Retained vs. Contingency: What Founders and VCs Must Know

• Contingency search is not free; it is a deferred cost with a hidden risk premium that is disproportionately large in the startup market
• Average contingency fulfillment rate is 8-12%, so you often can spend time doing multiple searches before you are successful, besides the internal opportunity cost, the luxury of time is not something a startup has.
• The startup executive talent pool is finite and does not respond to blast campaigns from multiple competing firms
• Retained search creates preparation depth that changes the quality of engagement from the very first candidate call
• The contingency firm racing to be first optimizes for speed, not depth, signaling to passive candidates that they are being recruited rather than partnered with
• For venture-backed founders and investors, the retained fee is among the highest-return investments a growth-stage company makes

What is the contingency risk premium in startup hiring?

The contingency risk premium in startup hiring is the hidden organizational cost created when multiple competing search firms simultaneously approach the same finite pool of startup executive candidates, signaling disorganization that causes the most qualified passive candidates to disengage before a single qualified conversation begins.

There is a version of this conversation that happens in almost every Series A and Series B boardroom. A portfolio company needs a CTO or a CRO. A VC firm or a founder asks whether they should pay a retainer or engage a contingency firm that only charges on success. The question feels pragmatic. The answer, once you understand the startup executive market specifically, is unambiguous.

Contingency search is not free. It is a deferred cost with a hidden risk premium attached to it, and in the startup executive market, the hidden risk is disproportionately large. In our 15 years of managing high-stakes placements, we have found that the boards most surprised by failed executive searches are almost always the ones that chose contingency to save money and ended up paying far more in organizational disruption. Managing Partners Patrick Shea and John Pezoulas personally advise every startup board on search model selection before any engagement begins.

The startup executive talent pool is not large. The people who have actually taken a product from pre-revenue to $20M ARR, built an engineering team from three to sixty, or grown a sales organization from zero to repeatable are a specific and finite community. A contingency firm racing to be first with a candidate cannot build the deep case required. They are optimizing for speed, not depth 

See our costing guide to see the true cost of various recruitment methods, benchmarking contingency, internal search, executive search and using Ready Set Exec: RECRUITMENT COSTING GUIDE

Retained search creates the space for a different kind of conversation. Ready Set Exec, engaged on a retained basis, has the mandate and accountability to understand the company deeply before approaching a single candidate. That preparation is visible to every candidate we talk to.

For venture backed founders and the investors behind them, the retained search fee is not the expensive option. A failed executive hire at a critical growth stage is the expensive option.

Written by John Pezoulas, Managing Partner at Ready Set Exec.