6 critical questions to ask before signing your startup offer

From someone who worked for one and recruited for many…

2020 made us believe that the worst is always yet to come (agreed, not a good pun but we’ll roll with it :P ). However, 2020 has also been a year where we all had to find our grit, tenacity, and inner peace to face reality and overcome challenges head-on.

When I look back at the year, I feel a great sense of gratitude for how things ended. Despite my job loss (thanks to pandemic), grueling work search process and uncertainty surrounding my career, I managed to learn a thing or two and come out as resilient and hopeful as I can be for the future.

To give you a bit of context on myself, I graduated from Berkeley in 2018 and had a non-traditional start to my early career. I ventured into private equity after graduation where I learned about M&A and sourcing, then I joined a renewable energy startup to get experience working in a high growth environment. But thanks to the pandemic I was forced to pivot again. Contrary to what it may seem, I am grateful for these experiences which helped me realize my true interest in driving growth within the construct of a established firm and joy for being part of a company with consumer focus around the world. I now work in corporate strategy for an F500 company and feel ecstatic about my work!

However, I am not here to talk about my corporate strategy role or tips on recruiting for F500, we can leave that for another post. Rather, I want to share my perspective on startup recruiting having worked for one and recruited for many (50+). I know startup recruiting can be a little daunting esp. for new grads or professionals who come from mature and established companies. However, understanding the ecosystem and asking the right questions can make the process a little less daunting :)

I’ve organized this post into 6 different topics in a Q/A format. My goal is to help you uncover insights that can influence your decision to join the right startup!!

Preview of topics:

1. How do I know if the start-up I am excited about won’t go belly up?
2. Are the culture and environment the right fit for me?
3. Need-based vs growth based hiring? Am I recruiting for the right position?
4. What are stock options again? Am I guaranteed to be a millionaire once my startup IPOs?
5. How do bonus structures work in a startup?
6. Bonus: Tactical questions to ask or have in mind as you approach recruiting

Without further adieu, let’s dive in:

1. How do I know if the start-up I am excited about won’t go belly up?

This thought crosses our mind during the recruiting process. Here are 3 ways you can feel certain about the startup’s growth potential:

A) Growth numbers — It’s all about knowing the actuals vs projected. Sure, projected helps you understand the future aspirations of the company but as the word suggests, those are projections. It doesn’t mean that you shouldn’t take a leap of faith and join the company, I am sure employees and founders of now public companies like Airbnb, Doordash all had to trust the growth potential of the company and their risk paid off. However, as a word of caution do your due diligence on the company beforehand. Eg. during several of my interviews with early-stage startups, I was quoted a booking number (non-GAAP), but after joining the company I realized those were high-level commitments by clients to do business with the startup, which may or may not be realized in near future. This is important because as the startup matures investors would want to see financial success along with client acquisitions.

(Non-gap: Non-GAAP earnings are an alternative accounting method used to measure the earnings of a company. See Investopedia for more.)

Now I know that getting actual metrics like revenues may not be feasible but some companies that make you sign NDAs are willing to be transparent with their performance to an extent. You can offer this as a suggestion if the company is concerned about disclosing material information during the interview process. If this option isn’t available and you are left to ingest information at face value, keep some good discount rules in mind:

Ex. bookings of $200M/Year might mean the revenue will be realized gradually if they are adhering to a monthly or quarterly billing model. So you may expect that $200M to be realized over a longer period in tranches. Also, not all bookings will translate if the customer terminates the contract.

B) Customer list — Although not all-encompassing, the startup’s list of customers can signal value other companies have seen in the product or services of the startup. If you have the opportunity and are up for a fun challenge, cold call some of the customers to understand their true sentiments for the startup’s products and service. Through this personal due diligence, you can uncover a lot beyond prominent logos on the website.

C) Investor credibility — Crunchbase, AngelList, and other alike websites help you get a gauze on the investment rounds, investors, and capital raised. This information can help you understand who the investors are and their expertise. Usually, most start-ups receive seed funding or Series A from renowned investors (in most cases). It’s important to then pay attention to investors in the preceding rounds of funding. This becomes crucial as successful investors with proven records (think a16z, Accel, Lightspeed, etc.) only invest in companies that have shown a track record of growth or believe to have the potential to grow and scale. This doesn’t mean that other less renowned investors can’t get it right but having this investor context can elude to the future success and growth potential of the company.

2. Are the culture and environment the right fit for me?

As fun as it sounds to be part of a hyper-growth start-up, reflect on what type of environment you like to work in and what phase of life you are in. Can you commit to 60+ hours of the workweek? Are you okay with the uncertainty and chaos that comes with working for a startup that is building the plane as they are learning to fly? I don’t want to scare you but that’s essentially how it feels when you work for startups in hyper-growth mode.

Here are some helpful tools that can weigh in on your decision making:

A) Glassdoor — See for past and current employees — are they generally positive? Do they talk about high turnover? (RUN!!). Usually, if numerous employees talk about bad management, you’re better off exploring other options. Trust me, in the grand scheme of things, the options, and future earnings potential once the company goes public is far less worthy than your mental health. If you still want to proceed, well you have been warned!!

B) Ex-employee interviews — When interviewing current employees, they cannot fully express their opinion on the company’s culture and performance but old employees have nothing to lose and can freely express their opinion (to an extent they think it’s appropriate). This is how you get the right intel that can help you decide if the job is worth exploring. I once had an ex-employee save me from joining a start-up with a reputation of high turnover just based on an impromptu LinkedIn outreach I had with her.

3. Need-based vs growth based hiring? Am I recruiting for the right position?

Once a company raises capital there is a rush to hire more people. Be wary of this, even though it reflects the natural growth of the company some roles can easily be cut off or outsourced once funding runs dry. Usually, the estimate is that fundraising for a cash flow negative startup can last anywhere between 12–18 months before the next round of funding. However, from personal working experience, raising the next round isn’t as easy as it sounds.

As you move up the series ladder, investors demand more KPI success and proven growth, and not all companies can pass this litmus test. That’s when co-founders begin to scramble and the easiest way to show improved metrics is cost-cutting (this is the reality for most start-ups regardless of economic downturn or pandemic). This is all to say that choose your employment option wisely and do not buy into “we raised $xx from xyz so the next round we expect valuations to soar.”

4. What are stock options again? Am I guaranteed to be a millionaire once my startup IPOs?

The famous recruiting tactic — offering stock as part of the total compensation. Sure, you can cash out if there is a big exit like an IPO or M&A. However, this exit depends on several factors and may not be common although the range of IPOs for many prominent startups in the past few months might have led you to believe. There’s plenty of research out there that can tell you how many startups reach that exit level and you can figure what the odds are for you to realize the value of your options.

5. How do bonus structures work in a startup?

Like every other company, there is a component of bonus associated with your total compensation. It’s a reward incentive for you and a hedging technique for startups to minimize cash impact in case they don’t meet the growth targets. However, these bonuses are contingent upon the performance of the company as well as your work. If all goes well you can expect a fat bonus at the end of the year but if not those expectations roll over for next year.

6. Bonus: Tactical questions to ask or have in mind as you approach recruiting

Let’s say that upon doing basic due diligence you find everything okay, then you can proceed forward with accepting once in a lifetime offer! CONGRATULATIONS!!

But in case you don’t receive assuring information but still want to move ahead with the offer here are some things to consider:

Questions and there are no stupid questions!

The interview process can be very telling for both sides, therefore probe as much as you want and don’t feel guilty after all questions they ask you as a candidate are pretty personal (eg. why did you leave your last job, your expected comp range for this role?).

See your questions as equivalent to theirs. You can and are empowered to ask:

1. Whose role are you filling in? Why did that person leave?
2. How’s the culture of the company? Work dynamics? (This matters more if you’re working on a cross-functional role such as PM, Sales Support, etc.)
3. What’s the comp range for this role?

Now recruiters may not disclose compensation range upfront to avoid distorting expectations for candidates and may ask you for your ideal comp target.

If you have a specific ask in mind, speak up! But if you’re not comfortable or fear selling yourself short you can share the following sentiment:

While I understand that giving a comp range prematurely might impact expectations but getting a fair market value estimate can help both of us to be clear and aligned on the next steps for this role if we move forward and avoid lengthy compensation negotiations later down the line.

My parting thoughts…

There is a lot more you can do on your side beyond the checklist I provided above to ensure you’re prepared for startup recruiting with confidence and the right attitude!

The purpose of this article was to showcase ways you can evaluate a startup employment but in no way are these factors all exhaustive. If you have any suggestions or disagree with these points, please feel free to reach out, and happy to have a discussion!

Good luck with your career endeavors and feel free to reach out if you’d like to hear about my experience working for a startup :)