How to Vet a Startup as a Prospective Employee
A question that I’ve often heard asked is “how do I know if an early stage startup is worth working for?”. Having worked at three VC-backed startups internationally (both in Silicon Valley and Nairobi), I firmly believe that the best learning opportunities stem from working at early stage companies. However, it is still entirely possible to pick the wrong one. After all, just like an investor makes a calculated gamble when they invest in a company, employees do the exact same! Funding (in terms of job security) is often the most popular criterion when people assess opportunities at start-ups. But is a well-funded startup a guarantee for success? There are still several downsides to joining a company with enough money but poor management skills and a terrible work culture — and these can take a serious emotional toll on you.
So, how do you vet a startup before joining one? Unfortunately, there’s no foolproof method of selecting a startup that’s guaranteed to become successful... However, even if the company doesn’t end up a unicorn, take comfort in the fact that the learning opportunity will still be phenomenal — and there’s a lot to be learnt from poor management and organizational practices too. Basically, you can always learn how NOT to run a company.
From personal experience though, I have a few recommendations that you might want to consider before accepting an offer at an early stage company. These consist of some due diligence basics to save yourself future mental and emotional trauma. Please note that most of the below pertains best to Seed stage, Series A and potentially even Series B companies.
1. Make a list of what’s important to you.
Is it the problem you’re solving and the impact the company is making? Is it breaking into a new industry? It is learning from an incredible manager/mentor? Pick the top three and go from there! You should really do this for any role, startup or not.
2. Read the “Lean Start Up” and “Venture Deals”.
It might seem a bit much, having to read TWO whole books — but they will teach you SO much about the startup ecosystem and the founder’s + investors mindsets, far more than any blog post or online listicle ever will. It’ll also teach your important things about startup lingo and the questions to be asking right from day one on the job.
3. Research the various stakeholders involved with the company.
Right from the company’s founders to their existing and prior employees. And then from their current investors to their existing customer base (if they already have them). Most company websites should have this information, unless of course you’re planning to join a super stealth startup. Also, remember to Google news articles and other company related media from prior years as well.
4. Do some due diligence on the founder’s backgrounds.
Even if you’ve probably had a few conversations with the founders at this point and have a gut feeling about them, it’s important to do your homework on them to understand who they are. While no amount of research can ever completely accurately answer this for you, these questions are worth considering so that you can form some sort of hypothesis before going in:
- Have the founders had experience working at other companies before? If not, do they know what it takes to be a good manager? While they could naturally be fantastic at dealing with people and have a very high EQ, they could also just as well be terrible at it with no prior experience or examples to learn from.
- Have they worked at other startups previously or have they worked at Fortune 500 companies? There are benefits and trade-offs to each; but certainly worth thinking about. Or are they the text-book “founded this SaaS company in their college dorm room” type of founders? Again, there’s nothing wrong with this — and we’ve all heard of more than enough “unicorns” that started like this! Just keep in mind that they are unicorns for a reason — and that the reality of working for a 22-year-old with no management experience on the ground is pretty different from just watching “The Social Network” and dreaming about watching your future stock options blow up.
On a side note: Silicon Valley and VCs around the world tend to romanticize stories of young founders — “the younger the better!” seems to be the mantra all around. But the numbers clearly show that more experienced founders actually do better en masse. While there are lots of reasons for this, I strongly believe that some prior management experience helps with building a robust company culture!
- Have they founded other companies before this? What happened to those other companies? If they’ve had successful exits, that’s already a good indication of success! Otherwise, it might also be a good idea to do some research on the fate of their previous companies.
And to add more context here — at an early stage company, the company culture is very much dictated by the founder alone so you should know what (and who!) you’re signing up for.
5. Remember that Diversity matters.
Since you’ve already done your research on the team it’s now time to assess their diversity — what does the company’s leadership look like? Are women or minority groups represented? What about the ratio of men to women in general in the company? In my mind, if you’re a woman reading this, finding strong female mentors is key at any point in your career. They’re hard to find, so you have to optimize for it. Additionally, even if you’re not a woman or part of a minority group, this SHOULD be important to you. Making the effort to find and hire an amazingly diverse team says a lot about the founders and their values as well. After all, it’s no secret that diverse team teams are stronger and perform better — you can read more about the research behind this in this HBR study and this WEF article.
6. Start speaking with the other company stakeholders you‘ve already identified.
First, ask the founders or leadership if you can chat with some current employees. There’s no reason they should say no — and if they do, then that’s already your first red flag. Second, start putting those Linkedin search tools to good use and seek out ex-employees. They’ll likely give you a far more candid lens into the company’s operations and culture than any current employee will. Just remember to take all feedback with a grain of salt and aggregate several opinions!
Remember to ask about things like company culture (ie, more than just free food and happy hours), feedback processes, annual reviews, upward progression, company values, leadership involvement in day to day processes, etc.
If possible, try to reach out the company’s investors as well. If it isn’t clear who they are, definitely ask the leadership team. Do some due diligence on the investors — are they legitimate names or just smaller more obscure shops? Then try to talk to them directly. Also, remember that these guys are very clear stakeholders in the company — ie, they’ve literally put their money where their mouth is, so they will only have good things to say. And it’s in their best interest that the company hires the best talent (ie, YOU!). So again, hear them out but remember the grain of salt bit. Try to ask targeted questions about the company’s ability to win in the space they’re in, the challenges they’ve identified and their take on what they think the company needs to succeed. This will set you up for success if you happen to take the role as well!
7. Openly talk about equity as a part of compensation!
Most people tend to not think about equity while evaluating offers at a private company — usually because it’s worth so little at such an early stage company. But it’s an important consideration, especially since many early stage startups will try to justify otherwise less competitive salaries with stock options. Again, some healthy skepticism is not a bad thing here — especially since it’s entirely possible that they might not be worth anything in the future.
But if it’s in your contract, make sure you ask about the current stock price (it’ll probably be a few cents if it’s an early stage company) as well as the total pool of options (ie, they might offer you 20,000 which seems like a LARGE number but if the pool is of 200,000,0000 options — that puts your measly 20,000 in perspective). Also ask to see the ESOPs plan or guide — if the company has raised VC funding, they should certainly have this ready. Some helpful reading before broaching this conversation can be found in this Muse article and this guide to startup compensation by General Assembly.
Now, an obvious disclaimer here is that the above isn’t a “one size fits all” approach — and will never be.
Each company is wildly different, and startups come in all shapes and sizes. The advice I have above stems from my personal experiences that have helped me make decisions previously — for better and for worse! Remember to do your own homework and keep in mind what you’re optimizing for given the career stage that you’re in. Some other helpful resources on this topic consist of this great list of questions that AngelList put together and this First Round blog on how to best structure your time. Good luck with your decision making and let me know your feedback/tips as always!