Fintech
Private Equity-Backed Fintechs Pay Better, VC-Backed Fintech Staff Happier
If you work in a financial technologyits financing is likely to come from private equity or risk capital. Both industries are focused on growing startups, but their differences can make a big difference for startup employees. A recent paper from researchers at Oxford and HEC Liège shows that VC-backed companies are the best for employee satisfaction, while private capital-funded startups excel in compensation.
Analyzing one million employee reviews for startups on Glassdoor, the paper found that a company’s ownership structure correlates with employee satisfaction. It found that employees at privately held companies tend to be much happier than those at publicly traded companies. Employee satisfaction was “significantly higher for VC-backed companies,” with satisfaction levels falling to more normal levels after an exit.
Using natural language processing techniques, the paper determined that the top three benefits of working for a VC-backed startup are a “supportive culture, growth, and hiring process.” This is often because VCs are more proactive in instilling HR policies in their companies. VCs often encourage hands-on experience in industries like the public sector or within startups, which may mean they understand the struggle a little more than private equity professionals who are more often courted by investment banks and consulting firms.
The challenge of working at a VC-backed company, according to the paper, is that it can be Very challengingFintech companies and startups in general often want people to do a little bit of everything, which can significantly compromise work-life balanceEmployees also praise their compensation much less frequently. At private equity-backed firms, the paper says, these topics “are more often mentioned as a benefit.”
Those are the only significant pros of joining a PE-backed fintech, and the paper says there are “several significant cons.” The four topics most often cited in a negative context are advancement opportunities, training, hiring processes, and employee support. On average, a VC-backed company’s score drops from 3.92 stars when it’s acquired by a private equity firm to 3.64. When a PE-backed company changes ownership, its average score increases regardless of its new ownership structure.
Private equity professionals have previously horror expressed to us about the work they do. They say PE firms leave companies “handicapped,” hurting their employees the most. Venture capital may be better in this regard, but funding is much harder to come by and very few VC firms are profitable enough to survive the current difficult economic climate. Jack Selby, MD of Thiel Capital, estimates that nearly 80% of VC firms could go bankrupt within a year or two.