2007-04-28

Nine questions to ask a startup company

Well, I thought I would get a chance to post last week, but apparently that didn't happen. I seem to be veering inexorably to one post every two weeks rather than once a week as I had hoped.

Anyway, I saw an interesting article from Guy Kawasaki about "nine questions to ask a startup." I worked for a startup in the past, and might do so in the future, so I thought this was interesting.

His questions about stock options are right on the money. "What percent of stock are you getting?" really is the relevant question-- number of shares means little. Also, liquidation preferences are very important-- as some people I know learned the hard way. Venture capitalists can and will take all of the money your company makes in an IPO or buyout, if the term sheet specifies, and if the size of the deal is small.

Questions about burn rate, cash flow, and when the product will ship are also important. After all, if you don't think the place is going to be a success... it would be a good idea to get somewhere else. You can tell that Guy is a venture capitalist because of how specific he phrases these questions.

I was a little bit more bemused about Guy's directives to "talk to several beta sites" and "talk to outside investors on the board of directors." I'm still pretty young, and I can't really call myself a "senior engineer" yet. Maybe if I was considered a key employee, I could get away with doing stuff like this. But it might be a little pretentious for someone only two years out of school.

I would add another question to the list: if this venture fails, will you still have learned or accomplished something? In other words, will it have been fun, and will it leave you a career path? Realistically, most startups don't make it big. I believe it was Steve Jobs, Guy's old boss, who popularized the old Chinese proverb, "the journey is the reward." Will the startup journey be rewarding, even if you don't become a millionaire? This is a question you have to ask yourself, not the company, so perhaps it does not really belong on this list. But it's still important to think about.

1 Comments:

At 10:32 PM, OpenID craighumphrey72 said...

I really like this blog because I learn a lot on this about startup. Startpup is a big help for those who started in business.

Startup

 

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