Talent Arbitrage: Potential Over Experience

talent arbitrage undiscovered talent nerds silicon valley

Semil Shah recently interviewed the always brilliant Keith Rabois.

The conversation is wide ranging, but I particular liked Keith’s thoughts on talent: both incentivizing talent and applying talent arbitrage.

First, Keith’s mentions his concern that talent is currently too fragmented in Silicon Valley. In order to build a block buster company (like the next Facebook or Twitter) a company needs to be able to hire a concentration of hyper talented individuals — people with the pedigree to start their own companies, but who choose to sacrifice individual ambition for the sake of playing a supporting role in building the next world changing unicorn.

“You need a density of talent for a sustained period of time to create important companies”

I have heard Keith explain that the way startups often succeed is by identifying undiscovered talent and effectively arbitraging that discovery.

Startups need to take chances on hiring up-and-comers or unconventional resumes as it allows them to find talent at below market rates. Startups then hopefully reward their hires with more responsibility than would be normal and hope employees can quickly level-up.

Both of these points also reinforce the importance of mission in a company’s success. The ability to convince your best friends to join you as early hires (verses start their own thing) or the ability to convince a new grad to choose a small startup over McKinsey, often comes down to the founder’s ability to sell the mission and vision.

“At PayPal we hired unconventional people; not people from central casting”

I bring up mission because there is another type of talent arbitrage I have been reading about: massive funding rounds used to acqi-hire talent. I’ve observed several recent A and B rounds with companies raising huge amounts of cash, much more than should be needed so early.

Examples are Coinbase and 500px.

My guess is that founders are

1) taking money some off the table very early (a negative signal to company mission IMO) and

2) using the funds for early acqi-hires to expedite team building (unclear if this is a good strategy).

In an emerging space like crypto where specialized knowledge matters, it could make sense to acquire talent. However, I’m skeptical acquired talent turns into a mission-driven team long term.

What is clear is that talent arbitrage in Silicon Valley continues to evolve.


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