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.

Chris Metcalfe, Joined Isilon as an early employee from Atlas Ventures where he was an associate

Here are a few questions that I would consider when contemplating working at a startup:

• What’s the market opportunity and why have traditional companies not already fulfilled it?  (This question goes beyond analyst forecasts and is more centered on…. Why is this company’s idea a good and defensible one)?  [A word of caution, it is not necessarily the job of a candidate to convince the startup that they are on the wrong path, however it is a good idea to understand and buy into the story.  If you don’t believe it, why should the customers?

• Why this company?  What are the people and things coming together that uniquely establish this company to succeed?  (What are the track records’ of the founders…  Will this be something totally new for them (which is OK, but increases the perceived risks for success), or have the founders been around the block and previously founded successful companies or launched successful products.

• I would urge all candidates to ask a lot of questions and to be weary of answers like “success is guaranteed”  or “we’re successful because we have millions of dollars from a VC.”  Just as with any relationship, both parties should try to get to know and trust each other and an absence of due diligence can often indicate that there’s a problem.  (Company is desperate for candidates and will take anyone with a pulse, or a person is too desperate for a job).

1. As an example of the latter – and to demonstrate that these guidelines apply to all levels…  One of Atlas’ East Coast companies was searching for a CEO.  One candidate had outstanding references, but asked very few, if any, probing questions about the company.  Essentially he said “sign me up! I’m in.”.  This attitude, and the lack of due diligence he conducted, ultimately scuttled his candidacy.

• If you are to be a key employee, I believe it is reasonable to understand the structure of the company.  How many shares are outstanding?  Will I get options, or shares?  Is this a closely held company (controlled by one party/person, with very limited involvement from anyone else)?  What’s the corporate governance.  I would advice people not to launch into these questions right away, or to expect to get them all answered – different people and companies have different sensitivities about this info.  However if a company, say that’s been around for a while, is trying to lure a candidate just based on future options/stock appreciation, but that the company has had a lot of money previously invested chances are that the liquidation preferences are extremely high (often 2-5X), and it’s possible that the common stock holders are unlikely to ever see value from any good corporate outcomes.  This is definitely something to be aware of in examining opportunities.

• No company is without problems – but take a look at the guts and heart of a company and often you will see how it will deal with future problems.  My old boss, Bill Bryant, used to say that you should look at a company’s DNA – it’s founders, the genesis of the idea, and the overall mentality of the organization.  Bad DNA is often fatal and hard to get away from (regardless of the millions of dollars in funding that the company may or may not have).

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.                          

Janis Machala, Paladin Partners

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%.

Andy Sack, Founder Judy’s Book

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?