed. There is more capital and competitive salaries. There is more capital going into the market, and with not many other great places to put capital, VC is creating more startups than before and more tools to developers to build companies. It is so much easier to start a company than it was before. You need fewer people to build a product because of the infrastructure that can be plugged into. The barrier to entry is less, creating a need for more developers. However, the rate of training programs and getting education in computer science and engineering has not kept up with demand. We are going to be forever in this world.
What is one or two of the biggest mistakes startups make for their first employees?
Kline: Sometimes you hire or over-promote or -title people. You bring in the first employee as a vice president when what you really needed was an individual contributor who knows what they are doing: 90 percent building a product, not managing people. Most startups just hire their friends and stay within their networks instead of building a sustainable recruiting network. That eventually will dry up, and friends won’t always want to work on what you are working on. I understand why a person is seeking a VP role, but it’s not always good for the long-term. The best thing is to set up and invest in a talent acquisition strategy and recruiting.
Illustration: Dom Guzman
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