Startups should expect more scrutiny from VCs on their hiring plans

Startups went on a hiring spree in 2021 as VC cash flowed and the job market was hot. But many overindulged in the talent pool and then had to make large cuts and layoffs in 2022. The worst for startups is likely still to come.

This isn’t a pattern that companies are going to want to fall into again when the market recovers and subsequently ramps up. And maybe they won’t this time around, because VCs are likely going to start paying a lot more attention to how companies are spending their money on hiring.

While many of the huge layoff numbers of the past year come from public names like Amazon and Microsoft, startups have also made notable cuts. Some, including Better.com, Bolt and Vimeo, have conducted multiple rounds of layoffs in the past year. Many expect layoffs among startups won’t slow down this year.

But there’s hope we won’t see this again. Angela Lee, a professor at Columbia Business School, angel investor and venture partner, said founders generally state their hiring plans on a slide at the back of their pitch deck that breaks down how they plan to spend the money they raise. Traditionally, she said, that was a throwaway slide that didn’t get much thought from VCs. But it won’t be anymore.

“It is not to say, ‘do not hire’ — it is just that we need to see the double click now on why,” Lee said. “You need X number of million of dollars for what? Why do you need a chief data scientist and architect?”