Venture Capital Firms Encourage HR Outsourcing to a Professional Employer Organization

Is your Start-up Company attractive to Venture Capital Funding?

So your fledgling company is ready to grow. You have a great product, strong sales growth and a business plan to dominate your market. The only thing you need now is funding to make it happen. So you may be considering venture capital to fund your expansion. If you have made the decision to consider funding from a VC firm, and you want their investment, then you must understand the criteria they will use to make their decision about whether to invest in your company. Volumes have been written about this subject of getting noticed by VC firms and how to get funding, but there is one aspect you may not have considered: Demonstrating your focus. Pretend you are the Venture Capital Analyst

Just for a moment, pretend you are the person reviewing a start up company and are considering making an investment in the company with your own money. What criteria will be most important in that decision? There is a long list that we will not review here, but certainly one of the criteria will be: Am I confident that the start up will use my funds to grow the company quickly and not burn it up with the distractions of implementing an administrative bureaucracy and meeting regulatory compliance. As a venture capitalist you want the management team to demonstrate single minded focus on product, service and growth.

Why Venture Capital Firms like PEOs

So how can you demonstrate to VC funds that your focus will not be distracted by the administrative tasks of running your start up company? Hire a Professional Employer Organization (PEO). A PEO will handle payroll, workers’ compensation insurance, health insurance, supplemental insurance and a myriad of regulatory obligations associated with being an employer. Outsourcing these tasks to a PEO demonstrates that your company is focused in the right place, and your management team will not be distracted from your company mission. In addition hiring a PEO can provide instant access to a suite of employer benefits that make your start up company a great place to work…. important for encouraging people to join your team. According to our contacts, General Atlantic Partners (one of the largest VC firms) has roughly one quarter of their investment portfolio using a PEO. This statistic demonstrates why entrepreneurs should take a look at hiring a PEO.

Finding the right PEO

With over 700 PEOs operating in the USA, finding the best fit PEO at the best price can be a challenge. When searching for viable PEOs for your company, it is important to start by taking a complete review of your operational requirements. Think about the kinds of services and benefits that are important for your company. Next compile a list of the PEOs that are licensed in your state. From that list you need to create a checklist that matches each of your requirements with the capabilities and offerings of each PEO. Once you have completed your checklist, you now have your “short list” of viable options. Before contacting the PEOs on your “short list”, make sure you have a copy of your workers compensation loss runs and a complete benefits census of your group (if you want health insurance as part of the PEO’s services). Finally contact each PEO, provide your underwriting data and wait for your proposals from each PEO. Once you have received your proposals, evaluate each for price and fit for your company. While shopping for the best fit PEO can be time consuming, the end results will be ensuring a relationship that will provide the services you need at the price you can afford for many years to come.