Congrats on your job offer from a startup! Now, how do you make sure that the company is stable enough to at least pay you for the next year or so?
For an overview of how investors quickly assess a company, see 7 Minute Due Diligence. For a checklist of background to request, see Please don’t pitch a venture capitalist without this checklist. If you’re specifically concerned about financial viability, I suggest review the most visible signs which often indicate challenges at a company:
- Material layoffs/departures. Look at the ratio of alumni on Linkedin vs. current employees.
- A company hasn’t raised capital in 15 months. A rough rule of thumb is that a VC round should last you a minimum of 12 months. The obvious exception is a profitable company.
- Investors have left the board.
- Senior executive departures.
- Social media accounts haven’t been updated for a quarter.
- No new hires for 6 months.
- Radical pivots.
- Negative Glassdoor reviews
- Existing VCs do not invest in follow-on rounds. However, according to CB Insights, all of the top ten early-stage VCs ranked by follow-on rate of first investments invest in over 70% of the follow-ons from their seed-stage investments. That data means even the most frequent follow-on investing early-stage VCs are not investing in followons in about 1/4 of their initial investments. A VC may not invest in a follow-on for many reasons, including: lack of available capital in the fund that originally invested; company growing out of the fund’s core focus (a common situation for early-stage focused VCs); perceived generous valuation; and/or the VC losing faith in management, the product, or the market.
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