Busting the Myth: Higher Funding Doesn't Mean Faster Hiring in Startups
If a startup raised a top quartile Seed round, Series A, B, & C, they typically would have grown headcount by about 6% in the last twelve months. The headcount growth rate for all other companies? About double at 12%.
Here’s the catch : the difference isn’t statistically significant.
In fact, comparing the headcount growth rates across top quartile fundraisers to bottom 3 quartile fundraisers, the result is the same. No statistically significant difference in headcount.
The chart does suggest the delta between the top & bottom quartiles does widen with stage.
But plotting the Series C size by headcount, the dispersed data underscores the point that great fundraises do not correlate to team size growth in this environment.
Why look at headcount growth? It’s a proxy for financial success. Startups with more business than they can handle should be scaling their teams to satisfy market demand.
What are some hypotheses for these data?
- great fundraising ability & product market fit may overlap sometimes but not all the time
- most companies have focused this year on efficiency rather than growth given the macroeconomics, irrespective of the balance sheet
- more companies are able to scale revenue independently of headcount because of AI or product-led growth
- larger fundraises are pre-emptions that occur in hot spaces like AI where the companies raise capital to have the option to grow, but are waiting to exercise it