How Not To Be Scammed By A Silicon Valley Startup — An Action Plan In Response To I Got Scammed By A Silicon Valley Startup
Yesterday Penny Kim, a startup marketing lead who moved from Dallas to Silicon Valley to join what looked-liked a high-growth startup (the website has been taken down in the past couple of hours) wrote about her very negative experiences with the company. Earlier today Daniel Tunkelang, a highly respected and very experienced data scientist, who was an adviser to the company also shared his experiences about working with the company, concluding “I should have gotten to know the company and its leadership better before associating myself with them and lending them my credibility”.
While at StartupFactcheck we’ve focused on fact checking what companies put out into the world for investors (by doing AI/ML/NLP-supported due diligence and providing deep insights to people who fund startups), from the very beginning we’ve known that there are other use cases for the models, workflows and technology we’re developing. Potential candidates vetting the startups they work for is one of the major ones. After all, everyone who works for a startup is in a way an investor in that startup (Ms. Kim not only invested her time, hard work and reputation, but was on contract to receive further compensation in the form of equity).
So what could have Ms. Kim done before she left her cat, said good by to her boyfriend and family and moved to live in an AirBnB in California (of course I’m not saying she did anything wrong and I am in no way shaming the victim, but the truth is the Bay Area has always been about the gold rush and this time around is no different) halfway across the country? As the article points out she was looking out for red flags, which is a reactionary tactic, as opposed to doing her due diligence before taking the job, which possibly would have been more prudent and allowed her to walk away before any of this happened)? As she wrote:
They seemed like veteran entrepreneurs, the kind I could trust […].
We certainly need better ways of differentiating between who to do business with than gut feel.
Again, I am in no way implying Ms. Kim did anything wrong. I am saying that this situation, which is completely the fault of the founders, could have been avoided if the job candidate looked at a few key things and decided not to take the job.
These are some of the things that could be done in a similar situation and might constitute some best practices:
a. Ask to speak to the current employees and at least 2 contractors and vendors. Choose them yourself from a list provided by the startup or make your own list.
Before you join a startup ask the founders for a list of all current employees and several former employees and choose a couple people to speak with. Also, arrange to speak with at least 2 contractors working for the company and possibly some vendors. This cross-section of people who have worked and currently work with the company will give you a good overview of how the company handles people and deals with different categories of relationships.
b. Ask lots of open-ended questions about the company’s financial standing.
In an ecosystem where 9 out of ten startups fail (8 out of 10 in an optimistic scenario) it’s important to know where your potential future employer is in The Process.
If a startup you are working for promises to have $4mm in funding it’s likely they have raised at least $12mm-$15mm, which is a sizable A round in the current market. From this amount, assuming you know the burn rate, you can extrapolate the company’s runway and therefore know how long you have a chance of not being out of a job.
Many startup fundings, especially in companies in which the founders like the limelight and like to name drop, as was the case here, are announced publicly in places like Techcrunch, Mashable and HackerNews, so absence of mention in these publications is anothering thing to look out for.
c. Take a call with one of the current investors and learn what her or his plans are for the company.
Most experienced investors will tell you that hiring A-level talent is one of the number one things they help their portfolio companies with and to that end they should be more than happy to spend some time with any prospective hires, especially senior level positions like in this case. Board members will do this for sure. On the call ask about the financial situation, runway and the company’s abilities to raise more money.
d. Ask to speak to a couple of people associated with the founders in their previous businesses, including employees, investors and vendors.
You can do this with the founders’ permission or not. The goal is to see patterns emerge. Of course if the founders don’t have good reputations from the past there might be a very good reason for that and you may or may not be inclined to consider why and how they’ve changed, but nonetheless it’s very good to know what happened so that you can be a more aware employee and team member. If you’re not offered a list by the founders that’s a strong indication that they might not be as transparent as you may like. You can find everyone you need using LinkedIn, Crunchbase, AngelList and .
e. Take a look at the founder’s social media footprint to determine who these people are connected to and see what sort of community you are buying into.
Whether or not you buy into the “you are the average of the five people you surround yourself with” or not, it’s worthwhile to see what the founders’ position is in the wider startup community, especially among tech leaders, investors and the press. Some of the things to look out for are whether or not people are cheering them on and if they’re invited to actively participate in the community (speak at events, contribute to content, work on common projects, etc.).
f. Spend a couple of hours with Google, Bing and DuckDuckGo. Do boolean searches. Scour Twitter, Facebook and Quora. Ask about the company.
A smart search strategy and some patience often leads to very interesting results. You can also be more proactive and ask questions on Quora, Stack Overflow, Twitter and other places.
If the above bring up red flags, as I believe it would in the case of Ms. Kim, it is worth digging a bit deeper.
g. Ask to see the startup’s books
You don’t have to see everything to understand where your next 3 paychecks are coming from. You need to see accounts receivables, cash in the bank, monthly spending and a couple of other key numbers. Even if the startup finally decides to not disclose this information with you, that’s a data point right there in and of itself. Buffer and others are already doing this as a default.
h. Order a social media analysis of the founders
Tools like Fama and others will give you a very comprehensive view of someone’s social media footprint and will give insights even complex searches can’t (including sentiment analysis). In this case one of the founders was trying to hide who he is on social media and that could have been discovered before joining the company.
i. Ask the founders to undergo a background check
This is more extreme but might be necessary if there’s already writing on the wall. Tools like Checkr are great for this. Again, if the founders do not consent to this you’ve already learned something.
While I feel for Ms. Kim and the thousands of other people who have most certainly been subject to similar situations, it is clear that she felt this was a opportunity that seemed a little too good to be true (her words directly from the article). A couple of hours, in total, online and on the phone could have prevented this situation from every happening.
And as far as the platform the job ad was listed on, AngelList (Angel.co), I wrote a post about the propensity for fraud in the startup space last year inspired by a deck that CEO and co-founder Naval Ravikant presented himself 6 years ago that included, on one of the slides, the following statement: “spectacular fraud will occur [in the startup space]”. And while of course Angel.co isn’t liable for what happened, assuming that “there’s no way a startup I found on Angel.co is going to screw me over, I thought” is no way to make your way through the startup world. It’s that sort of cognitive bias that pushes out critical thinking and makes it hard for us to see what’s real and what isn’t.
As the market is clearly going into a downturn, something we’ve been seeing in startup funding for the past 3 quarters and now in startup sales as well, more and more bad players will appear. In some cases these are people who have no business running companies and who’s grave mistakes and misconduct was covered up by the upswing of the past several years. In other cases a harder business environment leads some to cutting corners, bad decisions and desperate measures. Whatever the reason behind bad behavior, employees, investors and vendors need to protect themselves.
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Jakub Kostecki is CEO of StartupFactcheck, which provides semi-automated due-diligence-as-a-service to early-stage investors using machine learning, predictive AI, natural language process and other technologies to gain deep insights regarding the startup and the founding team (including sentiment analysis and intent). In his past life he has made a lot of entrepreneurial mistakes and is able to see things with a certain level of clarity. See StartupFactCheck for a details.