If you’re working in a fintech, chances are its funding comes from either private equity or venture capital. The two industries are both focused on growing startups, but their differences can make a big difference to startup employees. A recent paper from Oxford and HEC Liège researchers shows that VC backed firms are best for employee satisfaction, while private equity-backed startups excel in pay.
Analyzing one million employee reviews for startups on Glassdoor, the paper found that a company’s ownership structure correlates to employee satisfaction. It found that employees in private companies tend to be much happier than those in publicly traded companies. Employee satisfaction was “significantly higher for VC-backed companies,” with satisfaction levels dropping to more normal levels after an exit.
Using natural language processing techniques, the paper determined that the three primary benefits of working for a VC-backed startup are a “supportive culture, growth and hiring process.” This is often because VCs are more proactive at instilling HR policies into their companies. Venture Capitalists often encourage having boots-on-the-ground experience in areas like the public sector or within startups, which could mean they understand the struggle a bit more than private equity professionals who are most often courted from investment banks and consultancies.
The challenge of working in a VC-backed company, according to the paper, is that it can be very demanding. Fintechs, and startups in general, often want people to do a bit of everything, which can significantly impair work-life balance. Employees 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 most frequently mentioned topics in a negative context are promotion opportunities, training, hiring processes and employee care. On average, the score of a VC-backed company bought by a private equity firm drops from 3.92 stars to 3.64. When a PE-backed firm changes ownership, its average score rises regardless of the structure of its new ownership.
Private equity professionals have previously expressed horror to us regarding 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 harsh economic climate. Thiel Capital MD Jack Selby estimates that almost 80% of VC firms could end up going bust with the next year or two.