Despite worries over recruitment startup DeveloperAuction, VCs are showing interest

Developer Auction is a startup that aims to disrupt recruitment for software developers and other professions with low supply and high demand, by putting control in the hands of the people who will actually do the work. It’s a nice idea. And companies you’ve heard of, such as Quora and Dropbox, have reportedly hired developers through the site.

The trouble is in the execution. To some degree, the site is redundant, because developers already get plenty of offers without using the site, and big fees aren’t always involved. The site hasn’t been promoted as much as it could be. It prioritizes salary above all else, even though some developers don’t. Despite the write-ups it garnered in the tech press, a handful of developers I spoke with for this article had not heard heard of the site. While auctions run in private to keep developers’ current bosses from spotting attempts to find better work, at least one developer was fired for using the site. And to top it all off, the company’s name calls to mind the antiquated, antebellum idea of selling people as products.

Nevertheless, co-founder Matt Mickiewicz told me venture capitalists are interested in funding the company. At nine employees, overhead isn’t enormous, and its business model allows for sizable revenues off transactions. The company is profitable, Mickiewicz said. Plus, it’s not Mickiewicz’s first startup: He’s co-founded a few startups, including 99designs, which has become profitable, taken on venture funding and expanded operations to multiple countries. Plus, he’s a compelling entrepreneur. In a recent interview, Mickiewicz confidently delivered smart answers to tough questions.

Value begets more value

VCs refer more companies to the site than any other group, Mickiewicz said. A talented developer is “one of the biggest value adds to add value to (a VC’s) portfolio,” he said.

Sure, the site’s concept makes sense for the developer segment, especially nowadays. The number of jobs in Silicon Valley increased by 4 percent from the second quarter of 2011 to the second quarter of 2012, according to data from California’s Employment Development Department that was included in the 2013 Silicon Valley Index. That high level of job growth hasn’t been seen since 2000.

The website says a typical developer will receive five to 15 requests from venture-backed startups for job interviews. Developers stay available on auction for two weeks and are free to take any offer, not necessarily the one with the highest salary. The first auction ran in September.

The company claims to be cheaper than a recruiter, but it’s not exactly cheap. If a company decides to pay a developer $ 100,000 a year through DeveloperAuction, the company pays either a $ 15,000 flat fee — 15 percent — or a $ 10,000 fee as well as the equivalent of $ 10,000 of the developer’s salary in stock options (10 percent plus 10 percent in options). DeveloperAuction even kicks in a small reward to developers as an incentive for using the service — 20 percent of the fee that the hiring company pays DeveloperAuction, which can be $ 3,000-6,000 or more, according to the site. That appears to mean DeveloperAuction rakes in $ 12,000-$ 24,000 or more per hire.

There’s competition, too. Besides more traditional hiring routes on company websites and job boards, so-called dev bootcamps have emerged as a new talent source.

Issues bubble up

However, last month the site received criticism on a few fronts in a Hacker News thread. Commenters complained about spam emails, shared alternative recruiting options (Pitchbox, for example), pointed out technical shortcomings and even called the company’s name into question. According to one user, “‘auction’ reminds me (of) the last time human beings were sold like stuff.” Another user reported being fired for using the site.

Developer Zac Shenker of Collusion, a company with a plan to make iPad drawings shareable with a nifty pen, told me the site duplicates and commercializes what already happens naturally to those looking for new jobs, whether on LinkedIn, over email or at networking events.

Recruiting managers at larger companies might be reluctant to use the site because of its emphasis on compensation packages above all else. A recruiting director at one webscale company who declined to be named for this article said the company would not hire people through DeveloperAuction, because finding people with the right character traits is more important than finding someone willing to work for a low price.

And while the model seems sensible now, with developers in great demand, the most talented ones will get gobbled up quickly, resulting in a drop in quality, said Chris Hollindale, chief technology officer at Hasty, a stealth-mode startup creating technology that aims to make people healthier.

Developers, customers abound

Mickiewicz sounded unswayed as I brought up the issues.

Regarding the comparison to slave auctions, he said people elect to join the auctions. That wasn’t the case in the pre-Civil War South.

“I think that’s a very unfair comparison,” he said. He emphasized that developers don’t have to work for the highest bidder. “It’s about who tells the best story at the end of the day,” he said. Developers, he said, want to make “a meaningful impact.”

Still, the founders might just have to consider changing the name, because it includes the word auction, he said.

Overall, Mickiewicz cited the adoption of the website among job seekers — 10 apply for every auction spot — and employers alike as proof of its value. “The employers are seeing very, very good success with us, compared to any other platform,” he said.

Hollindale intends to try out the site when Hasty is ready to hire another developer.

“To me, it’s a very interesting kind of twist on the whole technical hiring process,” he said.

Will the steady stream of developers availing themselves of the auctions de-escalate the tech bidding war? The answer to that question could determine the fate of DeveloperAuction.