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- A new kind of dealmaking sweeping Silicon Valley is dividing employees into haves and have-nots.Investors and founders say it is more important than ever for job candidates to do careful diligence.The most crucial thing to assess is how much you trust the founder, multiple investors said.
As a new kind of dealmaking is sweeping Silicon Valley, forcing employees to be vigilant about how much trust they are willing to put in startup founders.
Over the past two years, instead of acquiring AI startups outright, Big Tech companies have been licensing their technology or making deals for top talent, with startup employees sometimes getting divided into separate camps of haves and have-nots. Those with the most desirable AI skills reap a windfall while those who remain are shrouded in uncertainty.
That recently happened to Windsurf employees after the AI coding company was on the verge of being acquired by OpenAI for $3 billion, but was instead split in half. Google paid billions to hire Windsurf's CEO and top talent, and the hundreds of employees who remained were bought by another startup, Cognition.
Unfortunately for startup employees, many investors expect these kinds of novel transactions to continue as the velocity of developments in AI makes companies unlikely to want to wait months or years for regulatory approval.
Candidates need to ask tough questions about the founder
Given traditional M&A has mostly gone out the window, it is more important than ever for startup employees to do their homework, advises Steve Brotman, managing partner at Alpha Partners.
"In light of what we just saw with Windsurf, it's crucial to understand the ownership dynamics," Brotman said. " You don't want to be working 100-hour weeks only to realize your options are underwater or your exit upside is capped. And remember: companies that are transparent and deliberate about governance tend to be better long-term bets, both for your career and your equity."
"Ask hard questions about runway, revenue, burn, and investor syndicate quality," Brotman continued. "Who's on the board? Are they structured for long-term growth or a quick flip?"
The most important thing candidates should assess is how much they trust the founder, according to Deedy Das, an investor at Menlo Ventures.
"Nobody wants to talk about the fact that founders control almost everything that happens in a company, including how you get paid, when you get paid, how the equity vests, and when you can sell the equity," said Das. "It's everything, so having trust in your founder to do the right thing by the team is extremely important."
Just as investors would typically research a founder before writing a check to one of their many portfolio companies, prospective employees should ask around about founders whom they could be tied to for years, said Hari Raghavan, cofounder and CEO of Autograph.
"They should be doing diligence on whether this is a standup person," said Raghavan. "Do your best to suss out, 'Are these guys going to take care of me?'"
Raghavan suggests that founders should sign a written pledge agreeing to treat employees well in terms of stock options and exit scenarios.
"These are things that any good founder should be doing, and the vast majority of good ones do, but I think even just establishing that set of rules is a good idea," he said.
Prospective employees should not be afraid to "interrogate" a founder on how they are thinking about an exit, according to Jake Saper, a general partner at Emergence Capital.
"Ask founders how they would weigh staying independent, a classic acquisition, or a licensing deal that carves out key people," Saper said. "Their answer tells you a lot about the journey you're signing up for."
Scrutinizing the fine print has also become more important, said Saper.
"Make sure offer letters and stock agreements spell out vesting acceleration, treatment of options, and retention bonuses if only 'substantially all' of the team moves," Saper said. "Those clauses mattered at Inflection and Windsurf, and they will matter again."
In 2024, Microsoft hired the founder of Inflection AI, Mustafa Suleyman, and some of the startup's staff to help lead its AI efforts.
In June, Meta paid $14 billion for a 49 percent stake in the data labeling company Scale AI and hired its founder, Alexandr Wang, to run its Superintelligence group. Meta also hired some of the startup's researchers. Last week, Scale AI laid off 14% of its workforce, or 200 employees, and revealed it is unprofitable.
Finally, Saper says to take a hard look at the underlying business model of a startup to make sure it can last.
"Startups with unique data feeds, embedded distribution or clear recurring revenue have leverage to stay independent," Saper said. "If a company's main asset is a brilliant but portable research team, you should assume Big Tech will come knocking."
