Choosing a Startup: How to Evaluate Companies as an Employee
Quick Overview
This guide presents a framework for evaluating startups with an investor mindset, covering product-market fit indicators, business model metrics (including LTV:CAC), total addressable market analysis, growth signals, team and equity considerations, and stage-specific risks such as pre- versus post-PMF uncertainty.
Resource Title
Choosing a Startup Like an Investor: How to Evaluate Companies as an Employee
Overview
Choosing a company is ultimately an investment decision. You should evaluate companies with an investor’s mindset.
This framework mainly applies to companies that already have product-market fit, roughly Series B and later. For companies that have not yet found PMF or a clear revenue model, uncertainty is extremely high — the company’s core direction can change overnight. Personally, unless it’s a company founded by people I’ve worked with before, I wouldn’t join before PMF.
I previously shared some experiences about working at startups, and many people were especially interested in how to choose a company. Some of the thoughts below come from my own experience, others from learning from others. This is meant to spark discussion — feedback and additions are very welcome.
Why Company Choice Matters
Joining a fast-growing startup can bring significant returns in terms of wealth, career growth, and network.
For most people working in tech companies, a large portion of long-term assets comes from equity (options or stock). In reality, this is a form of time-for-assets investment, where we invest our time and labor.
Because of this, company choice should be approached with an investor’s perspective, focusing on long-term company potential — not on office decoration, perks, or food.
Even team quality or offer details should not come before company prospects. Teams can change after joining, and if the company takes off, starting with a slightly lower offer often doesn’t matter in the long run.
Evaluating a Company with an Investor Mindset
Although I’ve never been a VC, there are several factors that investors almost certainly evaluate.
Product-Market Fit (PMF)
Key signals include:
- User retention
- Whether users actively provide feedback or help test the product
- Growth rate (YoY, or MoM for very early-stage companies)
- Whether users are willing to pay
Without PMF, other metrics are far less meaningful.
Business Model
A common metric is LTV:CAC — the lifetime value of a customer divided by the cost of acquiring that customer.
For example, if it costs 10 total, that business model is weak. In contrast, businesses that grow organically or with minimal marketing spend tend to be much healthier.
For SaaS or B2B companies, it’s useful to ask about:
- Sales cycle length
- Average deal size
- Size of the sales team
Some SaaS companies rely heavily on large sales and support teams. If a company makes 800k on sales salaries, that’s a warning sign.
Total Addressable Market (TAM)
Questions to consider:
- Is the market size $10B+?
- Is there any realistic chance the company could reach $1B in annual revenue?
Large TAMs can support multiple winners. A company doesn’t need to eliminate all competitors to be profitable.
If a company has a strong business model and a large TAM, growth is much easier even with imperfect execution. On the other hand, perfect execution in a weak market still struggles.
Competitive Advantage / Moat
Potential sources of moat include:
- Network effects
- Ease of scaling (pure software vs heavy operational footprint)
- High switching costs
Strong engineering teams can be part of a moat, but if a company claims its only advantage is technology, that carries risk.
In reality, better technology does not always lead to better outcomes. Some highly successful companies have mediocre internal codebases, while some technically excellent companies fail due to poor products or being outcompeted by larger players.
Founders
Factors to consider:
- Prior successful exits (helpful but not required)
- Whether multiple founders have worked together before
- Whether founders truly understand and care about solving customer problems
- Depth of understanding of the market
- Personal integrity and reliability
Founders with character issues may still build successful companies, but employee experience may suffer.
It’s helpful to:
- Look up founders’ backgrounds and news
- Ask interviewers about their experience with founders
- Speak directly with founders when possible
Information Limitations and Funding History
In practice, much of this information is hard to obtain, especially for earlier-stage companies.
External reporting on startups is often inaccurate or speculative, particularly in less-understood markets.
The best way to understand a company is to talk directly with people inside it, ideally founders. Before that, funding history can help narrow the search.
VCs have access to far more information than outsiders. While they aren’t always right, their signal is still useful.
Funding details such as round timing, amounts raised, valuation, and investors (available on platforms like Crunchbase) can help infer early growth.
Interpreting Funding Signals
Investors
Well-known VCs include:
- Sequoia
- a16z
- Greylock
- Founders Fund
- Kleiner Perkins
- Coatue
- Benchmark
- Accel
Repeat investment across multiple rounds is a strong positive signal, indicating sustained confidence.
Funding Amount and Valuation
Company size and funding amount are not linearly related. Funding depends on several factors:
- Whether the company needs capital (e.g., Uber required more early capital than Facebook)
- Market conditions (opportunistic rounds during capital-rich periods)
- Founder mindset (chasing high valuations for ego or hiring optics can be dangerous)
Overinflated valuations can reduce employee upside and increase risk. Context matters — who invested, dilution, and terms all matter.
Employee-Specific Considerations
Beyond company fundamentals, employees should also evaluate:
Leadership Quality
Founders, Heads of Engineering, and senior leadership matter most. First-line managers are more likely to change.
Team Background
Review employee backgrounds on LinkedIn to understand experience distribution. Early-stage startups often show clustering from specific companies.
It can be helpful to talk with potential teammates to understand culture and working style. Smaller companies often make this easier during interviews.
Technology
Over time, it becomes clear that the company with the most “hardcore” technology or cleanest code isn’t necessarily the best opportunity.
Once a company gains traction, strong engineers tend to join naturally.
What matters more is leadership’s attitude toward engineering and whether engineers can thrive long-term. Tech stack preferences should come after company viability.
Compensation
Startup compensation varies widely and is difficult to standardize.
Ownership percentage alone is misleading — a smaller percentage of a stronger company may outperform a larger percentage of a weaker one.
Extremely low offers can be red flags, signaling future compensation issues or weaker talent pipelines. Evaluate whether low offers stem from HR tactics or deeper company culture.
Intuition and Personal Fit
Beyond rational analysis, there is often a subjective “gut feeling” component.
Sometimes, despite knowing a company may not be the optimal choice, you feel a strong pull toward joining. Balancing intuition with rational evaluation is a personal decision.
Questions to Ask
Questions for Founders
- What are the best, average, and worst-case outcomes for the company?
- What are the biggest risk factors?
- How do you think about compensating sales versus engineering?
- How large is the sales team?
- Can you share growth metrics?
- What types of people will you never hire?
- What gaps exist in your own skill set?
Questions for Head of Engineering
- What are the engineering organization’s plans for the next six months?
- How do you think about technical debt?
- Can you describe a past scaling challenge or security incident?
- If remote-first, how do you plan to scale a remote organization?
- How do you balance technical debt and new feature development?
- How do you think about building sustainably and preventing burnout?
Closing
These are the main considerations that come to mind. Feedback, additions, and discussion are very welcome.
Wishing everyone success in finding startups that take off.
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