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It started with a LinkedIn connection request from a chap called Steve Tolen. Then a post from Tribe announcing themselves as “Regional Partners” for “Recruitment Entrepreneur“, shortly followed by a job ad for a Country Director for the same organisation. And then several conversation with recruitment leaders who have either applied or been hit up for the role. If you’ve been anywhere on LinkedIn for the past month there’s a good chance that you’ve seen the latest overseas idea hitting the shores of Aotearoa. Recruitment Entrepreneur is the brainchild (or at least fronted by) serial recruitment entrepreneur James Caan. Yes, the guy from Dragons’ Den. Essentially a venture capital firm, Recruitment Entrepreneur invests in early stage recruitment start-ups, whilst also providing coaching, strategic advice, and back-end support. The idea being, in 6 years time, you sell your business, buy a yacht, and die of a cocaine overdose. In the meantime, Recruitment Entrepreneur receives dividends, and an even bigger chunk of cash on exit. The details on the website are slightly vague, but from what I gather from various conversations, the details and practicalities look and work as follows:

The history:

Firstly, James Caan. It’s this James Caan, not James Caan from Misery. Caan founded Alexander Man in the UK and sold it for GBP260m. He has more money than any of us, and is a big swinging dick in the industry. According to their website, RE (as I will now call them) have invested $20m into 55 recruitment companies since 2014. According to their LinkedIn page, it’s 30 “founders”. This is either a mistake, or 30 of the 55 have been based in Australia. Or more likely, they’ve invested in 30 founders, plus 25 businesses already founded. Anyway, they’ve invested in a comparatively small number of firms globally, with an average investment of around $350k. If you want to see who they’ve invested in, check out thew website and watch the videos. Like all talking-head videos, watch at your own peril if you don’t like too much hair gel, women with blow waves, or annoying recruiters in general.

The business model:

My understanding is as follows: The Country Director identifies ambitious recruiters wanting to do their own thing. The Recruiter and RE jointly invest in the start-up recruitment firm, with the RE website stating this is typically GBP250K. The investment from the Recruiter looks to mostly be in the form of a loan from RE. This loan is paid back to RE over the first couple of years of trading. For this investment, and the loan facility, RE retain about 60% ownership of your company, and you have 40%. RE in turn provide you with the coaching, development, working capital, and back end support for you to supercharge your business from day 1. They don’t want you at the kitchen table in your underpants. They want you in Britomart with a team of 5. Once the loan is paid, like all profitable businesses, the shareholders receive dividends, split as per the shareholding. Also, the Recruiter continues to pay a service fee for the back end support (pay roll etc) to RE. Over time, RE has their loan repaid, makes money by providing back end support, receives dividends, and all going well, makes several million from the sale.

The extra stuff:

It’s not just start-ups. This VC will also invest in existing businesses who can’t get off the kitchen counter. This is much of the NZ small recruitment firm market. Not only this, but if you don’t want to give away equity, you can also use (at a cost) their back-end support and expertise. This idea is not new however.

The good stuff:

Too many Kiwi firms do stuff on the cheap. This is a very London/New York way of building a big business fast. An ambitious young Recruiter can have a great brand, cool office, marketing support, and run contractors from day 1 – all whilst paying themselves a salary. You’re not doing that with your own money unless Grandad leaves you the Waikato Dairy farm. Depending on who the Country Director is, you could get a fantastic mentor. And 40% of $8m is better than 100% of $120k.

The bad stuff:

My understanding is that you own 40% of your business. Please correct me if I’m wrong. Even if you own 60%, it’s still not all your business. And on those days when you’re killing yourself on a recruitment desk, this will hurt. Also, NZ is a small place. What happens if you know and hate the Country Director? Or you just don’t work well with them? The big thing for me however is the ongoing cost of support services. I’ve seen at least one business die in NZ through paying ridiculous amounts to have someone process timesheets in Australia. And at what point do you stop being a business owner and start being a franchisee? If RE have priced this correctly (for themselves) they could make good money without ever selling a business. Think of years and years of recurring revenue for chasing the odd invoice and processing payroll out of the Philippines.

The weird stuff:

RE must know how few recruitment businesses are bought and sold in New Zealand. Of any scale, we’re looking at 1 or 2 a year. If this Country Director is persuading 10 plus would-be-entrepreneurs to set up a firm annually, who the hell is going to be buying them all? Is there really room for an extra $60m+/year of M&A activity in this market right now? Maybe they feel that they are creating a market, and overseas investors will flock to buy New Zealand’s leading Risk and Compliance Recruitment experts. I am slightly sceptical. Secondly, Tribe’s involvement is interesting. Essentially, they have agreed to find a Country Director to help build Recruitment agencies who will compete with…Tribe. Personally, given I co-own two conflicting businesses, I love this dynamic, but many won’t. And if Tribe are providing support to these start-ups, what does it mean when said start-up nicks a Contractor from a Tribe Recruiter, and payrolls them through Tribe? Tribe know what they’re doing I’m sure, but it’s an interesting one. And finally, my understanding is that the Country Director role doesn’t pay particularly well. The real money for this person will come on successful exits, and these will be 4-5 years away at best. Is there anyone outside of the Halo lads who has the experience and cash to toil away for a few years before seeing the big bucks?

Anyway, we wait with bated breath to see who’ll be running this on the ground, and I look forward to receiving some of James Caan’s money to help staff a load of new recruitment firms.

Have a good weekend.