The private equity landscape has undergone a phenomenal transformation over the past decade. As the private equity landscape has evolved—growing from approximately $1 trillion in 2003 to nearly $5 trillion at the end of 2017—so too have the relationship between general partners and LPs. Now, more than ever before, managing general partner/LP expectations relationships is critical to success. Due … ... read more
Why VCs Think Reference Checks Are A Company’s Secret Weapon
The hiring process is often rife with uncertainty. There’s only so much that can be gleaned from a resume, especially when a staggering 84% of job reviewers have found a lie or misrepresentation on a resume and/or job application—an increase of 18% over 2012 levels. While an onsite interview, especially one that assesses emotional intelligence, can help reveal the best candidates, it’s far from sufficient in accurately assessing the performance potential of a new hire.
Many experts, especially those from the venture capital community, advocate for reference checks as one of the most reliable predictors of how well a new hire will perform on the job. Fred Wilson, the co-founder of Union Square Ventures, argues that VCs are in an especially unique position to help their portfolio companies connect to references, explaining “Investors often have access to references that founders and management don't. So we can add a lot of value to the hiring process by reaching out to our network and asking about people.”
Niko Bonatsos, Managing Director at General Catalyst Partners, explained in a recent Tweet,
Doing reference checks the right way is a core competitive advantage in business life. Would love to read about your best practices/learnings.— Niko Bonatsos (@bonatsos) November 27, 2018
Bonatsos solicited his Twitter followers to share their own best practices and learning. There was unanimous agreement among venture capitalists and investors that references are key to a successful hiring outcome.
Be Cognizant of Response Times
Esteemed investor Chris Sacca, who manages a portfolio of over seventy startups and has made early bets in Twitter, Uber, Instagram, Twilio, Stripe, and others, has a time-tested technique for assessing the caliber of a potential hire. In response to Bonatsos’ Tweet, he explains, “One huge factor I look for? How quickly the reference responds. The faster, the most sincerely enthusiastic and telling.”
I use them for hiring, but not deals. One huge factor I look for? How quickly the reference responds. The faster, the most sincerely enthusiastic and telling. When asking about @claydumas, I had senior Obama White House officials emailing and texting within half an hour.— Chris Sacca (@sacca) November 27, 2018
When conducting reference, be aware of eagerness.
Ask Non-Traditional Questions
When reaching out to references, there’s often a tendency to follow a bland line of questioning that reveals little insights into the caliber of the potential hire. “Are they good?”, “Tell me what it’s like to work with X”, or “Did you have a good experience working with X?” shed little light on a potential hire’s true potential.
When contacting references, consider asking more intelligent questions that lead to deeper and more insightful conversations. Eric Friedman, Partner at BlockTower, is a proponent of the question, “How does X like to get feedback?” Opt for questions that seek to eliminate some of the personal bias:
- What should I know about X that I probably don’t?
- How does X respond to setbacks?
- What does X do better than anyone else?
- Why would I not want to hire X?
Seek Out Second-Degree References
Chances are high that a new hire’s references are strong champions and will sing the candidate’s praises. To further avoid bias, it’s often more effective to reach out to second-degree connections.
Bradley Harrison, founder and Managing Partner of Scout Ventures, explains, “It’s best to find people connected that are not the ones the candidate suggests you talk to—more transparent feedback”. Be cautious and respectful to not use a current employee if the candidate has not told their current employer they are leaving. Otherwise backchanneling can be a powerful way to get real intel.
A number of Affinity’s clients leverage relationship intelligence to identify the individuals who haven’t been included on the reference lists but are in a good position to provide feedback. For instance, say you want to see who you or your network know at a company like Uber. You can easily use Affinity’s Alliance feature to understand your network's true connections.
A 2018 HR.com report sponsored by the National Association of Background Screeners (NABS) found that while the vast majority of employers conduct reference checks, only about half (52%) conduct reference checks for the purpose of improving the quality of hires. The most common motivation driving employers to conduct reference checks is to protect employees, customers, and other organizational stakeholders. Employers can't overlook the importance of conducting reference checks. They can't afford to think of them as a formality. References can be tell-tale signs of a potential hire’s true performance, especially in venture capital where landing a job isn't about meeting a clear list of prerequisites and requirements. Don’t overestimate the power and value of referrals. By contacting the right people with the right questions, you’ll unearth a goldmine of insights that offer a powerful perspective in terms of what it will be like to work with the prospective hire.
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