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How to choose a great startup to join? Part I

Updated: Oct 9, 2019

How to choose a startup to work for, seed, series A, series B, series C
How to choose a startup to work for

Over the past 6 months, I’ve spoken to hundreds of people working in different startups, of different stages, in different geographies and industries. I was also in charge of recruitment for Wintermute Trading, a London-based fintech startup in the digital asset space. As part of that engagement, I explained the pros and cons of working for an earlier stage startup to dozens of people with diverse experiences, life stages, and personal situations. Similar to my own prior background, most of my friends are now 30+, have corporate careers where they achieved some level of financial and hierarchical success. Many of them don’t enjoy their jobs as much as they would like to and think about the ways to move into startups. What I’ve realized, though, is that there is lack of clarity about what a startup actually is.

A startup is different from a small business. An early-stage startup is very different from growth or late stage startup. A high-quality startup is very different from a low-quality startup (even if both fail).

Good questions to ask would be: Should I join a startup? Which startup? How do I know which one is good?

1. First of all, let’s decide if you would like to join a startup (vs a small business)

Not every new or small business is a startup. A startup usually means that a company:

  • Shows, or plans for, rapid growth: There are no specific numbers but we are likely talking about 20%+ month-over-month for an early stage startup, and 20–40%+ year-over-year growth for a later stage startup

  • Plans to get external funding to support part of this growth. While this condition is not always required, most startups need external financing (e.g., angel investors, venture capital or other institutional investor) to accelerate growth

  • Fulfills typical investment criteria like addresses a large market size, has a scalable business model, follows on technological or societal trend. A scalable business model today often means some kind of software with diminishing marginal costs of distribution and production. It may also means a scalable business model that involves automation, standardization, modularization, or effects of scale.

For example, an independent restaurant next door may be a small business, but most likely they are not a startup. A chain of coffee-robots like Café X is a startup as they automate the coffee making and distribution processes. Many professional businesses that heavily rely on individual expertise are not startups. For example, my company (System2Labs) in its current form is a small advisory firm. In order to grow the company in its current business model, I would need to hire more consultants who know as much as I do about go-to-market models in startups. This isn’t scalable and, therefore, is not a startup model. I can make my company a startup if I find a way to productize my services, for example.

A small business does not mean there is something wrong with it, it is just different from startup. Many successful investment and hedge funds, professional services, boutique service providers are small businesses. Working for a small business could also be a very good career choice, it’s just not something I’ll be covering here. Let’s talk about startups.

2. Decide which startup stage you are most interested in

Most startups with external financing go through financing stages: pre-seed, seed, series A, series B, series C, series D, etc.

  • Pre-seed stage is a company with only founder(s), an idea, and maybe an MVP (minimal viable product); usually they don’t have much (if any) external financing and rely on founders and maybe some friends & family money; some may be a part or a recent graduate of an accelerator or an incubator program, (or in case of Europe) have some government grants. Reid Hoffman calls this “household” stage. [Hint: Don’t apply to startups if you don’t know who Reid Hoffman is, here is an article about his startup stages, and he explains it in more details in his Blitzscaling book, aka “Silicon Valley Bible”. Note, blitzscaling is an extreme version of startup growth and may not apply to all cases, but it is very important to understand the concept].

  • Seed stage is a stage when a startup has raised their first seed funding from outside own capital, friends and family. Usually this is angel investor money or seed stage venture capital. A startup at seed stage would often have a product that can be tested in the market, but they like haven’t achieved product-market fit (PMF) yet. Once the company has achieved PMF and reached certain milestones, they may be ready for series A. Milestone for most software startups would usually mean traction, e.g., revenue growth or — if they are mot monetizing yet — active user growth. In case of deeper tech, some healthtech, or other technologically advanced and regulated startups, milestones could be clear product development milestones, user tests results, etc. In Reid Hoffman’s terminology, a seed startup is usually a “family” with 20–30 people or less.

  • Series A is the stage where a startup has usually found PMF and raised their first institutional money (VCs, corporate VCs, family offices, etc), they set up the board and are ready to scale their business model. This is the stage where many startups go from “family” to ”tribe”, or even to “village” stage. In terms of the number of people, it can grow from 20 people to 100 or more. The revenues (ARR) can grow from $1M to $10M. Note that the stages are not strictly defined by the number of people or revenue, I am just giving some representative numbers to give you a sense of magnitude.

Startups from seed to Series A are often referred to as “Early stage”. As an employee, the earlier you get on board, the higher the risk, and the higher the chances to make an impact.

  • Series B. At series B startups often become “proper companies” by growing from “village” to city” stage. It’s the time when founders cannot any longer control everything that is going in the company and need to set up more structure, some reporting lines, and processes. It is the time when companies start hiring more senior people and people in supporting roles (i.e. who do not directly build or sell things). This transition may be quite painful to the both founders and early employees as it implies the need to switch from a more free, creative, independent spirit to a more “corporate” way of doing business. [For people coming from large corporates this is still nowhere near “corporate”, but for early employees it feels like it is]. Many early employees join the startups exactly for the reason to not be in a larger corporate culture. They relied on entrepreneurial skills so far, and that’s probably what made them successful. But “what got you here, won’t get you there”. People who are great in an uncertain and chaotic environment may not necessarily be great when it comes to creating more structure. This can be true for founders, executives, and employees. Some (the best ones) can do it. Some can’t. Or don’t want to. VCs sometimes describe the latter as “CEO/founder/CTO/head of sales could not scale” and may push to replace management team. [In some cases this is justified, in some not. I recommend Ben Horowitz’s Hard Things about Hard Thigs about the difficulties of being a startup founder CEO]. For a person coming from a larger company, this is probably the time to join and bring in some structure and processes [and prepare for not being liked].

  • Series C and beyond. In many ways companies at this stage operate like established companies. If they survived so far, they should have predictable revenues, established ways of doing business and they are most likely at “city” stage. It could be 500 people at Series C or thousands of people at series D and beyond. Most of these companies would still try to preserve “startup culture”, be leaner, faster and more effective than larger old corporations, but preserving this “startup culture” becomes increasingly hard. Startups at this stage would typically have funky offices, free dress code and sponsored gym classes, but they may already be quite corporate in other aspects. You will typically have layered organizational structure with several reporting lines, processes that need to be followed in all key areas, and internal politics. The roles become standardized and individual contribution minimized. My strong conviction is that politics is a function of the number of people and culture. The right culture can soften politics and prolong the “free spirit”, but at some point the number of people politics wins. It’s just human nature.

There could be earlier startup like experiences in later stage startup, e.g. crossing the chasm — mobilizing the company to enter mainstream markets after having successfully monetized early adoper markets. Another example would be opening a new market or starting a new product. But again, these would not be the same as in an earlier startup, these would still be under the larger company umbrella.

Hopefully my explanation above already gives you some insights at the advantages and disadvantages of different stage and how this can relate to your career choices. Disclaimer once again: the stages cannot be clearly defined. Uou may find a seed stage startup with a PMF and $10s of millions invested (like Notion recently raising $10M at $800M valuation), or you may be in a C stage startup with close to zero revenues. This happens, so look at a specific company and make sense of it.

The stage to join will depend on your career goals, but also on your working preferences, skills, risk attitude. Some people say that it is hard for one person to excel at different stages. In Silicon Valley, where startup job market is developed, there are people who specialize in stages. For example, a VP of Sales specialized in going from $1 to $10M revenue, or a VP of sales specializing in going from $10 to $100M revenue. These people would be brought in (often with a help of VC) at a specific stage and move on to the next startup once they complete their “mission”. I have not seen much of it in Europe yet, primarily becuase there are fewer career-startup people.

Let’s look at some common reasons to join startups at different stages:

Reasons to join early stage (Pre-seed, seed, series A) startup:

  • You would like to be a founder one day but not ready for it just yet, joining an early stage startup may be one of the best ways to learn how to be a founder

  • You would like to have large impact on a company and be one of the key people in the organization

  • You would like to have significant role in company’s decision making, decide and design how things are done

  • You would like to (or willing to) be in a role that is directly related to creating value, which in most cases means either building things or selling things.

  • Regarldless of your title (even if that’s C-suite or VP) you are ready to be somewhat (or sometimes very) hands-on (e.g., write code yourself if you are in engineering or set up marketing programs if you are in marketing)

  • You would like to be in a small team of like-minded people and work on a common goal in an informal way

  • You are willing to have “skin in the game”, meaning take equity as a significant component of your compensation and, likely, accept a lower fixed salary compared to other options (like later stage startups and big corporates)

  • You are not too scared of risk and uncertainty; even if startup fails, you are confident you can find a good job (hint: in most cases you can)

  • You believe the startup has above-average chances to succeed or at least you can learn things crucial to your career goals (e.g., getting into your desired industry, getting startup experience)

  • You believe in the founders: you believe they can make the business successful, teach you new skills, hire well and develop a good culture; you should also believe that they can raise money, be open-minded enough to pivot if necessary and confident enough to know when to push through; they should also be mentally strong to survive this extremely tough period

Reasons to join growth stage (Series B) startup:

  • You are not ready for early stage risk and you would prefer a bit more stability in terms of business

  • You are attracted by the brand of the startup (or their investors or co-founders), as at this stage they are probably relatively well known (at least in their startup bubble)

  • You are ready to trade somewhat lower impact and equity for higher stability and pay (vs early stage)

  • You are not willing to compensate much on your fixed salary (if you are now in a well-paid job)

  • You are still ready to take on more risk and stretching opportunities as compared to a later stage startup or larger corporate

  • You would like to work in a somewhat structured environment, or you would like to bring structure to the environment

  • You realize that you may not have a huge impact on the company overall, but you can still have an impact on some (sub-)function, geography or area of expertise

  • You are a senior professional and you are looking for a senior role in a company (e.g., C-suite or VP)

  • You would like to learn from a more established startup, and then move to an earlier stage startup or another area where this experienced will be valued

Reasons to join later stage (Series C and beyond) startup:

  • You are generally looking for somewhat stable and corporate-like environment yet a bit more young and dynamic

  • You are attracted by the brand of the startup, as at this stage they are probably quite well knownYou are not willing to compensate (or would like to increase) on your fixed salary (if you are now in a well-paid job)

  • You realize that you may not have a huge impact on the company overall, but you can still have an impact on some sub-function, geography or area of expertise

  • You understand that your impact will be “constrained” by headquarters, management, investors, strategy, i.e. in many ways not-so-different from a larger organization

  • You are a senior professional and you are looking for a senior role in a company (e.g., C-suite or VP), so you are willing to trade a larger business responsibility on paper for a larger role; e.g., if you are a senior product manager of a $1B business, you may become Chief Product Officer for a $200M business

  • You are more junior and would like to learn from the companies who have figured things out, so that you could apply it elsewhere

Let’s look at some examples. These are stereotypical and just used for illustration:

Anna is 26 and a great software engineer with very valuable domain expertise in a specialized area. She can easily get a job or contract earning $150K-180/year in a company like Google but she wants to have more impact right away. Her career goal is to quickly grow into VP of Engineering or have her own startup, but she doesn’t know much about business yet. What stage should she join?

[Without having more details, I would advise joining a good early stage startup. She can learn the skills for starting her own company, she can grow into a senior position much faster than in a larger company. If things don’t work out, she can always go back to her $150–180K job — not the worst plan B.]

David has 17 years of experience in Microsoft and has seen many departments: product, sales, marketing. He has mortgage, 3 young kids, and no savings. He likes things to be nice and efficient, finds millienials a bit too arrogant and demanding, yet he got somewhat tired of Microsoft’s bureaucracy and politics. What stage should he join?

[Without further details, I would recommend joining a later stage startup, where he can bring more processes and efficiencies without compromising much on his salary and stability]

John has worked for a few late stage startups like Uber and AirBnB for about 5 years. He grew to become the Head of growth for one of Uber’s business smaller units. John’s career goal is to become Chief Marketing Officer in a fast growing startup but his role so far was focused on growth, so he lacks experience in product marketing, internal communications, and higher-level branding.

[Without knowing more details, I would recommend John to join either late seed startup as CMO or Series A as a senior marketeer with a clear path to CMO. He can then learn all necessary aspects of the adjacent marketing fields and grow with the company into a larger CMO role]

If you are interested or would like to hear a slightly different perspective, I suggest you also watch this video by Justin Kan at "Work at startup" organized by Y Combinator.

If you have questions about the stage that fits you or “ask for a friend”, feel free to add it in the comments below or DM me, I will be happy to reply.

In part II of this post, I will talk about point 3. Diligently assess the startup you consider joining. What research you should do and what questions to ask to test if the startup is likely to succeed or at least satisfy your career objectives.

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