A Guide to Evaluating a Startup
For many, joining a startup sounds like a dream.
High growth, fun culture, meaningful work, and the list goes on.
However, many soon realize that working at a startup can be tough, especially from a corporate background. It’s a high paced environment where you’re expected to pull your own weight and put on a lot of hats.
Especially during an uncertain time like COVID-19, taking a jump into the startup life has become an even bigger risk than ever before. On top of competition from other businesses in the same segment, this will always make jumping to a smaller company a bigger risk.
This is why evaluating yourself, the offer, your team, and the startup itself is essential when seeing if you want to jump ship into something new.
For this reason, I have split out this article into four parts:
- The Offer
- Your Team and Manager
- The Startup
Having worked for startups, corporates, and gotten offers on both ends, I have honestly found evaluating the offer can be one of the hardest parts of the whole hiring phase.
This is why it can be tricky, and there are great tools out there to evaluate your offer if you decide to leap fate.
Yourself — What do you want?
This can be corny, but understanding yourself is essential to know if you want to work for a startup.
Here are some questions you need to ask yourself.
Are you in it for the money? (what is your risk appetite)
This is an obvious first question most people have to ask themselves.
If you haven’t thought of it, it’s time to understand your risk appetite and if you’re ‘in it for the money.’
In general, big corporations or tech giants (like Facebook, Google, etc.) offer much better pay structures, especially in cash terms, so if you’re looking to earn more of a stable income, this path might be more worthwhile.
However, this also doesn’t mean a startup won’t make you money (which is a common misconception).
Although there is a higher risk, a high growth startup with a clear trajectory and road to exit can be highly fortuitous as well if you receive a good stock package.
So it’s time to understand how much risk you can take versus how much stability you want.
Do you see career growth in the startup?
For many startups, especially early-stage ones, role titles mean nothing. This is because they are relatively flat structured, and everyone wears multiple hats.
So if you’re there asking for a flashy role title to show off to your friends, it might be time to re-evaluate if this is the right move.
This doesn’t mean you shouldn’t care about your career growth, though.
As the company grows, more structure will be placed in, and it’s essential to know early how you’re going to grow with the company, especially to potential leadership roles and how you will be able to get to those levels.
Without properly charting your own career growth in your company, you risk getting trapped, so double down on this.
Arguably for some, the most important part of jumping ship, the offer can mean the difference between accepting or declining.
One of the common misconceptions of joining a startup is taking a massive cut in salary.
This isn’t necessarily always true, so here’s what I would check for:
Can they match your current salary?
In most cases, if the startup is in a later stage, more than often base salaries can be matched.
If the salary concerns you, its a safer bet to stick to a later stage startup versus an early one.
One of my favorite resources Gitlab’s compensation calculator (they have a policy of keeping transparent). This is a great resource for checking anything from equity, salary, and more. You can also use something like TeamBlind as well to check.
If the startup is in its early stages, most likely, a high salary isn’t something they can offer. Instead, most of the time, it’s career progression as well as equity into the business.
This brings us to the next point.
Is equity worth anything?
I’ve always had a mixed opinion on this.
When I evaluated my offer at a Series B startup, I consulted angels, founders, and other friends who leaped.
The verdict was 50/50.
Some said the equity means nothing whilst others told me to calculate the real value of the equity and what it could project to.
Personally, I find that calculating what the equity is worth now and potentially in the future can tip you over to accept the offer, especially if the offer is generous.
Of course, an early-stage startup’s equity can mean absolutely nothing, but it’s also important to keep an open mind.
Many other things need to be taken into consideration, such as dilution, preference stocks, and more.
The most important question I would ask if you’re joining an early-stage startup (Pre-seed to Series A) is that understanding the percentage ownership could also determine your equity’s worth. Owning 10000 stock options in a company that issued 10 million means your stock can be worth very little when you decide to cash out.
Your Team and Manager
Ok, this is probably relevant for any job, not just startups, but knowing who will be in your team as well as stakeholders can also help sway your decision.
Who is in your team, and will you get along with your manager?
This all depends on what working conditions you have.
If you’re someone who needs direction from a manager, but you’re going to be the first hire in a region, it might be worthwhile to determine if this is a step you’re willing to take.
On the flip side, it could also mean you’re stuck in a remote working office with your manager every day (working some long hours potentially!), so it’s important to understand if you will get along with them.
Personally, I would go with your gut feeling.
You want someone you can get along with and one that can help you grow as a person and give you opportunities to shine.
These are questions you can ask directly during your interview or after to determine their mindset. There are many telltale signs of a selfish manager (you will find many of these in startups!), so keep your eye out early.
In my opinion, evaluating a company is essential to know how well it will perform in the future.
Here is my personal checklist I went through:
Crunchbase the company to see how many rounds they’ve raised and how long they’ve raised in-between.
Just because a company has raised many rounds doesn’t necessarily mean it will successfully exit (I mean look at WeWork, right?).
It’s also good to check out the founder’s backgrounds to see if they have had successful exits in the past. You can also take a look at their LinkedIn to see their work history.
This applies to any company, but with a startup, most likely there will be much fewer reviews, which means anyone who drops one is most likely showcasing the real inside of the company.
Are they burning cash, and how fast are they growing?
This might be harder to establish, but you can always ask for these details.
The more information you know around their numbers, the safer your judgment can be.
Generally, you want to know how fast they are growing (the earlier stage, the higher the growth rate should be) and have a healthy enough burn rate that the company won’t go under in less than a year.
EXTRA: Are You Excited?
I purposely left this off the checklist summary because, in the end, joining a startup is a leap of faith and a rollercoaster of a ride.
Therefore you need to be invested in the idea itself and the culture of the company.
If you’re genuinely keen on what the startup is doing, you’re more resilient to potential changes.
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