Sterling & Lawrence

Series A Recruiting

Recruiting has been almost impossibly hard over the past three years. It seems like I’ve seen at least an article a month about some sort of talent war. Many of these articles have erroneously focused on the talent war between big companies: Facebook poaching from Google; Google poaching from Linkedin; everyone poaching from VMware, etc. In addition to the general movement of talent, there were well publicized articles about ridiculous retention bonus as well. If you were a young company without unlimited means, these articles and the trends that they represented were depressing to say the least. The trends themselves have made recruiting and retaining talent even more important than in the past.

I call the focus of the articles “erroneous” because the real action and real talent war was not between big companies but between big companies and seed stage startups. With the the distinct rise in early stage over-capitalized startups, talented and entrepreneurial engineers had the choice to stay at (or go to) a large company and earn a great income or start their own company, earn a great income and own something substantial. The math here has been pretty simple:

• Starting a company = cofounder equity, salary, perks
• Joining an early seed company = early employee equity, nice salary, perks
• Joining an incumbent = nice salary, perks

I’m not a genius, but the first two options seem particularly nice, especially if exits are decently high. The influx of seed stage capital had shifted the power dynamics between established and new companies essentially leaving growth stage startups out in the cold.

The largest players, the Googles, Apples, Linkedins, etc continue to grow like mad and will always be growing and hiring like mad (if not those names, new names). The typical value proposition for companies like that has been stability. They provide great income and amazing perks. After a few years of experience and specialization, you could always choose to leave to join or start a startup. This notion is changing as well. Entrepreneurs without practical experience have received substantial funding (particularly in the consumer space) and the risk of starting a company and failing is further mitigated by silicon valley’s general acceptance of failure and the rash of aqui-hires. We’ll ignore that fact that many of these ideas, particularly the consumer and social ideas, have been really subpar.

I don’t pretend to know exactly what caused the rush in seed stage investing. I would imagine that like every trend, that a few astute investors (Dixon, Sacca, etc) started and eventually the hoards followed. I am excited (in a selfish way) to see the decline of many of these early stage companies. Like any darwinian process, many of these companies won’t make it past this impending bottle neck, it will be survival of the fittest and they’re simply of a weaker stock. Here’s what I think will happen in the coming months:

• I think we’ll see a correction in the number of early stage companies that get substantial funding. It’s dirt cheap to prove a simple hypothesis, investors know this and should push for small rounds.
• An ideological regression towards the mean. Even with recent successes there is still a limited number of billion dollar companies formed each year. Venture math relies on this and investors will eventually come back to these principles.
• Startups will fail. The best (or best connected) will experience soft landings at large companies. I think we’ll see these landings getting less soft as time goes on and the market adjusts to the number of failing companies.
• The failures will present a recruiting opportunity for medium/large companies with traction. There are a bunch of medium size companies with real business models and real growth potential who should benefit significantly from these failing companies.
• I don’t think salaries will be depressed but I think the growth in salaries will return towards more historical averages.

If you’re a recruiter or founder building your company you should start to position yourself to take advantage of these impending failures. You’d be silly not to.