The startup I used to work at recently announced their series D funding round completed. That announcement mentions a 2 billion valuation (That's a lot). Not many folks get the opportunity to work at an early-stage company and see this achieved, including me. I left right before Series B was completed, 2 years after the seed round. I learned a tremendous amount about being at an early company and thought I would share my thoughts.

This post was inspired by @swyx's share and tell going from a Series B to C post.

Working at a Startup From Series B to C

swyx ・ Mar 5 '20

#reflections

Disclaimer

• I am not naming the startup to make this useful for anyone considering a role at an early or seed-stage startup. Honestly, just check out my LinkedIn or Google me if you are interested. If you have questions, feel free to ask.
• This company is a developer tool startup, which can be quite different from different verticals. Aside from Edtech, I do not have experience with any other startup type.
• I was a boot camp grad and M.B.A. dropout that learned to code in 12 weeks. I am not an elite programmer and completed 0 leet code problems. I can only provide context on engineers at an early-stage company, but happy to answer questions to the best of my ability.
• VC is Venture Capitalist (folks with the investment money).

0. What is Seed Stage?

This is the point the company has a product and focused on product-market fit and hyper-growth (new user sign-ups).

When I joined, the company had just secured the seed round of funding (just over 2 million) and worked on the idea for a few years with a previous iteration.

1. Hiring

I joined the company as employee number 3, which did not mean much. My interest in joining the company was working closely with the company's C.T.O, who had deep knowledge in Docker and k8s. The company's C.E.O was also writing the majority of code and had a strong interest in modern JavaScript (es6 then).

The focus was on hiring high-caliber individuals that could excel in the product's growth and awareness. Early hires in design and customer support took up most of the focus. The founders pitched the same slides as the (seed) pitch to every prospective hire at the early stage. This was the same pitch that got them their series A (in 4 days).

This worked well for me since I learned the pitch back to the front and participated in regular pitch practice meetings (not required as engineering, but a great learning experience). It is helpful when the earliest employees are interested in the problem and invested in seeing growth/adoption.

At this stage, it is essential to get the word out about the product via content and events. Employees that can double as an evangelist for the product can make up for a good deal of growth. By the time series A was considered, there were ~30k users. With a larger user base, hiring became easier. For those looking for a job, this is an underused tactic. Offer to work at places you enjoy their product and see if you respond to the founders. If you have a strong following on Twitter or somewhere else, that can be used as negotiation leverage for more equity.

2. Salary vs. Equity

Seed stage startups can be generous in offering equity to gain initial talent and expand bandwidth. The "founding team" is used to incentivize new hires to join. This is the best time to own a more significant stake in the company. Using consultants for design or marketing is also expected and a way to not hand out equity.

I was not personally offered a contract-to-hire, but a few folks that were hired remote got the contract-to-hire pitch. My recommendation is to make sure the contract works for you and not just company. Keep in mind equity is not usually received at this stage, but it’s possible.

My salary offer was equal to my previous startup job's salary because that was what I asked for (poor negotiation on my part). There was no negotiation on equity, mainly because I didn't know you could do that. I got a decent amount of equity, which was later tripled in 6 months due to good performance and retention.

Runway is everything at this point and a raise decreases runway. Providing more equity is more reasonable request. Employees at this stage should consider asking for equity as a performance bonus and cash bonuses after a new round is raised. Neither is guaranteed if the company cannot increase or gain adoption.

Joining an early-stage startup includes trades on salary in hopes the equity is worth something. This trade is more accessible with experience. Equity generally vests over 4 years, but you can negotiate a faster vesting schedule. Founders are looking to please VC's with a story and the "founding team." If you can provide value to the founding team consider bringing that up, even if it is you brother-in-law works for a FAANG company as an Engineering Director (fictitious example). Network and connections should be considered and leveraged.

3. Company Dynamics and Culture

At a small company (less than 20), its culture was as if it was a close-knit community or fraternity (or a non-gendered equivalent). The company I worked for maintained a healthy gender ratio for employees (including engineering) and a pretty diverse staff, this was not intentional but was nice to be a part of being there. Diversity is not a priority at the seed stage, though it can be talked about. The focus is profitability and extending the runway. I did my part by inviting friends and diverse candidates to interview for roles before they were public on a job board, but the majority never made it past intro calls.

A few times, the company had to decide on building up the enterprise solution or focus on mass developer adoption. This ended when there was a final exploration call from a large VC plus a large corporation considering an acquisition/investing. I don't know how often this happened in the first 2 years, but I can say because the company focused on mass adoption via specific developer personas (DM me for this persona tactic, if deserves a whole post, it is just too much detail to include here) that enterprise never needed to be the focus because of enterprises were already reaching out enough that the first sales hire was made to filter these inbounds into enterprise features and 6 figures deals (pre-series A).

I will say that it is not normal to have the product figured out this quickly in the company's lifecycle. This company realized they had a lot of leverage early on, due to the founders being in their late 30s and second-time founders. IMHO, the gamble with joining startups with first-time founders. Before accepting the offer to any startup, ask the founder how many exits the team seen, and if they plan to exit through acquisition or I.P.O.

A company looking to I.P.O. operates differently than a company looking to be acquired. Not every employee will survive an acquisition or exit, so know when you are personally ready to leave if either do not happen.

In silicon valley, the average is 1-2 years.

4. Series A

The series A is a point when large VC's offer money and provide an actual valuation for the company. The valuation can be based on actual adoption or potential growth. From my understanding, potential growth is better as it can be valued higher and allow the company to give up less of the company away through stock. The VC will provide a partner as a board member as well as a strong network.

Also keep in mind it is good for the company to have competitors in the space. The company I worked for was never public about their valuation, but their competitors were extra public. This made fundraising easier for them because they held theirs cards close to the chest. Even as a former employee I stayed friendly with the founders, but they never revealed their valuation to me, their response when asking was enough to know I should hold on to the stock vested.

The choice of the VC and partner at the close of series A is very important. The board member chosen for the startup I worked at was well connected and offer introductions to other high profile devs and companies. When we had to solved some harder problems, they recommended folks to reach out to. You cannot under estimate the value of a VC network even as an early employee.

Conclusion

Anyone looking to gain insight into how to operate a company in the VC stage of startups should try working for a company as early as the seed stage. You will work on interesting problems (not just code) and make connections that you do not otherwise. My intro in to programming was after dropping out of my M.B.A.. program, thinking I needed that degree to network my way into a higher-paying job. Working at a startup was a better experience and cheaper than that program.

Some more thoughts I wanted to mention that didn't fits above.

1. If private equity firms reach out to purchase your stock, that is a sign the company is doing well and potentially raising another round.
2. If the company offers to buy stock from you for cash, that is a sign the company is doing well. Probably don't sell unless you absolutely need the cash because your salary is below market rate.
3. If the company mentions runway in weeks and not months, consider either switching to sales or interviewing elsewhere just in case.

I hope you find this helpful if you consider an early stage company. I am happy to answer questions if you got 'em.