Pretend you are the Venture Capital Analyst
Just for a moment, pretend you are the person reviewing a start-up company who is considering making an investment in the company with your own money. What criteria would be the most important in your 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? How will the start-up attract, hire, and leverage employees into building a better, stronger company? How does the rapidly growing company comply with labor laws, ensure proper state and federal withholding, and all the other HR-related issues that can cause significant concern for any company that’s moving from a few employees to tens or hundreds in a relatively short period of time?
Why Do Venture Capitalists 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? As a venture capitalist or later stage angel investor you want the management team to focus, focus, focus. On what, you ask? On products and/or services, customer services, and sales.
In order to accomplish this, I highly recommend that rapidly growing enterprises, not just those pursuing VC funding, hire/engage a Professional Employer Organization (PEO). These are all occasionally known as personnel employment organizations. A PEO will handle payroll, workers’ compensation insurance, health insurance, supplemental insurance and a myriad of regulatory obligations associated with being an employer. PEOs also enable you to provide benefits such as the previously mentioned health insurance but also 401K plans and other benefits.
Outsourcing these tasks to a PEO demonstrates to an investor – especially a venture capitalist or VC fund – that the company’s management team is focused on building the company and not in handling myriad HR administrative duties that are generally outside their realm of expertise. By engaging a PEO, you focus on building your product, on attracting and hiring the right people, and on growing your customer base and increasing sales. In addition hiring a PEO can provide instant access to a bevy of employer benefits that you would not ordinarily be able to offer without using much of the investment capital you seek. These benefits make your start-up or rapidly growing company a very attractive place to work. Being competitive with others in the market is important for attracting individuals to your team,