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Why Company Culture Matters For Private Markets Investors

Partner content produced in association with Neudata

Company culture has often been seen as an intangible asset – or liability – but alternative data is enabling private markets investors to better measure this part of a company’s performance. AlphaWeek’s Greg Winterton spoke to Kate Skerrett, Head of Data Partnerships at Glassdoor, to learn more about this trend.

GW: Kate, private equity and venture capital firms understand tangible data like company financials well enough, but how can they use intangible information like company culture to help them make an investment decision?

KS: The prevailing notion from years past was that culture is a “nice to have” but has little to do with financial impact; we have found the exact inverse to be true. Glassdoor’s Economic Research team studied our list of ‘Best Places to Work’ and compared the performance of these organizations vs. the S&P 500. On average, stocks of Best Places to Work winners earned 20.3 percent per year between 2009 and 2019, compared to 12.9 percent for the S&P 500 overall. This analysis clearly shows that company culture matters and that it’s a smart business strategy to invest in people, because more satisfied employees who like, or even love where they work, has an impact on business and financial performance in the long-term. PE and VC firms can screen for culture ‘winners’ now, enabling them to be more confident that their investee companies will succeed in the medium to long term.

GW: How important is company culture compared to other metrics?

KS: According to our Economic Research team, company culture is a top three factor correlated to driving long-term employee satisfaction at a company. We know that companies with stronger company cultures tend to attract higher caliber talent looking for challenges and the opportunity to make impact to the world, while companies with weaker company cultures may not be as attractive to today’s talent pool, which has options in terms of where they want to work. Right now, for instance, we know that the demand for quality talent is outpacing the supply. A stronger company culture allows employers to better attract top talent, which in turn helps them drive the business forward.

GW: Is there any difference between PE and VC here? After all, won’t start-ups with very few people have skewed data if one person has a particularly good or bad experience versus a mature, PE-backed firm with many data points?

KS: Actually, that’s not entirely correct. What we have found most is that company trends start to surface in as few as five reviews at a company, so the size of an employer doesn’t matter too much, making this applicable for both PE and VC / early-stage investors. These themes and trends that current and former employees are sharing about working at the company allows PE and VC firms to see what’s really going on inside, including what’s working well and what needs improvement.

Kate Skerrett is Head of Data Partnerships at Glassdoor. She will be presenting ‘Why Company Culture Matters’ at the Neudata Summer Online Summit at 1.10pm ET / 6.10pm GMT on Thursday, June 17th. Click here for more information and to register

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