Startups

Startups should expect more scrutiny from VCs on their hiring plans

Comment

hiring, layoffs
Image Credits: erhui1979 / Getty Images

Startups went on a hiring spree in 2021 as VC cash flowed and the job market was hot. But many overindulged in the talent pool and then had to make large cuts and layoffs in 2022. The worst for startups is likely still to come.

This isn’t a pattern that companies are going to want to fall into again when the market recovers and subsequently ramps up. And maybe they won’t this time around, because VCs are likely going to start paying a lot more attention to how companies are spending their money on hiring.

While many of the huge layoff numbers of the past year come from public names like Amazon and Microsoft, startups have also made notable cuts. Some, including Better.com, Bolt and Vimeo, have conducted multiple rounds of layoffs in the past year. Many expect layoffs among startups won’t slow down this year.

But there’s hope we won’t see this again. Angela Lee, a professor at Columbia Business School, angel investor and venture partner, said founders generally state their hiring plans on a slide at the back of their pitch deck that breaks down how they plan to spend the money they raise. Traditionally, she said, that was a throwaway slide that didn’t get much thought from VCs. But it won’t be anymore.

“It is not to say, ‘do not hire’ — it is just that we need to see the double-click now on why,” Lee said. “You need X number of million of dollars for what? Why do you need a chief data scientist and architect?”

She said that startups should also expect to get more into the details of these potential hires and be prepared to answer questions about how much they are going to be paid and what their overall compensation packages will look like. Plus, companies should be able to talk about how each hire will directly impact the business and why they should hire a full-time employee as opposed to outsourcing the position or utilizing a fractional role.

“Walk me through how many cold calls can they do a month; we want to see an actual tie to team and growth in a much more clear way,” Lee said. “Founders should be able to say, ‘I know this salesperson can do 200 calls and grow three deals a month.”

Dave Zilberman, a general partner at Norwest Venture Partners, agreed that founders should expect more questions on hiring.

He said that as a multistage investor, he will be paying more attention to what internal teams companies are hiring for and whether it makes sense based on the startup’s stage. He said that hiring should be directly tied to milestones companies are trying to hit, so they should be focusing on hiring that will help them get there.

“For Series A stage companies, or companies that are just in early stages, we always advise against a sales team before they have the marketing team in place,” he offered as an example. “If they are hiring a CRO or head of sales in advance of marketing, or having a dozen paying customers, that’s a red flag.”

VCs will also be looking to see that companies are approaching hiring in a sustainable way, M13 partner and head of talent Matt Hoffman said. It should be clear that these new hires will help the company get to that next stage of growth while still allowing the startup to be lean and efficient.

Hoffman added that he’s always advised companies — but especially now — to approach hiring slowly and thoughtfully because it ends up being more time-consuming to hire the wrong person quickly than to hire the right person slowly. In this market, he hopes it will be easier for companies to stick to that.

“You actually have the luxury in this market and to be really thoughtful in what you are hiring for because there is not as much external pressure to go fast,” he said. “There are a lot of good reasons why people want to grow as fast as possible. Speed really matters; I get that, but hiring directly and more thoughtfully in the long run will be faster to get the hire right.”

But while all three agreed that in terms of layoffs, the worst is probably yet to come, Zilberman hopes that entrepreneurs, having watched the layoffs unfold, will make smart hiring decisions moving forward.

“The headlines in the market about the layoffs at the Salesforces, the Amazons and Meta are certainly not lost on the entrepreneurs,” he said.

More TechCrunch

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

1 day ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

1 day ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI