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Nov 22, 2022

Where will builders go?

by Anthony Kline
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The recent layoffs have thrust tens of thousands of talented people into the job market. We’ve seen the vast majority of these layoffs happen at large, public tech companies like Meta, Netflix, Coinbase, Twitter (sorta), and later-stage, pre-IPO companies, like Stripe and Instacart. To paint an even clearer picture—a recent graph showed that there are 1500+ companies that laid off some percentage of their workforce over the last 12 months.

Unfortunately, there are more layoffs on the horizon. The growth-stage tech landscape (Series C to E) traditionally lags behind public and late-stage technology companies. Many of these growth-stage startups raised capital at the tippy-top (scientific term) of the market and won’t be able to support the sky-high valuations they attracted from VC firms. My not-so-bold prediction is that many of these companies will raise down rounds or shutter completely. A few will become acquisition targets, and some will raise new rounds at flat valuations.

Across the tech industry, the available talent pool will spike. Tens of thousands of people will enter a shrinking job market, and for many, this will be the first time they will face real competition for a role. In a moment of reflection, “non-technical” workers deemed unnecessary will likely need to exit the industry altogether in order to find a livable wage. But, for those that have transferable skills (engineering, product, design, and, in some cases, sales), there will be a battlefield scarred with fallen companies, shaking valuations, and unclear value propositions. So where should builders go? 

They should flock to early-stage startups or start their own companies altogether. Why?

  • Startups have less bureaucracy. They can move faster and offer more transparency than a later-stage public company where more layoffs are coming. 

  • Startups are nimble. They can rapidly adapt to change and have the potential to be more capital efficient than later-stage companies.

  • The best startups have a clear mission that builders can rally behind. They’re ambitious, and talented people typically want to work in ambitious environments.

  • They offer an upside that public companies and pre-IPO startups do not. FAANG companies are shelving ambitious projects for short-term revenue. That strategy will fail over time and those that continue to innovate will be rewarded. 

Early-stage (seed, Series A) companies will still be able to raise capital in the coming 12 to 24 months. Their runways are longer and the market will likely improve by the time they need to raise a large round of funding.

So how do you start your search?

1. Reflect. What industries feel most exciting to you? Is it fintech? Climate? AI or web3? The future of social? There is a large-scale reset happening. Use this opportunity to reflect on what industry you want to impact and consider the various sizes and stages of companies that interest you and give you the greatest advantage to do so.

2. Outline your priorities. What is most important to you? Establish core criteria for yourself, along with a subset of nice-to-haves. When I joined Stripe, I had four very clear objectives:

  • Join a startup that engineers want to work at 

  • Work on the most challenging talent searches, not just high-volume acquisition 

  • Work in an industry that is solving big challenges related to infrastructure, security, machine learning and product (so long as it wasn’t advertising) 

  • Find a role that would give me more career mobility than recruiting.

At the time, I also knew that I didn’t need to manage a team, and that cash compensation wasn’t the most important thing (I was 27, had no kids, no mortgage, and had saved up enough money to feel comfortable).

3. Build a list of the companies that excite you. It doesn’t even have to be in technology! For example, I’ve always dreamt of working in the space industry (NASA, SpaceX, Planet Labs) and I’m also passionate about robotics and transportation (Nuro.ai, Waymo, Tesla). You should strive to build a list of 25 to 50 companies. At this stage, resources like Pitchbook, AngelList, Crunchbase, and Owler can be helpful to determine who else plays in industries you’re interested in. With this approach, you could easily find 50-100 companies that you’ve never heard of, but that are solving big problems in fields that excite you (I discovered Astra, K2 Space, and Rocket Lab this way). 

4. Determine who invested in those companies and explore other opportunities on their websites. This will allow you to expand your search even more because you’ll have the additional filter of the investors' diligence. 

By the end of this exercise, you’re hopefully staring down at a list of 100+ companies that excite you. You’re also more equipped with information about these companies—you understand their vision, mission, funding situation, and how they fit into the broader market.

How do you pursue the job you want?

Get on LinkedIn and Twitter and start mapping out leaders within these organizations. Specifically, target the leaders that might own the budget and headcount for the department you’d like to work in. You may also want to start with the company website to see if there is a leadership page. Important: DO NOT APPLY FOR A JOB ONLINE! 

Instead, you should put all of the names you’re finding in a spreadsheet (company, name, role, email). Finding emails can be difficult but there are services you can use to pull the email. Try out Teamable, Gem or RocketReach. You may be able to sign up for a free trial and get away with not paying for the service :) As a last resort, you can purchase InMail credits on LinkedIn. But you can also just add the person as a connection on LinkedIn and use the “add note” function to write something personalized. If they accept your connection, then you can message them for free.

Don’t forget to map out who you already know at each of these companies, and use them to get connected with the hiring manager. If you know their work email, you may be able to deduce the email handle and send a direct message.

Next, draft your message for the upcoming campaign. Yep, we’re doing it. Here’s a draft for you to get started.

Hi [insert first name],

I hope this finds you well. I am an engineer at [insert current company]. I’ve spent the last five years designing, developing, and implementing large-scale distributed systems but also consider myself a generalist. I’m passively looking for a new position and am passionate about space travel and robotics.

In my free time, I’ve been researching more about companies that are making an outsized impact in the industry and came across [insert company name]. Your company’s focus on X, Y, and Z is inspiring, and I’d love an opportunity to explore building this future with you.

Would you or someone in your organization be open to chatting with me about your company culture, the challenges you’re solving, and your vision for the future?

I look forward to hearing from you.

Best,

[Your name and LinkedIn profile]

Send this message (or your version of it) to 1-3 members of that organization. Be sure to personalize it to the company and the person you're sending it to; it will take some time but it’s worthwhile.

Very important: Be prepared to follow up with everyone on this list at least two or three times. If you use one of the tools I recommended earlier, this follow-up can even be automated. It’s also possible to use a more generic follow-up message that you don’t need to customize each time. I can’t stress the importance of using one of these tools.

Once you’ve done your own outreach, you also will want to explore additional channels. There are two channels that I recommend: Talent partners (i.e, recruiters) at venture funds who have access to a portfolio and recruiters that have messaged you about specific roles in the past that are relevant. If the roles are relevant then you can use that as a filter for which recruiter is worth connecting with. 

Connect with as many talent partners as you can handle; it’s a free service after all. Most of them are paid by the company that contracted them. They earn a commission based on your salary, so they’re actually incentivized to get you the best salary possible. However, if they tell you that your salary expectation is too high, you should listen :) 

Which startup is the right startup?

Evaluating a startup is much more difficult than evaluating a public company or even a pre-IPO company with thousands of employees. With early-stage startups, there’s always more risk involved (even if the company is well-funded), and who you work with matters a ton. 

After evaluating the industries and company stages that seem appealing to you, deepen your job search by evaluating these factors at different startups: 

1. The core team

Everything in a startup flows from the founder and the founding team (usually the first dozen people). It’s ideal if this team has differentiated experience in the area where they’re building a company because it will give them a distinct advantage in developing technology, interacting with customers, and raising capital. These folks will also set the tone of the company for years—they will shape key product decisions and the broader company culture.

Your best opportunity to evaluate the core team is during the interview process. First, you should be looking for consistency in thought and communication. The team should be on the same page about the company’s mission, team goals, and your role in joining. How do they define and measure success? How do they make product decisions? Second, take some time and look at the backgrounds of folks on the team. Where did they work before and why did they come to work for this company? What motivates them? How do they work together? Are these the right people to solve this problem? Asking these questions will help you. 

2. The market

Is there room for this company in the market? I love investing in the payments space because it’s been around since the dawn of civilization, but it’s still evolving. PayPal, Square, Adyen, Stripe, etc. make up hundreds of billions of dollars in market cap, and yet, only 9% of payments are online today. That means that the market can support new and very large entrants. It also means you can invest in infrastructure and adjacent segments, like anti-fraud/anti-money laundering, that will grow with the increase in payment volume. 

3. Investors, revenue, valuations & growth 

You’ll want to feel confident that the company can attract the right investors. But who are the right investors? They’re either VC firms that have deep expertise in a given industry (consumer, fintech, enterprise, etc.) or firms with a strong track record. Capital is oxygen and in a capital-constrained market (ahem, today), you’ll want to know that the company will have enough runway to realize its ambitions. Even a younger VC firm can have a strong track record. Check out the portfolio page of the firm—have they invested in companies that you recognize and appreciate? The right partner will provide a signal to new recruits, additional investors, and potential customers that this company can stand above the rest. 

This can come at a cost though, which brings me to an important point. Many startups raised at lofty valuations at the end of 2021. Those valuations were set by investors because the market for capital allocators was competitive at the time. This has set in motion a high likelihood that many startups will crumble under high valuations that they cannot meet with their current revenue and growth trajectories. To my previous point, the market may also not support it. That doesn’t mean you should discount a company with a high valuation. Rather, you should understand whether that valuation is achievable by looking at current revenue and growth numbers. These figures are not published so you’ll need to ask the leadership team at some point (usually the end) of the interview process. Also, understand that multiples dropped as interest rates rose. About 80% of SaaS companies are now trading below 10x NTM revenue (the peak NTM revenue multiple was 50.8x and that median has dropped by 80% to 8.8x). Fintech forward revenue multiples have also fallen from 20x NTM to 5x NTM. It’s important to understand the historic and contemporary multiples for each industry so that you can make a strong case for a valuation based on revenue and projected growth. If growth plateaus, where is the valuation? 

4. Culture (the vibe)

We measure the things above so that we can trust our instincts the rest of the way. There is no such thing as absolute certainty in startup land, but you can feel better about your instincts if you sweated out the details I outlined above. 

Whatever company you work for next—you’re going to work there most of your waking hours. So the culture needs to also feel like a fit with your own professional personality and career goals. Is this the place and role going to help you on your longer professional journey? 

In Conclusion

OK—now you’ve done your own research and evaluated several startups thoroughly. If you still have questions about what’s the right choice for you, then I’d encourage you to reach out to our team at The General Partnership because we focus on early-stage companies and breakout investments. We also offer additional firepower to our founders in the form of engineering, go-to-market, and talent acquisition support. Our hands-on approach to company building not only helps our portfolio companies outpace the competition and do more with less capital, but it also includes a lot of diligence. 

If you want to increase your confidence in joining an early-stage startup or if you want some career advice, we’re happy to connect you with a member of our team. You can reach out to TheGP on Twitter or with to me directly at ak@thegp.com.

Edited by Taylor Majewski

Image: DALL-E

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