I don't have experience with start-ups, so the question "How much money is left in the bank?" was interesting to me. I understand that it's important for potential employees to know the start-up can afford to pay their salary for more than a few months, but on the other hand I can imagine founders being reluctant to divulge too much financial information. Does anyone have experience with asking/answering a question like this? What kind of answer can you expect? Are there better ways to ask this, such as "How long can you guarantee that you can pay my salary?"?
Asking about the funding status, burn-rate, lead investors, and related details is pretty standard. While most companies won't put this data out in a press release (well, actually, they usually put out a release when they raise money, they just don't talk about their burn openly), it's not a taboo subject. It might be better suited for a round 2 interview though.
They should tell you about funding, if they won't divulge burn rates, you can usually factor $8K-$15K/employee/month for a grossed up burn rate (ie: salaries, rent, equipment leases, travel, etc.). Startups that are more hardware-centric and/or have a large sales force (which == travel) are on the upper end of that. A dozen guys squatting in Class B office space building a webapp are going to be on the lower end.
These points probably are not relevant to the "interview process" but they can often be vital to the economic decision whether to join a startup:
1. What equity will I get and what form will it take?
2. What are the total outstanding shares in the company (fully diluted)?
3. What is the total dollar value of the investor liquidation preference?
You can get 100,000 options vesting over 4 years, for example, but this could represent potentially 1% of the company (if 10M shares are outstanding) or one-tenth of 1% if 100M shares are outstanding or any other percentage depending on the total capitalization structure. In the one case, on a $100M acquisition (assuming pro rata participation by all parties), you would get $1M and, in the other, $100K. Key point: the absolute number of shares is much less important than the percentage they represent of company ownership.
Same scenario but assuming preferred stock in place holding $50M of liquidation preference and full participation rights beyond the preference amount: in the $100M acquisition scenario, your 100K of options would net you $500K if there are 10M shares outstanding (1% of the $50M that is left after payment of the $50M liquidation preference) and $50K if there are 100M (.01% of the net $50M amount). Key point: outstanding liquidation preferences can (and often do) materially reduce the equity return to common shareholders, particularly if the company is sold in a marginal acquisition (in an extreme case, the preferred investors can force a sale where founders and employees get nothing).
Of course, if you haven't vested in full, and you don't have any accelerated vesting on acquisition, the numbers get shaved even more. Say you worked 2 years at the startup on a 4-year vesting schedule, you would net $500K in the best case under the above examples (1% potential ownership that is 50% vested, no liquidation preference) and $25K in the worst case (.01% potential ownership that is 50% vested with $50M liquidation preference).
These days, many who join startups as employees after the early stages are generally aware of the above issues but it never hurts to remember them if the major reason you are joining is for the hope of a large potential equity payout (if the terms you get are good apart from the equity, and you see it as more of a "tip" if things happen to go well, then these issues are of course much less important to you).
Capitalization questions are awkward to raise in an interview but are important if equity is key to the offer. Interview as is best for you, then, but make sure to consider these points in deciding how to finalize your deal.
I've always asked it in this sort of style and don't remember anyone ever having a problem with it, and as the author points out, it's critical for your evaluation of the risk of the startup, which is necessary for you to price yourself, set your expectations, etc.
Asking this shows interest in the company, asking "How long can you guarantee that you can pay my salary?" sends a very bad signal of among other things risk aversion. The employees of startup have to have a healthy appetite for risk....
"Can I take a glance at your code?" - If applying for an programming position, this is one of the leading indicators of how well the team works regarding refactoring, communication, and their philosophy towards coding.
I took to asking to see samples of real production code at all my interviews towards the end of my time working as an employee.
No-one ever objected. In fact, most places seemed glad I was interested and thought it was a reasonable request. It was pretty common to be asked to wait until the second interview, though, as most places wouldn't be kitted up to do this without notice.
The chances of you seeing a section of code that is central to their IP and the answer to the question, "how did they do it?" and, additionally, your ability to instantly understand it are very slim.
This is a great question for an engineer to ask. Being able to see if the code is smart (e.g. using shorthand instead of multiline logic), neat and documented is a great way to get a feel for how your potential future coworkers work. They've spent the last two to four hours grilling you and know you, how you code and how you solve problems pretty intimately -- why not get to know them better, too?
Don't you ever watch movies about programmers? That's exactly how it works. The protagonist looks briefly at some code before declaring "Oh wow, this guy is good." For added realism, he should be typing the entire time.
You don't ask to see the code so you can identify the really good places, you ask so you can run away from the really bad places. It's the flip side of employers asking for basic coding tests: it's not there to tell you how good the good guy is, it's there to get rid of the guy with the great-looking CV who can't write "Hello, world".
At one of my round 2 interviews (for an internship, so entry-level stuff), a large part of the interview was them showing some of their code and quizzing me on what it did and so forth.
When my 2nd company got bought (quickly and for a relatively small pile of money, sadly), I thought I asked a bunch of smart questions of the acquirer (who I went on to work for for a year and got a bunch of stock from as part of the acquisition).
The question I WISH I'd asked was around retention. i.e. "Of the people who touch this product, how many come back a second time? How many are addicted?" The company was well-financed and the sales machine sold the product REALLY well. But users didn't love it-- and most eventually churned.
This sounds a lot like questions someone whose experience of start-ups consists mostly of reading Hacker News would ask. I wouldn't be offended if someone I was interviewing asked me those questions, but I sure as hell wouldn't answer some of them, given that things like detailed financials wouldn't necessarily even be revealed to current employees. If sound basics like "we're profitable" isn't enough, that's a no-hire.
If you expect equity to make up part of my pay, then knowing the financials is critical. You are basically asking me to be an investor with my time, so this sentence doesn't make sense: "If sound basics like "we're profitable" isn't enough, that's a no-hire."
If we're in this kind of interview situation, where I am openly recruiting for a position and you are a job applicant, then it is very unlikely that I expect equity to be part of your pay.
These days, equity is for founders (if you're serious) and prospective employees who didn't get the memo about the .com bust (if you're both fools). A fixed salary at a credible professional rate is for prospective employees you respect, possibly with some clearly defined bonus structure.
YMMV, but I haven't seen any exceptions to this from either side of the table in a long time.
But the point is that it is an outlier. Most people interviewing with a start-up aren't interviewing with the next Facebook. Even if they are, paying single-digit employees who are not founders in equity isn't nearly as common as it used to be IME.
This list of questions is great. I would say that some of these are a bit invasive as you pointed out, but a good sign that the applicant is really considering the company. I think casting aside someone who is genuinely interested in the future of the company would be a silly move: Even if you're not transparent about your financial situation, you should at least be honest about their chances of having a job in 6 months.
The intention isn't to get detailed financials necessarily. "Profitable" is a pretty good indicator of some level of success. The issue is more with pre-revenue or pre-profit startups that are "burning cash" and have X amount of time to live. That's important data for an employee.
Sure. I think what I'm getting at is that the questions seem to implicitly assume anyone applying to a start-up is looking at a company that is (a) externally funded, and (b) not yet profitable. There's a lot of hero worship around here about getting early stage funding and Ramen profitability, but in the real world there are plenty of other possibilities.
Yes, the questions are targeted to a specific type of startup, although not necessarily one with huge funding.
But the questions don't change drastically in other types of startup either. Maybe some of the financials do, but questions about founders, business fundamentals, metrics that are focused on, how employees are assessed, etc. remain true regardless of whether it's a funded startup, bootstrapped, revenue generating, profitable or otherwise.
Most of the things you mentioned remain true for any prospective employer, though, whether it's any form of start-up or already established. Only the financial questions from the original set were particularly start-up specific, and those are the ones where I see a bias in the article, because a different approach would be appropriate depending on the nature of the start-up.
Well, it sounds like inexperienced bootstrappers like me have a lot to prove to our potential employees given that we have neither much funding or experience. Hopefully some early cashflow from an MVP can help make that easier
I don't think it's a matter of proving anything. I think the issue is that no matter what the answers to these questions are, you have a good reason for interviewing the person.
"What past success and experience do the founders have?"
"Well, we've been involved in small projects individually like a b and c. But we've surrounded ourselves by great advisors like Mr. W who did x in 2001. And Mr. Y who was CTO at Z Corp."
Engineering Turnover Rate? That's one the of the questions I wish I would have asked where I work now. The smaller the company, the greater the effects of turnover are on the product....
