Investors: For Sustainable Performance, Bet on Human Capital!

WHILE THE STARTUP ECOSYSTEM IS DYNAMIC, INVESTMENT FUNDS MUST CONSIDER MORE THAN CASH FLOW BEFORE TAKING STAKES IN YOUNG COMPANIES.
Human capital has become an essential factor in startup financing. Without it, investors risk missing out on the best deals. To differentiate themselves from Private Equity funds, Venture Capital funds now include criteria beyond financial metrics when taking stakes in startups. In the past, decisions were primarily based on growth and profitability. Over the last five years, another criterion—equally strategic—has emerged: the quality of human capital. Considered one of the primary drivers of a company’s sustainable performance, it reflects the value employees bring through their skills, experience, and creativity.
Previously overlooked, this factor now plays a crucial role in investment decisions, signaling a startup’s ability to innovate and succeed long-term. Leading funds such as Partech Partners and Serena Capital have strengthened their relationships with startup founders and actively managed the HR dimension of their businesses, gaining a competitive edge. By taking a more disruptive approach than their peers, these funds have successfully differentiated themselves in the market.

The Operating Partner: A Valuable Ally
Funds cannot integrate this new paradigm alone. To strengthen their due diligence, they increasingly rely on the role of Operating Partner—a profile that emerged in the U.S. during the subprime crisis. In France, according to Bain & Company, 40% of the 80 largest investment funds had hired an Operating Partner as of November 2021.
The major asset of this “serial entrepreneur,” accustomed to taking risks, is operational legitimacy to deeply analyze the business models of portfolio startups. Naturally, their missions also focus on human capital. During HR audits, they design action plans while assessing “subjective” dimensions such as founders’ vision, leadership quality, and team engagement. This work is particularly strategic in hyper-growth companies, where the company’s DNA tends to dilute as it scales.

A Structured HR Audit
To remain competitive, investment funds are evolving their practices. They now engage HR and consulting professionals to:
Access more (often hidden) talent pools and build a pipeline for C-level positions, such as Operating Partners.
Support organizational reshaping and provide a robust market benchmark.
An HR audit, though still underutilized, is essential to accurately identify HR needs and act accordingly. Initiatives may include streamlining sales processes via a Chief Operating Officer, optimizing business models through executive coaching, assessing current employees, or supporting hyper-growth through interim management.
By professionalizing their approach to startups, investment firms can offer a “premium” support package and ultimately secure the best deals in the market.
Read the full article on Journal du Net.