This VC’s best advice for building a founding team
Source: TechCrunch
One of the most consequential decisions early‑stage founders have to make is who they will bring on as their founding team. The first five to ten employees will have a massive impact on the company culture, and the precedents set with them are difficult to change down the road. That’s why this season on Build Mode, we’re diving into what it takes to build a world‑class founding team.
To kick off season two, Isabelle Johannessen is joined by Yuri Sagalov, managing director at General Catalyst and former founder, YC partner, and seed investor at Wayfinder Ventures. Sagalov has worked with hundreds of pre‑seed and seed‑stage companies and has seen firsthand the best (and worst) ways to hire in the early days.
In this episode, Sagalov offers his best pieces of advice for founders who are hiring their first team, strategically building their cap table, and forming compensation structures that can scale with the company.
The three types of investors (and which one to avoid)
Sagalov categorizes investors into three main buckets:
- Hands‑on investors – heavily involved and function as an extension of your team.
- Check‑only investors – give you a check and then vanish.
- Micromanagers – give you money but constantly meddle in day‑to‑day decisions.
The first type is the most valuable, according to Sagalov: “They’re going to help you with recruiting, hiring, go‑to‑market. And the most interesting thing with those investors is often it’s completely disconnected from the check size.”
Although it may feel counterintuitive to turn down investments, working with VCs who become overly involved can cause more harm than good in the long run. Sagalov says, “The only bucket that I avoid is this third bucket of investors who give you money and they’re kind of in your kitchen, meddling. They have an opinion on everything. They get stressed out when things don’t go right.”
In a fundraise, everyone is putting their best foot forward, so Sagalov suggests reaching out to current portfolio companies before committing to an investor:
“The best thing you can do as a founder is actually talk to portfolio companies, talk to other founders that they’ve worked with, ask for concrete examples of how they’ve been helpful, if they’ve been helpful, and then actually ask how they were when things didn’t go right.”
How to split equity with a co‑founder
As an investor, Sagalov looks for co‑founders who have created an equity split that is fair but also hedges for future misalignments. He suggests creating a slight differentiation—plus or minus one share—so there is a clear way to break deadlocks.
Sagalov also reminds early‑stage founders that these early decisions have staying power:
“Oftentimes founders over‑index on ‘I came up with the idea, so I deserve the lion’s share.’ Most of the journey of the company is ahead of them. You don’t want someone waking up five years from now feeling like they put in equal blood, sweat, and tears but own one‑fifth of the equity.”
Talk to early employees about risk and compensation
The first few hires should be all‑in on the startup’s mission. Joining an early‑stage startup can be perceived as risky, so Sagalov emphasizes the importance of discussing the risks and potential benefits:
“Fundamentally, what you’re looking for when you’re hiring the first few people are missionaries who, beyond even the compensation, want to join you for the mission of the business. You want to be honest with them that there is a lot of risk on the journey.”