Blagger’s Guide To Startups
To celebrate the launch of our Recruit40, (our list of the top startups all recruiter should know about) we have put together our blagger’s guide to startup recruiting.
As we keep telling you, no one can know everything there is to know about their recruitment area. With so many companies, acronyms, and bits of legislation to piece together, how do you find the time to actually recruit? That’s where we come in: regardless of how long you’ve been recruiting, we’ll guide you through the complexities quickly to have you sounding like an expert in no time.
Today, we’re going to look at startups and how they fit into the world of business. We’ll be giving you info on what they are, who supports them, and the lingo they use.
What They Are
There is no absolute definition for a start-up. Dictionaries will define it as any new company that has formed, while other sources will say that a company needs a certain mindset to be a start-up. Eric Ries, who wrote a book about start-ups, defines them as a company ‘designed to create new products and services under conditions of uncertainty.’
A company which wants to build their business model around an existing concept to keep things safe is definitely not a start-up. Their risk of failure would be a lot lower and they would lack the core of innovation needed for that startup attitude.
Uncertainty is a necessity when defining the start-up attitude, then. It’s because of the risk involved that many define start-ups as having a certain adventurous spirit. A lot of start-ups fail because they aren’t able to think on their toes and make changes to their business to fit what their market and/or investors want. A start-up has to be able to find new avenues of profitability if their original plans don’t make an impact, either by tweaking their product or overhauling it completely.
The Perfect Candidate
Since a start-up is all about risk and uncertainty, they’ll be looking for employees who can run with that risk. The perfect candidate will need to have a certain sense of adventure in how they work and think. Investors can pull out of a start-up at any point, so the company will need innovators who can keep investors and the market interested in what they’re building.
Depending on how young the start-up is, their employees may have to wear many different hats day-to-day. A start-up may be willing to overlook places where a candidate doesn’t meet their job spec if their background is well-rounded enough. If a candidate can show that they are willing and able to try on those hats, it will feed into the collaborative spirit many start-ups have, so keep your mind open when searching for candidates.
Candidates will need to be as bold as their potential employers, though. If an investor pulls out and the company runs out of money, a start-up can close pretty much overnight. Make sure that candidates are aware of this risk: if you can get this point across without scaring them, it will make it easier to identify the candidates with the right risk-taking attitude.
Due to the fact that they still rely on outside funding, salaries at start-ups will definitely be lower than at a more established company. Some start-ups will offset this by offering their employees vested shares that are given out over a certain amount of time, incentivising employees to stay with the company. Start-up experience also looks good on a CV, so try to sell these upsides if your candidates aren’t happy with the salary.
The Market Trends
A company which relies on outside funding to disrupt a market already crowded with big names with always have a hard time establishing themselves. Very few will go on to be successful. That doesn’t stop them trying, though.
The global start-up economy is booming, with $2.8 trillion of value created between 2016 and 2018. That’s bigger than the annual GDP of the UK. Start-ups are the new “it” thing, even though they’re risky for investors. But when there’s the chance a start-up can become the next Revolut, the rewards absolutely outweigh the uncertainty for investment firms.
The main milestone for a start-up is reaching unicorn status. These are the companies who have beaten the odds to grow to over $1 billion in value. There are only 266 privately-owned unicorns in the world, with the majority split between China and the US, so they’re as rare as the name suggests.
Fintech and biotech companies are the main players when it comes to huge growth. Financial services and pharmaceuticals are major industries in and of themselves, so a new company which can disrupt, grow, and thrive in these sectors is an excellent find for investors.
The Major Players
Without investors, most start-ups wouldn’t be able to start, let alone be successful. Just as there are major players in the start-up world, there are major players investing in them. Split across incubators, accelerators, venture capitalists, investment firms, and crowdfunding platforms, the following are the biggest at what they do.
Let’s start with an accelerator. Founded 14 years ago, Y Combinator were early onto the start-up investment scene. They offer a seed acceleration program, where they select two or more groups of companies a year and provide them with seed funding, advice, and connections, all for only 7% equity in the company.
Y Combinator have helped the likes of Stripe, Airbnb, DoorDash, and Coinbase, so they definitely know what they’re doing – and with the combined valuation of their accelerated companies at over $155 billion as of October last year, they know how to do it well.
London-based Seedcamp specialise in funding pre-seed tech companies looking to break into big markets. While their funding may seem like small potatoes at only £100,000, where Seedcamp really shines is in their web of investor connections. Investments from them expose start-ups to global investors who can partner with them for future funding rounds.
With three European unicorns in their portfolio, Seedcamp have made pre-seed investment into an art form. Largely backed by Tier 1 companies (a.k.a. really big ones), venture capitalists, angel investors, and funds of funds, Seedcamp definitely aren’t afraid of a little risk.
Something of a jack-of-all-trades, Techstars have a more diversified approach than Seedcamp. Fashioning themselves as a “global ecosystem”, Techstars have split their platform into three divisions: Techstars Startup Programs; Techstars Mentorship-Driven Accelerator Programs; and Techstars Corporate Innovation Partnerships. It’s this second division which spends Techstars’ money.
Techstars select over 300 companies a year to participate in their accelerator program, where they invest $120,000 and offer hands-on mentorship and access to their network to start-ups. Though the start-ups they’ve accelerated may not be as recognisable as those in Seedcamp or Y Combinator’s portfolios, the sheer number of companies under Techstars’ belt cement them as a major force.
Time for something a little different. Crowdcube are an equity crowdfunding platform, designed specifically for entrepreneurs and start-ups. As something of a disruptor themselves, striking a balance between an investment firm and a normal crowdfunding platform, Crowdcube are motivated by the difficulties start-ups face in finding funding in a post-recession world.
The beauty of Crowdcube lies in the fact that anyone can invest in a company on the platform. A start-up struggling to get investment companies to notice can open up their funding round to a much larger range of people, from private investors to Joe Bloggs from down the road. As long as someone believes in the company (or at least has a small hope it will be successful), they can invest for a share of the equity.
|Seed||The first investment round a company will raise, allowing them to develop a minimum viable product (MVP) and a sales process.|
|Series A, B, C, D…||Series A funding is the round following a Seed round, which is used to support the building of a product and launch a full product on the market. Series B rounds usually raise a lot more money to help the company scale rapidly. Series C rounds and beyond (known as ‘late-stage funding’) help a company to change direction, either with a new product or moving into a new market.|
|IPO||An initial public offering is when a private company places their shares on a stock market for the first time, allowing members of the public to acquire a certain percentage of the company.|
|Angel Investor||A wealthy individual who uses their own money to back a company at an early stage, in exchange for a percentage of that company.|
|Venture Capitalist/VC||A venture capitalist will invest money which has been pooled together from other individuals into companies. They will often invest larger amounts than an Angel Investor.|
|Incubator||A programme designed specifically to help start-ups that are still at a very early stage of operation. They will usually offer some funding, along with operational and financial advice.|
|Accelerator||An accelerator will partner with a start-up to accelerate their growth. While an incubator will help with creating operating models, accelerators are more interested in making those models as growth-happy as possible.|
|Bootstrapped||A bootstrapped start-up is one who decides not to seek or accept external money, instead relying on their own money to survive and grow.|
|Burn rate||The rate at which a company spends their capital. The higher the burn rate, the faster the money is being spent. Start-ups with higher burn rates will usually have to seek extra funding, or risk going under.|
|Minimum Viable Product/MVP||A basic version of a product, which can be used as a proof of concept for investors.|
|Disruptive/disruptor||Many start-ups will claim to be disruptive, but a start-up is only truly disruptive if they take the existing business model for their market and turn it on its head. Just think of what Uber did to the taxi market.|
|Unicorn||A start-up which is valued at over $1 billion. Very few start-ups reach this point.|
|Vesting/Vesting shares||When a start-up promises their employees shares, they will be given over a certain amount of time as an incentive for the employee to stay with the company. Shares are typically vested over a four-year period, meaning the employee will have to stay with the company for a minimum of four years to get them all.|
And that concludes our Blagger’s Guide on what you’ll need to know to recruit for start-ups. Looking for leads on start-ups that are recruiting? Try searching in your area and filtering by company size. Don’t forget to set up a saved search on Talent Ticker if start-ups are an area you’re looking to profit from, so you can jump on those leads as soon as they’re live.
Want to see our list of 40 of the best small startups? Download it here.
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