The biggest challenge for tech start-ups in 2011 isn't conceiving a revolutionary idea. It isn't even raising a million-dollar seed round. The biggest challenge is hiring a team.
Take social gamer Raptr Inc., for instance. Until not long ago, the Mountain View, Calif., firm had been getting acceptances from every job candidate it sought. Recently, one candidate took an offer on a Friday, then reneged via email Sunday night, saying he planned to start a company with a friend instead.
"You can go and get funding -- that's not the hard part of starting a company anymore," said Ranah Edelin, chief operating officer of the 35-person company. "It's getting the team and executing."
As the economy has improved, hiring has increased throughout the tech talent ecosystem, from large Fortune 500 companies looking to execute projects that were shelved during the recession to tech titans including Google, Facebook and Twitter, which are looking to grow. These two employer classes draw from the engineering talent pool and compete with start-ups trying to hire.
"In the Bay Area, it's off the chart how aggressive companies have gotten in their hiring and building of staff," said John Reed, executive director at staffing firm Robert Half Technology, a Mountain View, Calif.-based technology staffing firm. Start-ups are pulling out all the stops, even training new recruits to leave and start their own companies.
Related: The War For Tech Talent | It's All in the Risk for Silicon Valley Entrepreneurs | Start-up Gigs
Everyone's an Entrepreneur
Founders and big companies alike say one of the biggest challenges to hiring prized engineers is convincing them to join an existing team. Instead, they want to start their own.
"Most engineers in the Valley want to start their own business," said Mariya Genzel, chief technology officer of Saygent Inc., a second generation voice recognition software company based in Mountain View, Calif. Genzel has been trying to hire two or three engineers to her four-person team for several months and is now searching in other markets, like Seattle, because the Bay Area is too competitive. "It's brutal. I keep meeting people and they say 'I can't help you because I'm searching myself," she said.
Start-up fever is fueled by easy finance and new tools to produce saleable products. Thanks to DotCloud, Heroku and other developer platforms available as a service, engineers can build products much faster and cheaper. Smartphones and social networks now allow very early stage companies to get traction -- and attention -- more quickly.
Those factors along with the recent explosion of incubators and accelerators like Y Combinator and AngelPad, which provide both cash and mentoring, mean more engineers are embracing entrepreneurship.
"As a start-up you're not even competing against the big guys anymore. I'm competing against the investors," said Avichal Garg, co-founder of mobile media company Spool Inc. in San Francisco. "It's more about 'I'm considering raising $200,000 or applying to YC' [Y Combinator] than it is competing against the other companies" that are hiring.
Garg, who worked at Amazon and Google before founding his first company PrepMe Inc. in 2007, said it was easy to start Spool.
"In 48 hours, it went from us hacking [lines of code together] to having millions of dollars being thrown at us," said Garg, who co-founded Spool with his former Stanford dorm mate Curtis Spencer earlier this year. The pair raised less than $1 million, but had offers to raise three times the amount, according to Garg, who said he is working his social network now to expand his six-person team.
Start-up Hiring Boom
Data specific to start-up hiring is scattershot. In May, recruiting services firm VentureLoop compiled an index to track jobs from 13 of its 1,000 venture capital clients.
According to the index, total job openings at U.S. start-ups outside the San Francisco Bay Area rose 69% to 3,311 from 1,961 in April 2008 before the financial crisis. In the Bay Area, the surge is even more dramatic, with openings more than doubling to 3,609, compared with 1,739 in April 2008.
"Things have gotten a little nutty. We've continued to see activity increase over the past year," said Jeremy McCarthy, VentureLoop's chief executive officer, noting software engineers with less than five years experience are most in demand.
"Start-ups are having a difficult time competing," said McCarthy. "The leverage they used to have with options, doesn't carry the same weight they used to" because companies are staying private longer.
Out-of-This-World Perks
McCarthy said he knows of some start-ups offering new hires free MacBook Air laptops, and as much as $15,000 to outfit their cubicle and other perks.
TaskRabbit Inc., a San Francisco company that runs errands for people signing up online, is offering $5,000 signing bonuses to every Ruby on Rails developer. San Francisco-based HotelTonight, which provides steep discounts on same night hotel bookings made by mobile phone, offers employees a $500 a year hotel stipend and unlimited vacation time.
Funzio Inc., a high-end mobile and social gaming company in San Francisco, raised $20 million earlier this month and is looking to triple staff from 30 to 90 people at the within the next six months. And President and COO Anil Dharni, knows it's going to take a lot more than offering catered lunches to do it.
"Everything you can think of -- massage, yoga instruction, everyone's doing it," he said, adding that Funzio has accelerated its stock vesting period. "You know within 12 months whether this thing is going to take off or not. You have to give people a sense they're not locked into a start-up for four years."
Revolving Start-up Door
To try to stay ahead of the curve, Funzio, mobile payment start-up Square Inc, Path Inc. and other companies are doing something that may seem counter-intuitive; they're training their employees to leave.
The recruiting strategy to educate employees to become entrepreneurs is an unusual one which taps into the 'start-up fever' hitting engineers eager to see their own pet projects become a reality. The idea -- to provide business acumen to employees beyond their normal job duties -- is a simple one. Companies offer perks including executive coaching sessions, introductions to investors and frank discussions about the inner-workings of the start-up so employees can learn and later launch their own company.
Seattle-based Redfin Inc., an online real estate brokerage, has bi-monthly classes on entrepreneurship and sets up individual meetings between VCs and employees interested in starting their own companies.
Raptr, the social game start-up, has a less structured program, centering on a weekly Q&A session, but it has the same goal of educating employees how to run a start-up so they can one day go launch their own.
"The reality is everyone is an owner here," said Raptr's Edelin. "We try to foster that spirit."
Write to Lizette Chapman
