Hiring Leadership Teams that Secure Investor Funding and Drive Growth with Rita Ferrandino of Arc Capital

“Fractional leadership is a newer concept for the market. The advantage of founders becoming more cost conscious, is they’re recognizing there are many ways to populate your leadership team.”

– Rita Ferrandino

Rita Ferrandino returns to the On Work and Revolution podcast, following the buzz she created last time she was on! Did you miss the episode? You can catch up here. Yet again, Rita unveils the intricacies of the EdTech funding world, highlighting the critical importance of robust leadership teams. She emphasizes the value of adaptable, skilled individuals over prestigious pedigrees, shedding light on why investors view fractional leadership favorably in their funding decisions.

The 5 main themes that emerged in this conversation explore:

  • Importance of Strong Leadership Teams: Emphasizing the critical role of strong founders and teams in attracting investors and driving business success.
  • Adaptability over Prestigious Pedigrees: Highlighting the need for teams with the right skills, knowledge, and adaptability to execute the business plan effectively.
  • Red Flags in Founder Mentality: Identifying potential red flags such as arrogance, stubbornness, short-sightedness, resistance to coaching, and ego-centric leadership that investors avoid.
  • Strategic Hiring and Talent Acquisition: Discussing the significance of strategic hiring, including full-time, fractional, and advisory roles, to ensure alignment with business objectives and maximize performance.
  • Revenue Generation and Sales: Stressing the importance of prioritizing revenue generation and investing in dedicated sales expertise to drive business growth, attract investment, and navigate market challenges effectively.

Give this conversation a listen, and don’t hesitate to Contact Us if you have any questions, comments, or feedback.

About our guest, Rita Ferrandino:

Rita Ferrandino has built an international reputation as one of the most effective strategists and coalition-builders in the education entrepreneurship community.  She is a recognized STEM education expert, an authority on US education policy and politics, and a leader in Future of Work strategies.  She currently serves on the White House Task Force for Florida. 

Rita is the founding partner at Arc Capital Development, a global private investment and advisory firm.  Arc invests in, operates and advises companies in the education and corporate training markets and has served over 150 clients in the US, Australia, Canada, Mexico, Singapore, Hong Kong, China, Ireland, Turkey, Israel & India.  Arc clients and portfolio companies provide products generating over a billion dollars a year worldwide. www.arccd.com  

Rita currently is the Innovation Consultant at the Catalyst@PennGSE Innovation Center at the University of Pennsylvania’s Graduate School of Education.  She was the lead Capstone instructor at the Education Entrepreneurship Graduate Program for four years.  For three years, she was President of the Education Design Studio Inc Incubator funded in collaboration with the Milken Foundation & University of Pennsylvania

Open for Full Episode Transcript

[00:00:00] Debbie Goodman: 

Welcome to On Work and Revolution, where we talk about what’s shaking up in the world of work and Edtech. I’m your host, Debbie Goodman. I’m CEO of Jack Hammer Global, a global group of executive search and leadership coaching companies. I’m also an advisor to venture backed Edtech founders. And for those of you in Edtech who are hiring, we have launched a fractional leaders offering.

 

I’ll put a link in the chat, a link in the show notes. My main mission with all of my work is to help companies and leaders to create amazing workplaces where people and ideas flourish. And today I am joined for the second time by the wonderful Rita Ferrandino, mostly because we had such a great time the first time round, but also because Rita’s episode was our most downloaded episode of the season. And so now we’re trying to break that record because we’re kind of competitive. So listeners, if you enjoyed this episode, forward it to a colleague or a friend, someone you think needs to hear what we’re going to be talking about today, which is what matters most to investors when it comes to leadership talent, but first a quick intro for those of you who don’t know, Rita. 

 

Rita Ferrandino has built an international reputation as one of the most impactful strategists in the education entrepreneurship community. She is the founder of Arc Capital Development, which is a global private investment and advisory firm. Arc invests in and advises companies in the education and corporate training markets, they have supported over 150 clients and counting literally all over the world. Just to give you an idea of the sense of scale here, Arc clients and portfolio companies provide products and services generating over a billion dollars a year worldwide. That’s pretty impressive. Okay. There’s a lot more, but over and above all of this, Rita is one of the most well networked connectors in the sector as well as being one of the most generous humans I’ve ever met. Thank you, Rita, for all the work that you do in this ecosystem and okay today I’m excited.

 

We’re going to be, I’m going to be speaking to Rita about one of my favourite topics, leadership and talent, but what we’ll specifically be talking about is what founders and CEOs need to know about, what matters most to investors when they’re making their first, second and third hires or when they’re growing larger teams. So founders, listen up, this is for you. Welcome Rita. 

 

[00:02:30] Rita Ferrandino: 

Hey, Debbie. I can’t wait to talk to you and have all your listeners hear about why it’s so important to have strong teams in order to attract the right kind of investors. 

 

[00:02:43] Debbie Goodman: 

Okay. Let’s get straight into it then. I know that many founders want to show that they have this amazing team of exceptional talent as part of their fundraising strategy, which makes sense. And so they put a lot of emphasis on having people in key roles who come from top Ivy league universities or have done stints at some top tech brands or have some kind of startup pedigree at one of the well-known incubators or accelerators. This can be quite an expensive strategy. How important is this to an investor?

 

[00:03:17] Rita Ferrandino: 

Well, let me be really clear, a strong founder and a strong team is essential for investment. But the reason why you need the team is because investors are looking to place their money where there’s going to be a return on their investment as quick as possible. So why they care about the team is that the team is able to create a roadmap that they trust will be able to achieve the goals that are needed to get to the next funding round or to get to the next acquisition or whatever their strategic goals are. So what you need in a team is the skills and knowledge to be able to execute that plan. So I personally don’t care that the company stack their team with you know, name brand university people. I care that they have the knowledge and the skills and that they’re adaptable to be able to achieve what they need to achieve in the benchmark to meet the benchmarks required. Does that make sense?

 

[00:04:35] Debbie Goodman: 

Yeah, totally. I’m curious to know how deep a dive you do in terms of that sort of due diligence on that in particular, the leadership team, because I know that let’s say a couple of years ago when the industry was just fast and furious and deals were getting done over a weekend, and if you wanted to do a due diligence, other than just maybe looking at some numbers, you were like dead in the water. Somebody else had pipped you to the post. So there wasn’t any time to really dig into the makeup of the team and what their credentials were and what their track record was. Are you able to do that now and do investors do that?

 

[00:05:09] Rita Ferrandino: 

Well, those days are over, right. 

 

[00:05:13] Debbie Goodman: 

Oh dear. Yes. Oh, or maybe not oh dear. Maybe now we’d like just doing the groundwork properly.

 

[00:05:18] Rita Ferrandino: 

I would argue that we need to create sustainable business that are going to turn a reasonable amount on the investment of an investor, period. Let’s just be right at basic business fundamentals. If I give you a dollar, I want 10 back.

 

[00:05:36] Debbie Goodman: 

Okay. But let’s, so how much due diligence do you actually do on team credentials in order to assess whether the makeup of the team and whether the people who the founder has surrounded himself or herself with have the goods, have the capability to execute on the plan, because sometimes plans are just no more than hopes and dreams in the first place. But what do you do as an investor in that regard?

 

[00:06:01] Rita Ferrandino: 

Well, first of all, we definitely do a deep dive. And again, we look at it from the perspective of what do you need to achieve? And what are the skills that are going to be able to get you there? I said that earlier, I’m restating that because it’s really important. So yes, we do drill down to see if you’ve got a team in place that can execute that. Now, that can look like different combinations of full time, part time, fractional, but at the end of the day, I want to see that if you’re going to have a partnership strategy, that you’ve got somebody who is on this team, who understands how to make partnerships work quickly and has the depth of knowledge and contacts to be able to make that happen, not that you’ve got somebody in a slot who has to learn how to do it. That takes time.

 

[00:07:01] Debbie Goodman: 

Right. Okay. We’re going to get to that in a second. I want to ask you, okay, so that’s what you are looking for, but what concerns you most, where are the red flags for you? Because I sometimes look at a small founding team that have started to accumulate their first, second, third hire. And I know what my concerns are. What red flags do you get concerned about? 

 

[00:07:27] Rita Ferrandino: 

Red flags, I spot red flags really fast. I’ve been doing this work over 20 years and let me tell you, I can spot those red flags fast and I have my own little, you know, checklist. Okay, are they arrogant? Are they stubborn? Are they short sighted? Do they take coaching? At the end of the day, a founder and the team has to be able to leave their ego at the door. I, instead of looking at red flags, I like to look at talking about the criteria that is really critical what I want. And what I want in a founder and a founding team is one that’s adaptable, one that is open to coaching, one is that they’re open, flexible, and ready to sell.

 

[00:09:03] Debbie Goodman: 

Ah, ready to sell. Well, let me talk about what my red flags are is that when I see particularly, let’s actually focus for people who are sitting on the growth side of a leadership team. So that would be in primarily revenue generating partnerships, go to market strategy and marketing. I think that sometimes founders are, if they aren’t good salespeople themselves and they’re unsure about what it takes to sell, they don’t probe deeply enough when they’re hiring and they take things at face value and they assume that somebody who’s been selling into one particular target market, because they’re a good salesperson and had a great track record, would necessarily be able to translate that quickly into another, and that is not always the case. So for example, somebody who’d had a great track record in higher ed, in the Edtech sector will take time for them to actually get up to speed in what’s happening in K 12 for an example. For example there’s lots of you know, hiring from outside one sector into the Edtech sector. And we know that any kind of transition is actually going to take time and expecting revenue generating leaders to be up and running really quickly, I think that is unrealistic. So those are usually red flags for me. And it’s not to say that one shouldn’t do that, but then just to actually manage everybody’s expectations on the time horizon regarding from hire to revenue generating.

 

[00:10:38] Rita Ferrandino: 

Absolutely agree, Debbie. And I want to put an even bigger punctuation on that. The reason why, even with earlier stage companies where money is tight and they’re watching their budget so closely. If they go to somebody like yourself, who is able to get them the right hire, the amount of time and money that they are going to save to be able to get to execution is worth every penny, because you’re an expert in being able to look at an organizational structure, figure out what the company is looking to do and put the right person in. That’s why it is worth going to a recruiter to be able to get your most critical spots and hires staffed with the right talent that’s going to execute against the goals, which is again, back to what the investors care about, right?

 

[00:11:36] Debbie Goodman: 

So, I mean, I think one mode of thinking as burn rate has become, you know, top priority managing that and minimizing cashflow and making sure that expenditure is to a minimum, is I think a lot of founders have become very cost conscious around the services that they’re paying for and we’ve definitely seen an increase in DIY do it yourself. If you know founders who sort of will, you know, interview somebody from their network or get somebody from, you know, family and friends who make a recommendation and we’re definitely seeing that the interview process then isn’t as rigorous. It’s the likelihood of success there, is it’s a bit of a crapshoot, honestly. So, you’re saying that investors would not mind founders spending a little bit of money to get experts, to help them find good people.

 

[00:12:24] Rita Ferrandino:

Absolutely. And if you’ve got any of those founders who are thinking that they just need to do it themselves, you just have them call me and I’d be happy to talk through why time is money. And the number one reason why education early stage companies fail and go to the Edtech graveyard is because they run out of runway and there’s reasons why, right? We have a seasonal selling season. You have to critically watch your cash because of that seasonality and when the buckets of money come in. And it just makes no sense to me that if you’ve got a limited runway that you would want to experiment with doing it yourself, unless you have a talent pool that is extraordinary. And it’s very rare that I’ve seen anybody be able to do it themselves. The amount of time and effort it takes to identify what you need, find the best candidates, interview them, check their references. All of that is just time you’re not spending investing and selling in your business or building your product. So, send them to me, Debbie, I’ll be happy to tell them.

 

[00:13:42] Debbie Goodman: 

You’ll tell them what’s what. All right. Let’s just talk staffing models. Full time executives versus fractional executives versus advisors. Cause all of those are, you know, we kind of know that full time and fractional is different, but we also see a lot of companies that have a ton of advisors and we know that many of them can add value, but they’re not actually working in the business. They’re there usually for introductions and referrals. What are the optics to you as an investor, when you see the leadership team is made up of mostly consultants, advisors or fractional versus full time people or vice versa. What is your, do you have an opinion either way?

 

[00:14:23] Rita Ferrandino: 

I want my founder that we’re investing in to be able to deliver and if he feels or she feels that they are going to be able to best do that through a fractional strategy, then show me. If they feel they can do it through a mix or a hybrid of full time and fractional, terrific. If they’re really in need of bringing advisors in who are going to open up their networks to them and they can get much more traction because they’re using advisors to be able to get to the right people in the market faster, terrific. What I really care about is that they’ve got the right expertise delivering to the right thing. I’m going to give you an example. So we have one founder in our network who is doing a B2C and he was just not being able to execute against his strategy in the way he should. He was falling short time and time again. And what we identified is that the reason was that he didn’t have, he could only afford somebody to be executing who was at a pay scale that was too many rungs below what was really needed, which was the high-end strategy. And I brought that person to you and said, find us an amazing fractional marketing person who’s completely got the skillset to be able to deliver, and it was a fabulous match. So, we get a high end level strategy, mapped with the lower end time staff person, and so they were able to make through a fractional kind of hybrid strategy, it all work. So that’s an example of what was needed was more revenue out of the B2C channel. In order to get there, we had to use a hybrid fractional solution.

 

[00:16:41] Debbie Goodman: 

Yeah. I think that you know, fractional leadership is a newer concept for the market in general. We’ve seen fractional CFO has been around for a long time. That makes really, really good sense. I think up until more recently founders just assumed that they would need to have full time people in all the key roles, and that was the way you run a business. I think the advantage of everyone becoming a lot more cost conscious, is they’re recognizing that there are many ways to populate your leadership team. And particularly as you’re going through that growth curve and you’re not entirely sure we’re testing this, we’re testing that we’re going to start with this, but we might not know where it goes. Fractional can be a, you know, I’m sort of spiking my own drink here. I absolutely have drunk my own Kool Aid on what it means to have, to be surrounded by a hybrid team, actually. Some are full time and need to be full time and then there are other roles that I think are really well suited to fractional. I just on that, I know you’ve got an opinion on fractional sales and whether sort of a part time consultant in the sales and revenue driving seat, works. Remind me of that.

 

[00:17:53] Rita Ferrandino: 

So I think that somebody needs to wake up every morning in an earlier stage company worried about moving the pipe, the sales pipeline forward. But that role has to be, you need the revenue to generate your business. That’s just a fact. And you need it to be able to attract you have to have a sales engine to be able to attract investment. You have to have a sales engine to keep the lights on. You have to have a sales engine to, to feed every aspect of the business. So I feel pretty strongly that somebody has to wake up committed to that. However, I do see a role and I have played this role at times where you have to have somebody who has great education industry expertise who can help set the strategy or set the course so you avoid the pitfalls. And that, that is the only place where I see a role for the fractional piece in sales.

 

[00:19:07] Debbie Goodman: 

Okay. In the strategic, in the strategic function, putting the go to market together, laying the foundation.

 

[00:19:13] Rita Ferrandino: Exactly.

 

[00:19:15] Debbie Goodman: But when it’s actually the, somebody who’s got to get out there and do the calls and send out the emails and do the activity and get the meetings and do the shtick and do the thing, that is a full-time, full-time job.

 

[00:19:25] Rita Ferrandino: And I actually really believe pretty strongly that you should have two salespeople because salespeople don’t work as well in isolation. I mean, they are salespeople because they like people. They like interaction, they like competition. And so I, when the budget allows, I definitely always prefer two salespeople because that way they have tension and they have camaraderie and they have somebody who they can call and say, Oh my gosh, I had a really hard day. And you can, you can build more momentum with two than one. 

 

[00:20:04] Debbie Goodman: Ah, that is a very interesting nuance to that. I’m going to actually take a look at my data because I think you’re probably right. That at least two, amplifies that acceleration quite dramatically. Let’s talk, continue on the sales piece here, because I know that you’ve also got a strong opinion on product focused founders who are not great at sales and who prefer to be in the background and don’t like getting on calls and just feel shmarmy about, about selling their amazing products. How does this impact your investment decision?

 

[00:20:34] Rita Ferrandino: 

Well, I am I have made investments over the years in product focused founders who were not able to get out and sell the product and I can say almost all of them are in the Edtech graveyard.

 

[00:20:50] Debbie Goodman: Ooh, sitting in a graveyard now. Oh dear. Should we go and like take a troop of salespeople to resurrect them?

 

[00:20:58] Rita Ferrandino: 

So, but what I’ll tell you is that if you’re a product focused founder and, and we love product focused founders, you have to find a co-founder who loves the sales piece. You have to be matched with somebody on that other side. So even if it’s not a co-founder, you have to have a strong person by your side, who’s able to go sell the vision of the company and the product. And, and that’s it.

[00:21:32] Debbie Goodman:

That’s it. I mean, I’ve seen you on sort of Shark Tank panels and moderating, and I wonder sometimes at the people who are so in love with what they’ve created and they’ve got such a great vision, but they are just not able to do, not prepared to do the hard yards of what it takes to sell their offering. And it’s I think these days it would be hard for them to get over the line when it comes to even attracting their first little bit of funding.

 

[00:22:01] Rita Ferrandino: 

Yeah, yeah. I have a cute story I always tell. I was mentoring an early stage company at one of the education accelerators and we were sitting in this office and I asked them, you know, how they’re, we looked at their sales pipeline and I asked them about, you know, how many sales calls they had made and they had said they had never made a phone call, no phone calls. And I said, well, here, let me show you. And I just said, what’s their phone number? Yeah. I said, I’m going to model this for you. Hi, you know, do you have a problem? Is there anything I can do? You know, and it’s very hard for a founder who’s not willing to do that to see a pathway to success.

 

[00:22:51] Debbie Goodman: 

Right. Okay. Well let’s just let that all sink in. We are running out of time again. Since we last spoke a few months ago, has anything material shifted or changed that founders of Seed or Series A, any founders in fact, what do they need to know about now, like sort of like end of Q1, beginning Q2 2024, what’s the piece of advice or information that you want all founders to know right now. 

 

[00:23:20] Rita Ferrandino: 

Okay, Reach capital just came out with their 2024 annual report and it released in this funding report that Edtech funding was starting to get back to pre-pandemic levels, which is very good for us. So taking us as back into the world but it is a very different world than it was pre-pandemic. So the funding is starting to come back, but investors are very focused on investing in solutions to address the most critical problems in education and AI, of course, is a pretty key component to what they’re investing in. So I say to everybody, go check out that report. It did say just to put it into context, in 2023, there were only 55 companies in the entire United States over the course of an entire year who received a Series A. So only 55 companies achieved a Series A and only, this is even more surprising, only 87 companies got to seed stage.

 

[00:24:40] Debbie Goodman: 

Goodness. And the comparison with the prior two years I’ve seen the report I don’t know what the differences between the prior two years, but it’s substantial.

 

[00:24:51] Rita Ferrandino: 

It’s substantial. So go look at that. That will help you understand the investment climate today and what people are looking for. So, it’s a pleasure always, Debbie.

 

[00:25:03] Debbie Goodman: Well, for anybody who is thinking about their investment strategy, don’t only think about the numbers. You got to think about the people and you’ve got to particularly think about who is driving that revenue engine. So, Rita, thank you for your amazing words of wisdom as always. It is a pleasure. And I guess we’ll see whether this episode Breaks the record of last one. So, listeners, if you’re still listening, please forward this to somebody who you think needs to hear this very important piece of information. It’s a PSA to all founders in the Edtech sector. Bye now.

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