At start-ups, investments often precede hiring

August 19, 2012

District-based education upstart EverFi intends to hire as many as 100 employees nationwide in the next year to 18 months, following a $10 million investment last week from financiers that include some of the biggest names in consumer technology.

Venture capital investments often precede hiring sprees at young companies. As the nation remains fixated on the nagging unemployment rate, some economists and business leaders contend that these ventures will drive job growth.

But the staying power of jobs created through venture capital is debatable. Those firms must yield enough revenue to support the positions long term, or they may be cut when the venture capital spigot runs dry.

StartUpHire, a job search Web site for venture-backed companies, fields roughly 50,000 job postings a year, said co-founder Steve Fredrick, who is also an investor at Grotech Ventures. That’s just a portion of total start-up jobs, he said.

“As these start-ups grow and become more established companies, they become real engines of job growth at a really significant level,” Fredrick said. “Often they’ll IPO and continue to add thousands and thousands of new employees as they grow.”

EverFi provides online tutorials for college and high school students on topics such as financial literacy, alcohol consumption and cyberbullying. The firm’s latest funding was backed by Amazon chief executive Jeff Bezos, Google Chairman Eric Schmidt and Twitter co-founder Evan Williams, among others.

Other local ventures have announced plans to hire after raising capital. LivingSocial was adding employees by the handful each week during its fundraising heyday. On a smaller scale, location-based social network Full Circle will bulk up its staff to 20 after raising $3 million earlier this month.

“If you look at the operating budgets for most of these start-up companies, the vast majority of the spend is on salaries,” Fredrick said. “Companies tend to take the bulk of the money they raise to go out and hire people.”

Even if those jobs carry an intrinsic risk, Fredrick said large corporations aren’t necessarily more secure. Mass layoffs have made headlines in recent years. Last week, Google said it would slash 4,000 jobs from its Motorola Mobility division.

“If the recession has taught people anything, it’s that large employers aren’t inherently safer,” Fredrick said. “The beauty of the venture ecosystem is some companies succeed and some companies don’t, but good people are invariably cycled into other opportunities.”

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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