On The Brink with Castle Island - Scott Fletcher (Intersection GP) on Executive Search in the Digital Asset Industry (EP.555)

Episode Date: August 28, 2024

Scott Fletcher, founder of Intersection Growth Partners joins the show. In this episode we discuss: Scott's professional background and the events that led him to launching Intersection Growth Partners. The Intersection Growth Partners business model and how they also became investors in a number of their clients' businesses. The current state of the Executive Search market for digital asset/blockchain companies. How the best founders run structured recruiting and interview processes. What job candidates should be thinking about when evaluating digital asset / blockchain roles. The categories of roles that are the most in demand in today's environment. The impact of legislation on the future of the industry. To learn more about Intersection Growth Partners, visit their website.

Today on the podcast, I sat down with Scott Fletcher, the founder of Intersection Growth Partners, a leading executive search and investment firm in the blockchain industry. This was a great conversation that provides some tangible advice for founders who are scaling businesses and looking to recruit senior talent. We also spent a lot of time talking about the overall market structure in the blockchain space and the impact that has on the hiring market. I think you'll enjoy this one. So without further ado, here's my conversation with Scott Fletcher.

Matt Walsh and Nick Carter are partners at Castle Island Ventures, All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guest and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of mortgage.

and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing. And print a couple trillion dollars and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Scott, thanks so much for joining us today on the podcast.

Great to be here. Thanks for having me on, Matt. So we've worked together a lot over the years, but I actually don't even remember your origin story. So how did you come into the crypto space and tell us a little bit about intersection growth? For sure. So starting with intersection growth partners, we are a boutique retained executive search and investment firm focused solely on crypto.

In terms of how I found my way into it, I grew up in traditional finance, started out on the sales and trading investment bank, eventually. ended up in executive recruiting in the asset management space, so working with the black rocks and blackstones of the world. And then in probably 2015 timeframe, I started reading about Bitcoin and started going down the rabbit hole of smart contracts and decided that my relatively cushy and predictable career in traditional. asset management search was just that. And maybe there was something a little more interesting out there. And I actually ended up getting in touch with a guy named Jeff Stump, who has run

talent at Andreessen Horowitz for years and said to him, hey, listen, if you guys are funding companies in the crypto space that need people out of the traditional finance world, your current search partners may or may not know those folks. And so those are the people we know. If you ever come into a situation where you need to find those folks, we'd love to be part of the conversation. And that was, I think, two or three years went by before I heard anything from Jeff. And then he rang me up one day and said, hey, we just funded these two exceptional technologists. They're coming out of Docker. They're going to try and solve some issues around custody and cryptocurrencies. And they really want a Wall Street veteran to come in and help them run the firm. And I was like, custody and

cryptocurrencies and did a quick bit of reading, ended up going the next morning to breakfast. It was Diogo and Nathan from Anchorage. We ended up working with them, partnering with them, investing in them. And then one thing led to another and Stump introduced us to the guys at Coinbase. We ended up doing, I think, their chief compliance officer searched. We put number of investment professionals at Andrews and Horowitz. And then we were off to the races. And we ended up starting a standalone firm, which is intersection in late 2018. And we've never looked back. That's an awesome story. And so many questions there. But I guess my first one is just how did you get into the investing side of this? That seems like a very unique value proposition

to help a company out with an executive search, but also invest in the company. The way that we viewed it is that it's really a win-win. So for, the founders that we're working with. And by the way, it's not a must. We do it when it makes sense. If the founders think it's a good idea and it feels like a good investment for us, we do it. It's not something that's required. But what we found from beginning, going back to investing in Anchorage early on, is that when we invest our money and oftentimes it's multiples of our search fees, it really turns the dialogue that we have with founders into much more of a partnership and a strategic one, as opposed to more of a vendor relationship where you get paid for finding

them a CFO or a CTO or whatever it might be. And then you're on to the next. Here we've really got skiing in the game. And it gives them a level of confidence that we're doing things with a long-term orientation. So that's number one. Number two, when we go to speak to candidates in the marketplace, most of the folks that we're approaching are very good at what they do. They're happily employed and gainfully employed and not looking to make a change. And so if we have another arrow in our quiver where we can say to them, hey, we think you should take a look at Anchorage or Coinbase or whatever it might be. And oh, by the way, we invested in them two, three years ago. And we put our own money in it and our LPs money in it, it's just another lever that we can pull to get people

interested in the opportunity. Yeah, that makes a ton of sense. You could see how that would be very powerful for a candidate. Maybe staying on the candidate side, I imagine in the early days when you started doing this, you were hearing a lot of candidates say, what the hell is crypto or isn't that like dark web money? What is that conversation historically? And then curious what it looks like these days in terms of you're going out to find a head legal officer. Do they have to know about crypto? What's that vibe like? As you would imagine, it's quite volatile. It has evolved, I would say, in a relatively linear fashion if you zoom out in that the quality of people that are interested and the quantity of people that are interested has gone up into the right over time. If you zoom in,

it's not quite so smooth of the line. And there's volatility within the path. And so if you think back, so we've been at this six or seven years now, if you think of maybe summer 2021 being a 10 on a 1 to 10 scale of level of interest and maybe the week or two after FTX blew up as being a 1, we're somewhere maybe around maybe a 7 today in terms. of relative level of interest. And there's all sorts of things that are going into the pot.

But I guess I would probably sum it up as what is the sentiment around the space and its asset prices, its funding levels, its regulatory outlook. And there's so many things that go into it that really create that sentiment. In terms of what we're seeing today as we work with our partners, probably the most in-demand sectors, meaning the groups that our partners, that are hiring the most are probably the L1s and the L2s right now, particularly on the foundation side as a lot of them are getting spun up out of the lab side of things. And then in terms of if you said, what's the single most prolific job right now that people are hiring for? And again, we only hire the C level for the most part. It's probably the chief marketing officer. It's a function

of when we were back at the one or the two post-FTX, and this is not crypto-specific, this is just generally people, the first groups to get let go are recruiting and go to market as they try and cut expenses. And so the CMOs, either a lot of them got let go or searches that were underway got shelved. And then fast forward, sentiment has improved greatly and people realize that actually they do need a CMO. And so a lot of these groups are now re-engaging to bring those folks on board. If you look at the crypto space, what are the hardest roles for you to work on? Are there commonalities there where it's just like, hey, this role is just always difficult

to find a great person? Listen, great people are always difficult to recruit. But I think what the factor that maybe makes things most challenging when it gets down to it is all of the things being equal is what's the person's risk appetite. because you're asking somebody to make a change. So it tends to work in such a way that people who are in risk assessment roles or control functions. So think about chief risk officers, chief financial officers, chief compliance officers. Those people, and this is a broad breaststroke, but those people tend to, the senior most folks,

tend to be relatively risk averse in their personal lives. They're a chief risk officer. Whereas if you think about a chief revenue officer, they're always gunning for the upside. So as a result, those positions can be challenging to recruit for on a relative basis versus some of those more CEO go-to-market functions. Yeah, I've worked on the inside of a big regulated financial services firm, and there's entire swaths of people that I just can't imagine trying to make a pitch to join a startup, right?

Yes, it can be challenging. Let's talk a little bit about what it looks like to recruit someone for an Anchorage or a coinbase. I'd say a traditional business model, as much as you can call something in this industry traditional, but makes money in a very traditional way, doesn't have a token, versus some of your clients that might be protocol specific. What's the difference in going out and explaining the role and recruiting people? A key difference, which is really still getting sorted through, is how do you think about tokens. This is both a discussion that we're having with founders and their boards, as well as

with candidates. It's still so early, and I'm sure you're dealing with this with plenty of your portfolio companies that have tokens. There's still so much that's getting shaped in terms of what to do with tokens. But the way that we think about it is just it's another lever that founders can use to attract and retain talent. And since protocols, it's open source software, there's ecosystems that are getting developed totally separate from the company or group of people that started it oftentimes, which there's probably equity sitting in that entity. But if you want to incent people to take part in the overall ecosystem, the token is a great way to do that. But there's all kinds of considerations. First of all, it needs to be well planned. It probably

goes that same, but consulting legal counsel to understand all the regulatory and legal issues that are important to take into account, explaining it to employees who are there. And then for us, explaining it to candidates who, if we're talking to somebody at, let's just say, Goldman Sachs or meta, the concept of a token is quite foreign. And so there's a breaking in period there, an education period. And the clearer that we can make these things from the get go, the better. So how many tokens are there? What's the vesting schedule? Is there a separate lockup in place, separate from the vesting schedule? Are they restricted token awards? Are they token purchase agreements? Are they restricted token users? There's just all these things that come into play

when tokens are part of the discussion. And that's probably the primary difference that we see between sort of a protocol play and more of a corporate entity with equity. This just strikes me as a category, which will get a lot easier for you once you have a market structure bill in the U.S. Once it becomes very clear how to raise capital and eventually decentralize a network into a commodity network, it just seems like we'll have standards around, okay, a standard provision for a CFO is X percent, and here's how the vesting works. But we're just not there yet, it seems.

We're not there. And I would say, and I couldn't agree with you, more about how much easier and clearer things are going to get once we have clarity on the regulatory front. But I would say rough numbers, we're probably doing upwards of a half of our searches outside of the U.S., even for groups that started in the U.S. because of the regulatory uncertainty. And so hopefully, and tokens play an important part of that, hopefully once we get the regulatory framework set up here, a lot more can be done on. onshore than you can do right now.

One of the areas where we're seeing a lot of just net new company formations and infrastructure companies is in the stable coin space. I know you guys have been quite active there. It seems like that's a category that it's a lot easier for a traditional financial services person to really grok and hop into. What are you seen there? So I would agree with you. I think there is within Cryptone Web 3, there is a spectrum of pure tech to where there's

very limited amounts of traditional finance that are part of the business. And I would maybe put the gaming sector over there, creator economy. There's clearly, there are tokenomics that need to be considered. But in terms of understanding money movement and central bank and the like, very much less. So you get over to the stable coin side of things. And it's getting real close to financial services as we know it. And as I think we both agree, stable coins are going to be very disruptive in terms of the traditional financial system. And so when we work with groups in the space, we're oftentimes recruiting people out of the traditional financial services organizations. And they have a far easier time rocking what's happening

within those organizations because oftentimes they are quite aware of what's happening in the stable coin space because it is already risen up on their, screen, if they aren't aware of it, it's not so far to bridge that gap. And we have fewer folks that we're bringing over from big tech into the stable coin space and way more folks from traditional finance. Yeah, it seems like all of the control functions that we mentioned earlier will be critical jobs in that category. 100%. So maybe tackling this from the founder perspective here, you've run into thousands of founders over the years, the typical trajectory, at least in my eyes is the first few people that you bring on board are the true believers that

maybe you already knew from a past job. And even at the Series A level, I'd say many founders might not have engaged a professional search firm to actually help them go out and find the next generation of talent at their companies. So what is your advice to founders, generally speaking, on how to run a structured recruiting process? A few things come to mind. So first off, be intentional about how you are going to hire, have a plan before you start. And so once you put that plan together, which is interview process and who's going to manage which parts of the stream, et cetera, et cetera, I can't stress enough how important it is to try and gain consensus before you ask your search partner to get out into the marketplace.

For example, if it's a CEO search, the board needs to be involved in this exercise. If it's a non-CEO search, then the internal state. stakeholders need to come together to drive towards consensus. You'd be shocked at how far apart various leaders are within an organization with regard to what each one of them is an envisioning in a new hire. We frequently lead discussions with management teams to drive towards this consensus, and it can take any number of shapes, but a way that we have found to help drive this discussion forward is to force rank attributes. So on a relative base, what's most important to you? And let's say you're looking for a CMO. What's most important from

one to five? Here's five criteria. Experience marketing software to a developer community. Is it crypto nativity? Is it they've led a global team and so on? And you can't have all five ranked as number one. You need to prioritize. And so when you get three or five or eight execs in a room, all talking about this CMO that they see bringing on, they may have very different views about what's important. And so we lock the door metaphysically and say, we need to settle this before we leave the room. And so when we come out of that room with maybe everybody doesn't have the same one to five, but at least they're driving towards something similar. Then the next step that we often go towards is putting together. So we know the space relatively well. We take these force

rankings. Okay, here executive team are a half dozen or a dozen profiles of people. that could be suitable for the role based upon what you just told us is most important. What do you see? What looks good? What do you feel like is resonating with you as a team? Then once we've got that, and maybe there's two or three iterations, that to start to distill what looks good, then we're in shape to actually start making calls and meeting people. And the whole point of this is that you want to be efficient with your time. You have a business to run in addition to trying to recruit your leadership team. if you empower us to be efficient so that we know to the best of our abilities, what you're looking for before we get out in the marketplace, it makes things a whole lot more efficient. So that's number one. Number two, what's the interview map look like? Which people in what order? What's everybody interviewing for? And everybody should be thinking about something different. Somebody should be thinking about interviewing for cultural fit. Somebody should be interviewing for their technical expertise, intellectual, regular, etc., etc. time of scheduling is critical. Don't let a lot of time pass between interviews. If you lose momentum,

it's oftentimes what kills a search. And you want to make sure that you've got your process nailed down. It sounds like a detail, but it really is important. So everybody should be assessing for those various attributes in the interview, but also be selling. Even if the person doesn't come on to join your team, it's an opportunity to leave somebody senior with a positive taste in their mouth about your firm. This is us, but we don't believe that people who are reporting into the person who is being interviewed should be a part of the interview process. Maybe you bring them in after they've been given an offer just to bring folks in and let them meet their boss ahead of time, but we've seen this go pear shape too many times where people are interviewing their potential

future boss. We often see this with younger, less experienced founders who really want to be consensus driven. And it just too often ends up with results that you're not intending. So we encourage folks to not bring in junior folks to the process. Is that because the candidate doesn't like the team and they walk away? Why does that go parachute? No. Typically, the person who be coming in will have the flexibility to make changes to the team as they see fit. More often the issue is that people who are reporting in may have different interests, unfortunately, than the firm as a whole. And so who might be best for the firm may or may not be best for that person who's reporting into that individual. And so they can give reviews of the person

that may or may not be in the best interest of the firm. And they can also sort of poison the well with the person during the interview. That makes sense. Let's say you go through the interviews. You're the founder. You've had your team interview. You've had a good structured process. It comes time to start doing some references.

How should founders be thinking about that? What is the good way to reference a potential candidate? So the way that we run our processes is we do not introduce anyone to a client, a partner, without having at least one back channel reference on that person, somebody who we trust, who has given this person a positive review. And then throughout the process, once they've gone in for their first meeting, we'll continue to do back channel references all the way up to the end. And we're trying to talk to people who they work for, who worked for them, clients,

anyone who can give us sort of a 360-degree view. And we're really interested in how does this person react under pressure? It's easy to be a great guy when things are going, well, what happens when the shit hits the fan? How's this person react? And as it relates to official or on-balance sheet references, we haircut them pretty darn heavily. We're happy to take them. Sometimes you get a nugget or two in them. But it's quite strange for somebody to come in and give you three references and for them not to be glowing.

We don't tend to put a ton of credence into those. One other thing that I would share is the client of hours that is the most successful at recruiting. And honestly, there's a lot of daylight between them and number two and everyone else below them. And it's a very well-known firm. Their expectation on their executive leadership team is that they're spending 30% of their time recruiting. So if you play that out, that's several hours on average every day. dead that the sea level folks are expected to be recruiting. The point is, it's time intensive, and they're incredibly efficient at their recruiting process, but there really is no shortcut to

recruiting. It's quite time intensive to do well. That makes a ton of sense. So if you just look out at the crypto blockchain industry here for the next couple of years, how do you see it shaping up in terms of the talent landscape? And here is just your overall view on regulatory environment and potential catalyst for the industry in the next couple of years? When we started our first year, we did not recruit a single person from within crypto. Every search that we did was recruiting somebody from outside of crypto to come in. Last year, 2023, we were right at 50%. And it's been a relatively linear progression from the beginning until last year.

And I only see that continuing. That's a result of the industry is growing. The talent pool is getting better. As regulatory clarity comes in, and this is certainly U.S. dominated, but our view is that, A, we're behind as a relative to other parts of the world. But once the U.S. regulatory clarity gets sorted, and that will, we believe, particularly with Saab 121, that will give U.S. firms, just the ability to jump in and the asset, the amount of capital flowing in will be dramatically different. That, we think, will then spur the rest of the world, which is already ahead of us. At that point, probably play catch-up, and it'll be a pile on, we think. When that happens,

it's our view that the number of people who will have comfort from outside of crypto will actually increase dramatically. And therefore, we may see another sort of change in that graph, in that line in terms of more people coming from outside of crypto into the space. I wonder if it'll be a two-way bridge because you mentioned Sab 121, where look, if we get the banks, they have the ability to hold it if Sab 121 goes away. And then if you were to get a market structure bill that clearly delineates a security versus a commodity, I would have to think every bank and broker dealer is going to have to be in this beyond just having a labs group that does science projects all day on private blockchains?

A hundred percent. And we also think that there's going to be an M&A period there where it's M&A for the technology. It's also M&A for the aqua hiring. And so we're having a number of conversations with these traditional institutions who are trying to figure out, okay, when the rope does drop, how are we going to be in shape versus our competitors to hit the ground running? 100%.

Scott, so this has been awesome. I think this is a great lay of the land. And a lot of founders listened to this podcast and a lot of venture funds as well. So I think it's a great way to get the landscape of just what's going on in the executive recruiting space. So where can we send people to learn more about intersection growth? Thanks a lot for having me on, Matt. Feel free to send us an email at hello at intersection gp as in growth partners.com. Our website is intersectiongp.com.

We would love to speak to anybody who's interested in chatting. Thanks for coming up. Thanks a ton, Matt. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.