You’ve spent years working hard to hone your skills in science, medicine, or business. You’ve accomplished things, and you have the talent and desire to do more. You may be bored, or stuck at a dead end job in academia, Big Biotech, or Big Pharma. You are intrigued by a job posting you just saw at a biotech startup, and the company appears to be showing some interest in you.
It’s a great position to be in, but you may quickly discover you’re out of your depth. What are the things you ought to know about the company before you make that life-altering decision to take a job at a startup? What questions should you ask? Where can you get the straight scoop about whether this opportunity is a fair deal?
These are relevant questions for many people, as biotech companies are starting to hire more after years of recession-related belt-tightening. From 2011 to 2012, there was a 13 percent increase in employee headcount at companies listed in the Nasdaq Biotechnology Index, according to the accounting firm BDO. Many people being drawn to those jobs are smart people with specific expertise, but are naïve about how to evaluate a startup. I know, because many people in this camp have been asking me for advice lately, and I haven’t felt very well equipped to offer detailed answers.
So, I spent some time last week interviewing a few savvy insiders about what biotech job candidates can and should do to study a startup before they sign up. I spoke to Bob More, a senior advisor for venture investing with the Bill & Melinda Gates Foundation; Craig Greaves, recruiting partner at Third Rock Ventures; Thong Le, a managing director at WRF Capital; and Michael Gilman, a scientific entrepreneur formerly with Biogen Idec (NASDAQ: BIIB) and a startup called Stromedix.
I’ve tried to distill the various thoughts into a set of guidelines below. If you have other suggestions, please leave a comment at the end of the story or send me a note at [email protected]
Get to really know the senior management team, and I mean really! This is a science-based industry, so put your scientific hat on, observe the people who run the company, and try to ask the key questions. Dig deep. Look at this person’s work history on LinkedIn, and track down people who have worked with this person in the past. Does this person treat people fairly? How does he or she perform under pressure? Does the CEO, or other members of the senior team, have previous experience at a startup? Does this person have a track record of success? Credibility in the industry? Do they have the trust of investors? How did this person react to their first failure? Does this manager seem to really believe in the mission of the company, care about the company, care about you? “If those answers are yes, you’re in position to consider the job,” Le said.
If you’re the person who thinks you’re being hired to do a specific thing, and you don’t really work that closely with the boss at a startup, think again. Many companies, particularly those with 30 employees or fewer, are small enough that the boss is closely involved and aware of detailed, day-to-day matters. As Gilman put it, “it’s important to understand that there’s a much sort of stronger food chain in a company than generally there is in an academic environment. There’s an egalitarianism in an academic lab. But if you work at a company, you have a boss. That boss is second only to your spouse, and maybe not second, in terms of people who can make your life wonderful or miserable. It’s important to pay close attention to who that person is.”
Greaves, the recruiting partner at Third Rock, said all CEOs have to have a pretty healthy ego to do what they do, but he often seeks to understand if the person is self-aware enough to know his or her weak spots, and humble enough to work on improving in those areas. A smart job candidate would be wise to probe, tactfully, to get those same answers.
Get to know as many people in the company as you can, other than the CEO. Get to know the team you’ll be part of, with whom you’ll be spending many hours, including some nights and weekends. While the person attempting to hire you is putting on the organization’s best possible face, others inside may provide a more candid view of the day-to-day reality. These people can give you some straight dope on how fairly people are treated, the morale of the shop, how much sacrifice is involved. The chemistry among these folks, how they work together, is important to witness at close range.
“The thing that’s going to make a company succeed or fail is a combinatorial thing,” Gilman said. “Every relationship is really significant.” Often in academia, Gilman says, you’ll encounter people you dislike working with, but they tend not to stay long, or they can be avoided. “If there’s an asshole in the midst you can usually outlast them,” Gilman said. “That’s not necessarily true in a company.” As More put it, “know your company cold. Not just your role. Know backgrounds and stories of your colleagues. This stuff matters.”
How far along is this company in development? Does it have a shot? Everybody knows biotech is a high-risk business. There are no sure things. Startups by their nature are testing out unproven concepts for new drugs, devices, or diagnostics. Anything can fail, at any time, for any reason—even after a product is on the market. But what startup employees should ask is whether the opportunity in front of them is a pipe dream, or something with a real shot. Who are the scientific founders, and who is on the scientific advisory board? Are they credible? Is the management team (not just the CEO) capable of taking the concept to the next level? This is also where you dig into the scientific literature that’s related to the company’s core concept—not just the stuff the company presents to you—and try to understand just how validated its concept is (or isn’t). Many supposedly groundbreaking studies in academia, that get published in top journals, are nothing but bunk that can’t be reproduced anywhere else. You need to find out how validated the scientific concept is.
This is also where you dig into the finances. How much money has the company raised since its founding? How much cash does it have in the bank? How long is the company’s operating runway at its existing cash spending rate, if it were never to raise another dime? Who invested—top-tier investors with good track records, or friends and family? Do the investors have a track record of seeking quick flips, or do they tend to be long-term company builders? How much progress has the company made in further validating its concept since the founding? Where does this company stand vis-à-vis its competitors? If the company hits its stated milestones, will it be a steady-as-she-goes story of staying in business, or will it likely take off like a rocket ship?
Nothing is guaranteed about the outcome, but answering these questions could give you a sense of the worst-case scenario, the best-case scenario, and things in between. If you’re comfortable with a worst-case scenario of something like 18 months of work in an exciting or challenging new position, alongside talented colleagues, before everything goes kaput, then that’s a good sign.
If that sounds like a terrifying lack of future security, not knowing where you’ll draw a paycheck in 18 months, then a startup may not be the right place for you. But as More discussed, people shouldn’t really think of big companies as the bastions of stability that they were once were.
“Let’s not be naïve to the trade-offs of working in a big company,” More says. “One of the saddest things of the prior generation is all these pension funds that were attached to big companies like Kodak. When people signed up, they thought ‘I’m covered, I’ll have a pension and healthcare covered for the rest of my life.’ Then the companies went backrupt, and courts invalidated those benefits. There can be nothing more sad than relying on something you thought was a sure thing, and have it not be there. I actually like the way the world is headed, where nothing is a sure thing. You have to control your own destiny and be thoughtful about your destiny. If you’re joining a startup, you have more of that control.”
What’s my role in this company, and how might it grow as the company grows? If the company succeeds, candidates should get a sense of whether there will be potential to take on new responsibilities and advance their careers. Part of this comes from asking yourself whether the people in senior management are folks you can really learn from, that you see as mentors. Are they interested in helping you add new skills to advance from director-level to VP or higher? If you have ability to make a bigger impact, does this leader see the ability and understand how to unleash it?
As Le says, people should ask themselves whether they feel like they’re considering a narrow position that might grow dull over time, or whether it’s the start of something longer and more interesting. He encourages people to ask themselves, “Is this something I can see myself doing down the road and being happy with?”
Stock options are nice to have, but keep them in perspective. One of the great things about working in a startup is the opportunity to have some meaningful ownership in the company, some skin in the game. Stock options, which usually vest over a certain period of years, are often held out as a major carrot for prospective startup employees. If you and your teammates perform well, the thinking goes, you will share in the rewards. Many times, these options are described in glowing terms by companies as the yellow brick road to riches.
But of course, many startups fail, making the stock options worthless. What fewer people realize is that startups can be successful, and still not provide stock rewards to the people who slaved away all those nights and weekends to make it a success.
As we all learn in kindergarten, life isn’t fair. This is where employees should take off the rose-colored glasses about startup life. Remember there’s a difference between preferred shares (the ones held by venture capitalists) and common shares (the ones held by founders and employees). Preferred shares have preferred status. There’s a whole confidential world of liquidation preferences, and things like participating payout clauses, that are quite relevant to the financial futures of startup employees, and yet hardly anybody knows anything about.
These preferences are often used to reward venture capitalists first and foremost, and sometimes leave little more than table scraps for the founders and employees. For example, it might sound shocking, but More says it’s conceivable for a biotech startup to have agreements in place to assure that the entire first $100 million of proceeds from an acquisition—a successful outcome by most measures—would go to the venture capitalists. If those are the terms by which a company raised money, then common shareholders would only be able to get their proportional rewards based on what’s left after the first $100 million is paid out. Even then, sometimes the VCs have preferred shares that allow them to collect again on the remainder of proceeds beyond the first $100 million, through what are known as “participated preferred” shares.
Vast numbers of people in the industry are clueless about these investor-friendly terms. More says he’s encountered CEOs who should, but don’t, understand these critical financing clauses. VCs, because it’s their job, know the rules by heart. Check this primer that appeared in VentureBeat in 2010 for more details on liquidation preferences, and this glossary from the law firm Fenwick & West to better understand the financial terminology.
To be clear, these aren’t rare situations in biotech. During parts of 2011 and 2012, as many as one-third of all biotech venture financings included such “multiple preferences” of some kind beyond 1x, sometimes as high as 3x, before any consideration would go to common stockholders, according to the Fenwick report. Some of this is legacy from the dark days of recession, when VCs held the clear upper hand in negotiations with entrepreneurs.
Essentially, if the company has such an agreement with its VCs, the slim odds of employee stock options being worth something just got slimmer. It’s fair for a prospective startup employee to ask whether the VCs will get a multiple return on investment before the common stockholders.
One last point on stock options. This information, to be understood, must be put in context. Getting 10,000 stock options might mean little in a company with 100,000 million shares outstanding, but it would obviously mean a lot to a company with only 200,000 shares. Companies will generally not share the capitalization table, which describes the company’s ownership structure in detail, with candidates below the top executive levels. But it’s fair game for a job candidate to ask how many shares outstanding there are, and what percentage ownership the employee holds on a fully diluted basis. “You are a shareholder and deserve to be treated as such,” More says.
Gilman, who left an academic job at Cold Spring Harbor Laboratory to start his biotech career, said candidates would be wise to pay little attention to the equity they’re being offered, and the year-end cash bonuses that might be dangled as an incentive to hit certain goals. Most startups are chronically strapped for cash, and not likely to pay out bonuses, either. “My advice is to take that option grant and stick it in the deepest drawer you have, and don’t ever think about it,” Gilman says. “Nine times out of 10 it will turn into nothing.”
Find out what you’re really worth in terms of salary. Employers don’t just guess when they think about what to offer an employee in salary. They usually work off a template based on confidential market surveys that tell them exactly what, say, a director of manufacturing is worth in their market. Employees rarely have access to this same kind of detailed human resources information. But this is where it’s important to use your network, and to know someone who works as a corporate attorney, an HR consultant, or a venture capitalist who has access to these kinds of proprietary compensation surveys. Oftentimes, these people are happy to help prospective candidates understand if they are being offered a fair deal. Finding the right person to help you gain knowledge is key. University career counseling offices sometimes have this kind of information, says Third Rock’s Greaves. If not, proprietary salary surveys may not be public information, but they “do have a way of widening through networks,” Greaves says.
Learn about the company culture: This is a tough one. Hiring managers tend to put on their best possible face during the hiring dance, and candidates do too. Often, there’s little time to evaluate a company’s true work habits, processes, relationships, quirks, and values. But every insider I spoke to said candidates need to carefully evaluate company culture.
Greaves, the recruiting partner with Third Rock, said he tries to find clues about a company’s culture when he visits their offices. Does the company work in a fancy high-rise, or a scruffy old warehouse? It might sound trivial to people trained to look for answers in data, but this is important stuff, even if it’s subjective. Greaves said he asks himself, “Am I excited about the person across the desk? Would I like to work with this individual? Is this person a good leader? Can they further the business in the way they describe? Has this person worked at companies in the past which are known for having strong cultures? Do they have some idea of how to build a vibrant one?”
As Le put it, “we spend a good portion of our lives working. It’s important to make sure the company culture, values and norms are aligned with yours.” If you have a sense of humor, and these people don’t, one could say you’re not aligned.
Folks coming from Big Pharma may have more adjusting to do than others. At a startup, people wear multiple hats. A lot of things need to be done that don’t fall in anyone’s specific job description. You have to be able to tolerate uncertainty about whether your company will be in business in 12 months. People often need to sublimate their own ego for the team objective, if the team is going to have any chance to win. Put another way, you have to be resourceful, and do the little things. As More put it, “inevitably you bring somebody into a startup from a big company, and they’re not used to a startup culture. They’ll say, ‘Oh, the copier’s broken, where’s the person who fixes that?’ Or, ‘Who’s handling my travel?’” In a startup, you might be the chief medical officer, and the chief copier fixer. If you’re the kind of resourceful sort who’s comfortable fixing the copier, after spending $0, then a startup culture might be OK for you.
OK, that’s a lot to absorb, but these are big decisions people make all the time. Like anything else, it’s best to go into a situation with your eyes wide open, and learn the things they don’t teach you in graduate school, or inside a big company. If you still believe leaving a big company for a startup is right for you, then by all means, go for it. I did it myself five years ago, and haven’t looked back.
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