What To Check Before You Leave A Big Company For A Startup

The founder's pitch is good. It is supposed to be. Recruiting experienced people is one of a founder's most important jobs, and they have practiced the story many times. Your job, before you resign from a stable role, is to find out what the story leaves out.

Joining a startup can be the best career move an operator makes. It can also mean taking a pay cut for equity that ends up worth nothing, in a role that changes completely within six months. The difference is often visible in advance, if you ask the right questions.

Check the money first

The most important number is runway: how many months the company can operate at its current spending before it needs more money. Ask directly. A founder who will not share an approximate figure with a serious senior candidate is telling you something.

Then ask when the company last raised, how much, from whom, and when it expects to raise again. A company that raised recently and has a long runway gives you time to make an impact. A company that will need to raise within a few months of your start date means your first project may be helping it survive.

Ask about revenue or the key usage metrics, and how they have moved over the past year. You do not need audited figures. You need enough to judge whether the business is working, and whether the founders describe it honestly.

Ask how the company's spending will change after you join. If the plan depends on hiring a team under you, find out whether that budget is approved and funded or contingent on the next round.

Understand what your equity actually is

An offer of a number of stock options means little on its own. Ask for the total number of shares outstanding on a fully diluted basis, so you can work out what percentage your grant represents. Ask for the current strike price and when the last valuation for that purpose was done.

Ask about liquidation preferences. Investors usually hold preferred stock that gets paid back before common stockholders in a sale. If the company has raised a lot of money relative to its likely exit value, common stock, which is what your options convert into, can receive little or nothing even in an acquisition. You do not need the full cap table. You need to know roughly how much preferred stock sits ahead of you.

Assess the founders and your manager

Most startup failures are not market failures. They are team failures. Spend real time with the person you will report to and, if possible, with each founder separately. Ask how they make decisions when they disagree, and ask for a recent example.

Talk to people who have worked with the founders before, not only the references they hand you. Talk to current employees, especially ones who joined within the past year. Ask what surprised them after they joined. If any former employees are reachable, their view is often the most candid.

Pay attention to how the founders talk about past mistakes. Founders who can name a decision they got wrong and what they changed are usually easier to work for than founders who describe an unbroken run of good calls.

Pin down the role

Startup roles change fast, which is part of the appeal. But you should know what problem you are being hired to solve, what success looks like in your first six months, what resources you will have and who you will hire. If the founder cannot answer those questions clearly, the role may not be well defined yet.

Ask what happens to your scope if the company grows quickly. Many experienced operators join as the first leader of a function and are later asked to report to a more senior hire. That can be fine, but it is better to discuss it now than discover it later.

What to do before you sign

Write down your personal runway: how long you could live on the startup salary, and what happens to your finances if the company fails in eighteen months and the equity is worth nothing. If that outcome would be a serious problem, negotiate for more cash or keep looking.

Then work through the checklist. Ask for runway, last raise, next raise and key metrics. Get the fully diluted share count, strike price and a sense of the preference stack. Meet each founder and your manager, and talk to current and former employees. Get the role's goals and resources in writing. If the answers are good, you are taking a risk with your eyes open, which is the only way to take one.

This is general information, not financial advice. Nothing here is a recommendation to buy or sell anything; speak to a licensed adviser about your own position.