Joining a startup in 2023? Here are 6 key things you need to consider

Joining a startup, particularly an early-stage one, can be a long shot.

But the market looks even more grim going into 2023. Although some early stage companies continue to add talent, some of the best capitalized startups have shed staff in their hundreds.

With news of layoffs continuing to pour in, from big tech companies like Amazon to financial headlines like Goldman Sachs — Where should candidates look for work? And how can they assess which companies are likely to not sink?

We asked founders what candidates should consider before joining a startup in 2023.

Look for companies with a realistic path to profitability.

As capital becomes increasingly scarce, the most capital-efficient companies have higher operating margins, and investors prefer a realistic path to break-even/revenue under current market conditions.

Even more than before, candidates need to understand whether the startup can demonstrate a realistic path to profitability. This requires you to educate yourself and get information from the business on things like the monthly usage rate, how much it costs them to acquire customers compared to how much those customers spend with the business (often expressed as the LTV:CAC ratio, or customer lifetime value at customer acquisition cost) and net revenue growth. Ask them for numbers. If the company isn’t open and transparent about things like cash outflow, stay away.

“If the company isn’t open and transparent about things like cash flow, stay away.”

In terms of resources, many venture capital funds have created some pretty decent content hubs. These can be a good source of information on things like useful benchmarking tools (what the good looks like), How is talent rewarded? (am I being compensated well enough?) and how evaluate startups in earlier stages and understand the metric keys.

Stefan Bader, Co-Founder of Cello, a user-led growth platform for B2B SaaS

Understand how the company and the sector in which it operates is performing

Ask the hiring manager about the basic financial details of the company: Is it profitable? What is the financing structure? If it’s VC backed, when is the next round supposed to happen? In some cases, hiring managers may avoid these questions, which could suggest that the startup lacks transparency. It is up to the candidate to decide if he wants to take the risk or not.

Then comes the big picture. What is the current situation of the entire vertical in which the company operates? Is booming? Or is he in danger? A falling vertical can be an early sign of serious trouble for a startup; understanding this early can prevent you from joining a sinking ship.

But then the risk factor comes into play. Some of us thrive in risky environments, while others seek stability. What is your risk profile? What kind of professional environment are you looking for? And if risk is what you want, make sure you’ll be rewarded appropriately (your salary and capital should be appropriate for the level of risk) if things work out.

Marek Talarczyk, CEO of Netguru, a digital acceleration company

Ask about fairness

People join new companies because they believe in the company, as well as in their own ability to contribute to its success and be rewarded for it. Equity remains a fuzzy issue in Europe, with many candidates still unsure what it’s like to have a shareholding Really it means.

It is important that your employer tell you exactly how much capital is allocated to you and what the terms are. Depending on the company’s performance, its capital may represent a significant proportion of its total earnings. don’t be afraid of ask questions to assess the level of risk, as well as the value or potential value of the share offering.

Some questions to ask about equity are:

• What is the current valuation of the company my equity is based on and what approximate earnings multiple is associated with it? Where is this from? How has this changed from a year ago to now?
• How much of the fully diluted share capital will I have?
• What type of equity scheme am I enrolled in?
• And what are the terms of this scheme? Abandonment clauses, award schedule, exercise price and value (both historical and projected) are especially important here.
• If the plan has options or guarantees: what does exercising your options look like in the company? How often is it and how does that affect the taxes you can pay on the principal and your payments (now and in the future)?

Equity is part of your total compensation, so it’s helpful to think of it along with the rest of your compensation and other benefits.

• How much total compensation do you think is fair for your current role and seniority? Do your research on salary and equity benchmarks if you don’t already know, and remember that companies may be cash-strapped right now, so it could affect how much cash they can offer. Determine a cash and principal balance that works for you with this in mind.

— Yoko Spirig, founder and CEO of Ledgy, a capital management platform for startups

Don’t rule out early-stage companies

The later stage no longer implies greater stability in the world of startups. Many of today’s growth stage companies are no longer investable from an investor’s standpoint. There is a rush to become more capital efficient and in default (when a company is expected to make a profit with its current resources, without any additional investment).

I see pre-seed stages and seed being hot now and i would say now is a good time to start or join a (early stage) startup. Many funds have moved away from Series B+ growth rounds and are now doing smaller ticket sizes.

There is a lot of great talent in the market as a result of the layoffs and Hiring freeze for large technology companies. Things are also getting more serious. By joining these start-ups, you’ll have fewer “startup tourists” on the teams you’ll join. This can be an advantage from a career development standpoint, as you’ll likely be working with teams that are more talented and, as Elon would say, “hardcore.”

Stefan Bader, Co-Founder of Cello, a user-led growth platform for B2B SaaS

Evaluate if you can learn a lot from this company

The chance of success for startups is low and they tend to charge less, so make sure you come out of the experience sharper, wiser and more hireable because of the experience. Look for fast-paced environments where you have the opportunity to learn from an amazing direct manager and have lots of different things to get bogged down in.

To assess this, ask questions in an interview such as: What are the company’s immediate challenges? What is the team I’m joining like and how do they interact? To what extent does it interact with other functions? What are my immediate goals? Is there anything else you think someone with my kind of skills could contribute to?

Also, do your research on the founders. Look them up on LinkedIn and see if they’ve been featured in the press or done a podcast. Find out what they value and what their purpose is. This is not the time to mindlessly work for any organization; join a company that is making a difference.

Arosha Brouwer, co-founder and CEO of employee wellness software Quan

Compare the compensation a company offers with market data

When setting your own salary expectations, look at the market data for the position you’re applying for and see if it matches the salary offered by the company. Keep in mind, however, that there is less room for negotiation on the candidate side, as there is a less competitive hiring landscape compared to previous years and budgets are tighter.

Startups that are pre-seed and seed haven’t really slowed down and still have money to hire and pay people, but keep in mind that the high salaries of the past are gone for now.

The good news is that a pre-seed or early-stage company that has raised, or is raising money now, most likely did so at a realistic valuation. This means that employees who get stock/share options in a company that recently raised will have a higher chance of getting a better cash-out in the future with the stock advantage.

— Virgile Raingeard, Co-Founder and CEO of compensation benchmarking tool Cifras

Miriam Partington is the DACH correspondent for Sifted. She also covers the future of work, co-authors Sifted’s Startup Life Newsletter and tweets from @mparts_