The job seekers guide on how to evaluate a VC backed tech startup đ
The job seekers guide on how to evaluate a VC backed tech startup đ
how to tell if it's a potential unicorn or a dumpster fire
There are 1,000,000 articles written on how to tell if a startup is a good investment, and almost all of them are written for venture capitalists, never the job seeker.
Unlike a VC who is likely using other peopleâs money and has their bets spread across 20-100 different startups ⊠the job seeker is ALL IN on a single startup, waging not just the bulk of their financial success, but years of their life.
If the startup becomes ultra-successful, it means not just upwards of millions in equity rewards, but a vastly improved career trajectory for the rest of your life.
If the startup dies, it means lower wages, worthless equity, lots of pain, wasting years of your life on a pipe dream, and having to explain to your next employer how âyouâre actually really greatâ even though the company failed.
It would seem to me, the stakes are 10x higher for the job seeker than the venture capitalist.
So why does no one create resources for the employees that want to work at VC-backed tech companies?
This is my personal framework for how to evaluate a tech startup. đ
Step #1 - Only work for companies with a good product
If you can become excellent at vetting if a product is âgoodâ, you will 10x the trajectory of your career. Having a good product is the foundation for ANY level of meaningful success.
A bad product means growth is going to be hard, fundraising is going to be hard, hiring is going to be hard. A bad product is a death sentence.
Now, you might be saying, âwhat about pre-PMF startups, or pre-seed startupsâ?
Word of advice - donât work for a company that doesnât have a good product, unless you are extremely desperate. In the words of Elad Gil, startups are an act of desperation.
Want to become a product manager but have literally no experience? Then maybe a pre-seed no-product startup is right for you.
Want to become a founder and start a company (which doesnât have a product)? Sure, go ahead.
The risk-to-reward ratio is wildly off for early-stage employees at a startup that doesnât have a good product. Even if you get 1-3% equity, the chances of this hitting a âhome runâ for you is so extremely low compared to joining a good startup with a good product ⊠youâre basically taking on almost the same risk as the founder, but without the upside.
What you want to do is join a startup as early stage as possible, ideally seed or series A ⊠that has a good product.
Step #2 - How to evaluate a product
VCs love the concept of Product Market Fit to describe a rocketship startup, but usually give definitions that are super vague about how to define it.
Hereâs how to understand if the product is actually good:
[Retention] There is an extremely low churn rate
[Love] Users LOVE the product, demonstrated through high word-of-mouth referrals + strong Net Promoter Score surveys or Super Human surveys
[Willingness to Pay] Not only do they start using the product, and love the product, but theyâre willing to pay a lot of money for it
These three things are the most important pieces to determine if a startup has built something that is actually good. When going through the interview process make sure always to ask what the retention looks like, what the word of mouth or NPS looks like, and what the LTV is per user.
Asking these questions will ALSO help you stand out, proving that you understand the most important pieces of a good product.
If there are red flags on any of these âoh people love it but weâre pre-revenueâ, run.
The startup might actually go on to build something amazing, but the risk/reward ratio isnât worth it - you can likely find a startup that already has a good product with a similar comp package.
The second piece of PMF is the âmarket,â which basically means if youâve built a good product ⊠how many users could potentially want it? The larger this group of potential users, the better.
Having a market that is growing (instead of shrinking), is extremely ideal.
Step #3 - Evaluating the team
Who you are going to be working with is extremely important because these arenât just the humans you will spend 50%+ of your day with, but they will be responsible for your career trajectory, the overall success of the startup, and potentially even your future job opportunities.
Most people chalk up âdo I like the teamâ to vibes, but hereâs how to go a bit deeper.
[Friendliness] âHow friendly is the teamâ is a secret pattern-matching technique that appears to be primarily prevalent in Silicon Valley.
Friendliness is a superpower. High growth rates cause friction, and it is 100x better to work on hard painful problems with a friendly team that you love being around.
When you are interviewing, they are ALSO putting their best face forwards. Are they happy? Are they friendly? Do they seem to like their job? Do they describe the culture as âthis is the best place Iâve ever workedâ?
Reduce their enthusiasm by at least 50%, and that's likely the reality.
[Past Work] You want to work with a team of A players. A team that is world-class at what they do.
The best way to determine this is by asking them about their work, âIâm super curious about you, what have you done/built/grown that you are most proud ofâ?
Good engineers will have built impressive things. Good marketers will have grown big companies. Good product managers will have shipped huge features.
At early-stage startups, the best teams wonât have done this at huge companies like Google or Stripe, but rather at other early-stage startups. What youâre looking for is trajectory.
People that have taken a company from seed â unicorn, built a big product 0-1, 10xâed the rate of signups.
[Filters] This isnât universally true, but itâs more important to be right than to be wrong. Impressive people will have gone through extreme filters.
Harvard is a filter. Stanford is a filter. A PhD program is a filter. Y Combinator is a filter. TechCrunch is a filter. Building a service-based startup past $1M of revenue is a filter. Having 100,000 Instagram followers is a filter. 1,000 GitHub stars is a filter.
What filters has this team gone through?
There are a lot of different kinds, but when youâre in a crunch to understand the caliber of the team you might be joining, doing research to understand the filtering process the humans on the team have gone through can be extremely insightful.
Not all good startups are Y Combinator startups, but a Y Combinator startup has gone through a filtering process that weeded out 95% of the âbadâ startups.
This was one of the hardest lessons for me to learn as a no-name generic Idahoan from the University of Idaho. Filters actually DO matter, getting past them matters, and working with a team of people who have been through one matters.
Step #4 - Evaluating the culture
Most job seekers chalk culture up to âdoes it suck to work here or not?â
Do they micromanage the work? Does leadership listen to the IC employees? Am I expected to work on the weekends?
I think the most important thing about culture is understanding what a company cares about, and making sure that resonates with your values.
Here are a few of the most important questions.
âI like to work hard, but Iâm curious exactly what the work intensity is like here?â
âWhatâs one thing you love about your manager, and one thing they could improve?â
âWhat are the traits that have gotten people promoted here?â
âWhatâs your favorite part about the companyâs culture?â
âWho wouldnât be a cultural fit for this company?â
People usually donât want to talk about the more hardcore aspects of company culture, that you may or may not be excited about.
Some companies move fast & work extremely hard - Rupa is definitely one of those startups.
We make decisions quickly, we ship things quickly, and we obsess about our work sometimes on a Saturday morning. I wake up at 6am to write articles on my Substack before I head into the office.
Iâm not knocking or promoting hustle culture - but itâs something our team (for better or worse) has subscribed to.
We also care about being a Kid at Heart, showing up to conferences in space suites, dance parties on the beach, playing music for offer parties with new hires, and showing up in costume at the company all hands.
Someone who is looking to work a 9-5 and wear a suit just wonât like our culture, and thatâs okay.
The goal here for job seekers is to try and do their best to understand the most extreme spectrums of the culture, things that people should know upfront to opt in or out of.
Making money $$$
Tech work is extremely lucrative because itâs industry standard for employees to get equity, to have shared success in the outcome of the business. It might not be the same as the founder, but joining an early-stage company with a good product can result in life-changing rewards.
Spend a career building up a diversified portfolio of equity in companies with âgood productsâ where each one is enough for a home run (you never have to work again) if the company 10xâes, and youâre extremely likely for at least one of them to work out.
Become extremely skilled at vetting for a good product, a strong team, and a culture you will enjoy/thrive in, and youâll set yourself up for an insanely profitable career in VC-backed tech startups. đ°
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