“Growing the team” is almost always one of the ways entrepreneurs utilize new investment dollars. Whether it’s adding capacity to an existing function (#MawrEngineers) or bringing new talents onboard (“we intend to make our first marketing hire”), glossing over these bullet points towards the back of the pitch deck would be a mistake. I’m interested in not just what these people will be doing but how and when they’ll be hired. So when Homebrew asks about your hiring plan, here’s what I’m often looking for:
Unicorns Needed? Excellence is always hard to find (and should be valued no matter what the discipline) but if you’re looking for someone with, for example, general online marketing skills, a junior visual designer or the first community support team hire, I consider it pretty low risk. Those people are out there. If your execution roadmap is dependent upon a very specialized set of experiences, relationships or accreditation, I’m going to spend more time understanding the need, both because maybe we can help you fill the position and getting this person (or not) could result in a binary outcome for the business. For example, if you need to deal with record labels, there are a handful of really good business development executives who understand the dynamics of those companies and know who to call. If you’re scaling a service, the difference between an average smart engineer and a few dozen people who have successfully done it before with Google, Facebook, YouTube, Dropbox is enormous. I recommend to founders that if there’s a unicorn you need who isn’t on founding team, (a) start identifying those people in advance of fundraising and (b) prepare to compensate them generously via equity.
Do You Know Who You’re Hiring? A few months back I was talking with a small company raising their seed round. Their ultimate goal was a native mobile app but they’d built a proof of concept on web (with some light mobile web responsiveness). It was pretty nice but neither of them had sufficient native mobile app development experience (they were smart and likely could have learned, but that’s additional investment risk). Accordingly, some of their capital raise was aimed at hiring two mobile iOS engineers. Sounds great. My question to them was “Do you know who you’re going to hire?” Their response: “you mean like literally who?” The entrepreneurs had some ties into the broader startup community so weren’t completely on an island but hadn’t sourced or vetted any candidates. There was no one waiting to sign on as soon as the term sheet was signed. For an investor this can be a red flag unless you have proven experience building up high quality team quickly or clear access to large talent pools that will want to work with you for some reason (the tech is so cool; you’ve got brand heat; etc).
My general advice is to start your hiring process ahead of fundraise so you can show momentum. One easy tactic – place the job listing on AngelList or similar and collect responses, even if you’re not ready to bring people in yet. Then when the VC asks about the role you can say “we’ve got 75 candidates in the pipeline who were excited enough about the role and our vision to apply.” Note that I don’t think this is just kabuki for your potential VCs, it’s actually the momentum required to remain on a high growth pace, which brings us to…
Execution Risk Tied To Hiring Plan? Pitch decks usually have a set of expected milestones – features, number of customers, city launches, revenue run rate, etc – that this funding round is intended to accomplish over an estimated time frame. One often undiscussed aspect of this plan is it assumes a certain hiring plan, so I usually ask “is there schedule risk tied to new hires?”
For example, if you are assuming the goals are only realistic if a new engineer is onboarded monthly for the next year, I want to make sure you’re going to be able to hire at that pace without impacting quality. You may need slightly more runway, or if a hire takes longer than expected, to readjust the schedule or shrink the build list. I’m not looking for a binary “correct” or “incorrect” assessment, I’m trying to understand if the founders have considered the topic and how they intend to manage. Thoughtful discussions recognize the the assumptions and even have some fallbacks, such as, if engineer hiring takes longer than expected, they know contracting firms they can lean on.
Will You Be Hiring for Culture Fit? Your culture starts with your first hire. We like to get a feel for what attributes you’re prioritizing and do you know what questions to ask in order to assess. Many first time founders haven’t run hiring processes before, especially outside of their functional discipline. That’s fine – early stage founders aren’t expected to know everything. You want to show that you can solve any problem. Ensuring you have a strong hiring processes which fits the type of candidates you are evaluating is something we can help with. Saying you don’t care about culture so long as the team gets the job done? We’re probably not a great fit for you then.
Founder Mindset: Lastly asking about your hiring plan and future org chart tells me a bit more about how you’re approaching leadership. A bloated org full of fancy titles and layers of management? That’s not healthy for a startup. Hiring a Head of Product as one of your first 10 employees? Unless you’re purely a business founder we want to see product vision and leadership on the founding team, not hired on. Building a senior team but pushing back on having a healthy employee option pool? Won’t work out well. Present your hiring plan as a reflection of the company you want to lead, not just one where you’re a box on the org chart.
Hopefully this was a helpful overview of what VCs are really asking about for early stage financing discussions of hiring (or at least what we think about at Homebrew). If there are other topics that fit into the WhenTheVCAsks format just suggest them in the comments.