Joining a startup – especially a start-up – can be a risky bet.
But the market looks even more daunting as we approach 2023. Although some startups continue to add talent, some of the best capitalized startups have staff discount by hundreds.
With news of layoffs still pouring in – from big tech companies like Amazon to financial incumbents like Goldman Sachs — where should applicants look for work? And how can they assess which companies are likely not pass under ?
We asked founders what candidates should consider before joining a startup in 2023.
Look for businesses with a realistic path to profitability
As capital becomes scarcer, more capital efficient companies have higher operating margins – and a realistic path to earning revenue/breaking even is favored by investors under current market conditions.
Even more than before, applicants need to understand if the startup can demonstrate a realistic path to profitability. This requires you to educate yourself and get information from the business on things like monthly usage rate, how much it costs them to acquire customers versus how much those customers are spending on the company (often expressed as the LTV:CAC ratio, or customer lifetime value versus customer acquisition cost) and net revenue growth. Ask them for numbers. If the company isn’t open and transparent about things like the cash trail, stay away.
“If the company isn’t open and transparent about things like the cash trail, stay away”
In terms of resources, many venture capital funds have built pretty decent content hubs. These can be a good source of information on things like useful benchmarking tools (what does good look like), how talent is rewarded (am I paid enough?) and how evaluate startups at an early stage and understand the key metrics.
Stefan Bader — co-founder of Cello, a user-driven growth platform for SaaS B2B
Understand the performance of the company and the sector in which it operates
Ask the hiring manager for basic financial information about the company: is it profitable? What is the funding structure? If supported by VC, when is the next round supposed to take place? In some cases, hiring managers may avoid these questions, which could suggest the startup lacks transparency. It is up to the candidate to determine whether he wants to take the risk or not.
Next comes the big picture. What is the current situation of the entire vertical in which the company operates? Is it booming? Or is he in danger? A descending vertical can be a harbinger of serious trouble for a startup; understanding this in time can prevent you from joining a sinking ship.
But then the risk factor kicks in. Some of us thrive in risky environments while others seek stability. What is your risk profile? What professional environment are you looking for? And if risk is what you want, make sure you’re properly rewarded (your salary and equity should be commensurate with the level of risk) if things work out.
Marek Talarczyk, CEO of Netguru, a digital acceleration company
Learn about equity
People join startups because they believe in the company – as well as in their own ability to contribute to its success and be rewarded for it. Equity is still a murky issue in Europe, with many applicants still unsure what having a equity participation Actually ways.
It is important that your employer understands exactly how much equity you are awarded and what the terms are. Depending on the performance of the business, your equity may represent a significant proportion of your total revenue. Don’t be afraid of To ask questions to assess the level of risk, as well as the value or potential value of the stock offering.
Here are some questions to ask about fairness:
- What is the current valuation of the company my equity is based on and what approximate earnings multiple is associated with it? Where does this come from? How has that changed from a year ago to now?
- How much of the fully diluted share capital will I own?
- What type of equity plan am I enrolled in?
- And what are the terms of this scheme? Exit clauses, vesting schedule, price and exercise value (both historical and projected) are particularly important here.
- If the plan includes options or warrants: what does exercising your options look like in the company? How common is it and how does it affect the taxes you might pay on equity and its payments (now and in the future)?
Equity is part of total compensation, so it’s worth thinking about it in conjunction with the rest of your compensation and other benefits.
- What total compensation do you think is fair for your current role and seniority? Do your research on salaries and equity if you don’t already know, and remember that companies may be strapped for cash right now, which could affect how much money they have. able to offer. Determine a cash and equity balance that works for you with this in mind.
— Yoko Spirig, founder and CEO of Ledgy, an equity management platform for startups
Don’t neglect start-ups
The later stage no longer implies more stability in the startup world. Many growth-stage companies are no longer investable from an investor perspective. There is a rush to become more capital and default efficient (when a business is expected to make a profit with its current resources, without any additional investment).
I see that the pre-seed and seed stages are hot right now and I would say this is a great time to start or join a startup (at an early stage). Many funds have moved away from Series B+ growth cycles and now offer smaller note sizes.
There’s a lot of great talent in the market following the layoffs and big hiring freeze in the tech sector. Things are also getting more serious. By joining these newly created companies, you will have fewer “start-up tourists” in the teams you join. This can be a plus from a career development perspective, as you’ll likely be working with more talented and, as Elon would say, “hardcore” teams.
Stefan Bader — co-founder of Cello, a user-driven growth platform for SaaS B2B
Evaluate if you can learn a lot from this company
The odds of success for startups are low and you tend to get paid less, so be sure to come out of the experience cleaner, wiser, and more hireable because of the experience. Look for fast-paced environments where you have the opportunity to learn from an amazing direct manager and where you have plenty to do.
To assess this, ask questions in an interview such as: What are the immediate challenges of the business? What does the team I join look like and how do they interact? How does it interact with other functions? What are my immediate goals? Is there anything else you think someone with my kind of skills could contribute?
Also, do your research on the founders. Look them up on LinkedIn and see if they’ve been featured in the press or done a podcast. Determine what they value and what their goal is. Now is not the time to work mindlessly for just any organization; join a company that makes a difference.
Arosha Brouwer, co-founder and CEO of employee wellness software Quan
Compare the compensation offered by a company to market data
When setting your own salary expectations, review the market data for the position you’re applying for and see if it matches the salary offered by the company. Keep in mind, however, that the negotiating room on the candidate side is lower, given that there is less of a competitive hiring landscape compared to previous years and budgets are tighter.
Startups that are pre-seed and seeded haven’t really slowed down and still have money to hire and pay people – but note that the high salaries of the past are gone for now.
The good news is that a pre-seed or seed company that has raised or is currently raising funds will most likely have done so at a realistic valuation. This means that employees who get stock options or stock from a company that has recently raised will be more likely to get better cash in the future as the stock rises.
— Virgile Raingeard, co-founder and CEO of the compensation benchmarking tool
Miriam Partington is Sifted’s DACH correspondent. It also covers the future of work, co-authors Sifted Startup Life Newsletter and tweets from @mparts_