A Decent Investor Can Help You Close Candidates. It's the Insightful Investor that will Sometimes Tell You Who NOT to Hire

Written by Lindsay Mayhall on April 28, 2022

There is a reason why investors invest; they want to see a good return on investment. A good investor plays an incredibly critical role in the recruiting process. If you are the type of person who likes to know who you are working with, and what your financials are before you dive in — then having an investor on your side can be a great addition to your startup. Many companies can run into pitfalls when they accept capital from investors that they did not choose themselves because they failed to negotiate certain protections and clauses within the investment contract.

For early stage startups, you need employees to choose the company. Not the other way around

The startup hiring process is like a first date. You want to put your best foot forward and impress, but if you are too smitten you may not see the red flags.

If you continue down this path, it can be disastrous for your company. In a recent survey of small business owners, 30% of respondents cited hiring the wrong person as the single biggest mistake they have made.

For early stage startups it is doubly critical that you get your hiring right. It is hard to overstate how important the first employees are to a young company. The product and brand are in a state of flux; teams are lean; and there is no playbook for most of what you'll do. You need employees who choose to be part of something special, even when things get tough — not just because they got an offer letter and want a job.

To find these people, investors will sometimes tell founders they should not hire someone they are considering. This can be frustrating when you're 10 resumes deep in the candidate funnel: why would someone on the outside suggest that after all this work? But it's worth pausing to consider the reasoning behind this advice from a different angle:

A good investor can help you close candidates; a great investor will sometimes tell you they see a red flag in your perfect candidate.

The Ideal Candidate

If you’re a seed-stage startup, you need to be a great recruiter. No matter what your product is, the first thing a candidate will do is look at your team. In fact, a good candidate will be talking to multiple startups simultaneously, and your team will be one of the two or three most important factors in their decision.

The first few people you hire are likely to set the bar for everyone else. If you’re lucky enough to have a candidate who is an incredible fit and ready to come on board, even if they don’t have years of experience with the technology or business model you’re working with, you should hire them. Their enthusiasm and personality will infect other employees and help them grow into their roles. They’ll also be able to recruit others by simply being excited about the opportunity to help build something new.

Before bringing anyone on board, it’s important that both parties are clear about what they’re getting into — if they aren’t, they won’t last long. Begin every candidate discussion with one commitment:

First, tell them that while obviously you are incredibly enthusiastic about this startup, that you believe people choose companies, not the other way around.

Proposing the Candidate to the Investor

There's an old saying in Silicon Valley: "Decent investors will help you close candidates. Insightful investors will tell you who not to hire." If a potential investor has invested in or worked at a company where your candidate was previously employed, it's likely they'll have some insight into that person's character and performance.

It's common to ask for references from your potential candidate's previous employers, but what about calling their previous investors? How much value can an investor provide on a reference check?

An investor can give you an honest assessment of the candidate because they have no stake in the outcome of your hiring decision. In most cases, they don't work with the candidate anymore and they aren't interested in providing a reference. However, if you explain your situation clearly and present them with specific questions relating to the candidate's strengths and weaknesses and their cultural fit, they might be open to sharing their thoughts with you.

The key is to be prepared before reaching out to an investor. Provide a bit of your background with the company and the investors to level-set any hesitation from the candidate.

It's clear to see that investors bring value to the recruiting process, and they should be taken seriously. Investors can help you identify talented candidates, give you test insights, or even save you time in your hiring process. That being said, it's also clear that not all investors are created equal. Asking a few pointed questions when dealing with these individuals can help you separate the wheat from the chaff.