Startups Face Stiff Competition for Talent; 10% Signing Bonuses Becoming Routine

Ash Bhoopathy (L) shows an app to a BettrAt co-worker. Photo credit: Reuters/HO/BettrAt
Ash Bhoopathy (L) shows an app to a BettrAt co-worker. Photo: Reuters/HO/BettrAt

(Reuters) – For entrepreneur Ash Bhoopathy, not even backing from Bill Gates gives his tech startup enough street cred to easily land qualified engineers in today’s competitive recruiting environment.

“It’s hard to attract the really talented developers,” said the 29-year-old co-founder of BettrAt, a Seattle, Wash.-based startup that helps users plan and track accomplishments related to career and personal interests.

“If you’re a startup and say, ‘I’m backed by [venture capital firm] Sequoia,’ they get this glint in their eyes,” added Bhoopathy, who received undisclosed funding from the Bill & Melinda Gates Foundation in November.

Bhoopathy, who launched BettrAt last year, spends a good chunk of time at startup weekends, “hackathons,” and other events where he can scout potential talent.

“The best people are already working,” said Bhoopathy, who adds that he pays “above-market” rates for the right people and is quick to tout his company’s social mission of redefining education as a lifelong endeavor as well its collaborative, flexible and relaxed work environment. “You have to poach people away.”


It’s no easy task for small companies at a time when tech giants have stepped up their own recruitment efforts. Google just indicated 2011 will be its biggest hiring year yet. Meanwhile, a multitude of fresh startups — some with backing from well-known VCs — are vying for the same talent.

Recruiters said the Web 2.0 hiring boom, which counters nationwide unemployment above 9 percent, shows no sign of abating. Last month’s successful IPO of career networking site LinkedIn was a sign of investors’ renewed enthusiasm for the sector.

Silicon Valley recruiter Robert Greene, who primarily represents startups, said his clients want top developers from “really good schools.”

“You have all these businesses getting funding and growing, building out their teams,” said Greene, who has seen deals fall through after unmatchable counter offers from big players. “The number of engineers just doesn’t meet the demand.”

To compete, savvy startups are using their flexible nature to their advantage, often making offers within 24 hours of an interview. Signing bonuses of 10 percent are not unusual, and stock options are de rigueur, said Greene, adding management must be able to clearly sell the startup’s vision for the future.

“With the LinkedIn IPO, other IPOs happening, [candidates] see their friends making money on the stock, and they’re hoping that could happen to them,” said Greene, noting top schools’ recent graduates are often commanding starting salaries in the six-figure range.

Terence Rokop, a 35-year-old software engineer with LSI Logic in Portland, Ore., has received five competitive offers to jump ship in little more than two months, from both startups and large companies.

“The ice has really melted and all of a sudden it’s hot again,” said Rokop. “Four of them would have been willing to do something fairly immediately.”

To illustrate the dramatic change in the market, Liz Vellojin, a tech recruiter with Chicago-based Addison Search, said a year ago some developers with specialized skills had few opportunities for movement.

“Now that same Java developer has five companies extending offers and is getting calls for 15 opportunities,” she said.

In such a competitive field, startups aiming to score top talent in the up-and-coming “t-shirt and hoodie” crowd need to lure would-be hires not just with salary and stock, but also the prospect of solving compelling problems for end users, Vellojin said.

“More often than not, I have a programer … so much more excited about what they’re going to build,” she said. “Is this going to be the next big thing?”


Even startups with pedigrees are finding it harder. That’s one reason Sanjay Raman, the 31-year-old co-founder of Howcast, a website offering short instructional videos, spends much of his time at specialized meet-ups networking with engineers who may lead him to his next hire.

“Under normal circumstances, I probably wouldn’t be going to those types of events,” said Raman, a former project manager at Google whose near 25-person startup has raised $11 million in venture capital funding led by Tudor Investments. “We try to foster an environment where people are continually learning — building a fun office, ping pong tables, things people enjoy, a flexible work environment.”

With offices in San Francisco and New York, Howcast tries hard to keep existing talent from looking toward the door. “With more startups coming into the market, it becomes harder,” Raman said.

So how will the talent supply issue ultimately shake out?

Steve Blank, a former Silicon Valley serial entrepreneur who now teaches entrepreneurship, said the market is ripe for a new approach, one that pushes away from the West Coast, where saturation has taken its toll.

“We’re still having board meetings like we’re pulling up in the horse and buggy,” he said, pointing out the irony of an industry that created technologies to facilitate virtual work but whose investors rarely use them.

Blank is hopeful, though, that as more VCs consider other parts of the country to seed their ventures, the problem may take care of itself.

“The University of Michigan graduates 8,000 engineers a year,” he said. “Why don’t we fund these companies cheaply in Ann Arbor?”

–By Deborah L. Cohen, Reuters