Mark Klebanoff is CFO of Accessline. Was CFO of Real Networks
Venture capitalists look at 4 kids of risk when evaluating a start-up and prospective employees should look at the same things.
(1) Management risk - who is missing from the management team? will the current management team scale? Might be hard for a candidate to assess some of that but certainly asking how the management team/structure will change and how that will effect their position is a fair question. Look at where the execs have worked before and see if you can find out anything about them from people who worked at their prior companies.
(2) Technology risk - will the technology work and will it be unique/proprietary? A non-engineer MBA isn't going to get into the technical details but asking about what technology still needs to be developed, how protectable it is, etc all fair questions. The earlier the start-up the greater the technology risk but there are still important differences in degree (is there a beta customer yet?).
(3) Market risk - does this serve a big enough need? Will enough people/companies what to buy it? What is the distribution strategy? You can ask if they have any research/analyst studies/projections. Certainly fair to ask who the competitors are and why the company expects to beat them. No competitors probably means its not a big enough market, too many and its going to be hard/expensive to get market share.
(4) Financing risk - how much investment is going to take to find out whether the company is successful. Hard to ask this out right but its fair to ask how much cash they have and what is the monthly burn rate. Also ask about the investor syndicate. Is it venture backed by more than one strong firm?
Finally, I am always amazed how rarely people getting stock options ask for the number of fully diluted shares outstanding. Unless you ask that, how do you know whether options on 10,000 shares is a lot (1m outstanding) or a little (100m outstanding). If they won't tell you that (and they might not) then multiply the strike price times the number of shares should be at least 5% of your salary.
Here are a few questions that I would consider when contemplating working at a startup:
Phil Welt, Former CEO N2H2
Financial: Is the company performing to plan? How much money has the company raised and how much does it think it needs to raise? What is the company's current cash position and what is the burn rate? What is the current revenue and headcount? (Do quick math and calculate the revenue per employee. If it's below $200K you need to consider if you believe revenue will ramp up.)
2) Managerial: What is the experience of the senior management team? What level did they have in other companies before the startup? Have they done a startup before? Is the founder the CEO? (Generally not a good sign.) Does the company have an experienced CFO?
3) Raison d'etre: Why was the company founded, and what need do its products meet? Do customers actually pay to fill this need or does the company just think they might? Beware of companies that talk a lot about the exit strategy and not much about meeting customer needs.
4) Measurement: How does the company measure itself and its success? The more specific and quantitative the answer, the better. Do employees pay attention to the measurement system or is it just for the "bean counters?" Well run companies know what they are trying to do, and find ways to measure this in a repeated and systematic way so that they can improve.
5) Competitive situation: Any relatively senior business person (regardless of area of concentration) should be able to describe the company's competitors, its competitive position, and the challenges it faces. Does the company understand the business it is in and how the external environment will influence company success? The answer should match from every employee questioned. Many startups have literally dozens of agendas, which in effect means they have no consistent plan or employee communication/feedback system.
6) Questions for any company: What is the ethical reputation of the company? What do the employees and managers say about the work environment and how the company treats various stakeholders? (Watch out for any sign that any stakeholder group is held in contempt, if you hear this during an interview you'll see a lot more when you join the firm.) Who will be your boss, and can you respect and learn from this person? Do you get excited by the product and think it is important? What can you tell about the people and the culture and do you like what you discern?
Of course, not all businesses will tell you their revenue or let you see detailed financials. But you should ask, and in general, the more information that is withheld, the more careful one should be. I think most firms should tell an entering MBA the company's cash position, the burn rate, the number of employees, and the revenue, if any.
What questions have you seen potential employees ask that seemed perceptive, but didn’t seem like they were looking for guarantees?
-How is the company funded and for how long out does the current funding carry the company?
-Does the company share its financial position regularly with employees?
-If angel funded, is there a plan for venture funding and how much is that round targeted at?
-At what point do they expect the company to be cashflow positive?
-What are the things that keep the management team up at night?
-Does the company have paying customers yet? How soon before they will? How is customer feedback built into
the fabric of the company?
How deep should students expect to be able to go with questions on financials, plans etc?
-Is there a business plan you’d be able to share with me?
-How detailed do you manage and track company financials (quarterly reforecasting, for example)?
-Are there any analysts reports you could share with me on your business?
What sort of equity stakes would an early-stage director of marketing or ops expect to ask for?
-would depend on their experience and whether are a true director level or not and at what stage
the startup is at….could be 1/10% all the way up to 1%.
As far as questions to ask:
To get a job
- Do a little web research
- Ask who are the competitors
- Ask what's the revenue model
- Who are the customers?
- What are the customers buying?
- Why do customers choose you over the competition and other subsititutes?
- ask for target break even date
- How much cash in the bank? How long will it last?
- Other future financing plans?
- how much does the company spend in 1 month
- what' sthe culture like -- in 3 adjectives
- what are you (manager) looking for in an ideal candidate
- what's the work environment? flexibility? hours?
- what's the exit strategy?
- Whatever the grant is -- how do you deal iwth dilution?
- How many shares outstanding?