One of the most critical choices early-stage founders face is selecting their founding team. The initial five to ten employees profoundly shape the company culture, and the standards established with them are challenging to alter later. This season on Build Mode, we explore what’s needed to form a world-class founding team.
To start season two, Isabelle Johannessen is joined by Yuri Sagalov, managing director at General Catalyst and a former founder, YC partner, and seed investor at Wayfinder Ventures. Sagalov has collaborated with numerous pre-seed and seed-stage companies, witnessing the best and worst recruitment strategies firsthand.
In this episode, Sagalov shares his top advice for founders on hiring their first team, strategically building their cap table, and forming scalable compensation structures.
Sagalov identifies three types of investors: those heavily involved and acting as part of your team, those who provide a check and disappear, and the micromanagers.
According to Sagalov, the first type of investor is the most valuable: “They’ll assist with recruiting, hiring, market entry. Interestingly, their involvement is often unrelated to the check size.”
Although declining investments might seem counterintuitive, working with overly involved VCs can be detrimental. Sagalov states, “The third type, investors who meddle and stress over setbacks, should be avoided.”
During fundraising, everyone presents their best side, so Sagalov advises contacting current portfolio companies before choosing an investor. “The best step for founders is to speak with portfolio companies, other founders, and seek examples of investor assistance, especially during tough times.”
Sagalov looks for co-founders with a fair equity split allowing for potential conflict resolution. He suggests a small equity difference to clear deadlocks.
Sagalov also warns founders that initial decisions endure: “Founders often overemphasize originating the idea as deserving the most equity, overlooking the journey ahead. It’s crucial for partners not to regret unequal equity splits later.”
The initial hires should fully commit to the startup’s mission. Early startup involvement can seem risky. Sagalov stresses discussing risks and rewards: “When hiring the first few people, you’re looking for missionaries driven by the business mission, beyond compensation. Be upfront about the risks.”
Next week on Build Mode, we’ll speak to Sarah Lucena, founder and CEO of Mappa, on using AI tools for understanding compatibility and hiring the right team fit initially.
Isabelle Johannessen hosts. Build Mode is produced and edited by Maggie Nye. Morgan Little leads Audience Development. Special thanks to The Foundry and Cheddar video teams.