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How to Choose a Startup to Work for by Thinking Like an Investor

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Re: How to Choose a Startup to Work for by Thinking Like an Investor

#11

Post by asdfasgasdgasdg »

Harj wrote: post #2

Rather than treating predicting startup success as an intractable problem, I think anyone considering joining a startup should act like a startup investor making a bet on how much the value of equity in that startup will grow over time. Startup investors do this for a living and that's essentially what you are too. You're investing your time and they are investing money.

Actually, what startup investors do for a living is convince rich people that they can accurately bet on the growth of the equity value. This is different from actually accurately betting on the growth of the equity value. VC firm profits can come from fees -- they don't necessarily reflect the performance of the underlying investment.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#12

Post by artiscode »

I accepted early on that working for a startup will probably not make me rich. Quite the opposite, I may wake up one day and find out that I no longer have a job or my next salary isn't coming. I'm not the kind of person who believes in gambling. Working and living in Europe doesn't really help with the vision that I might join a European unicorn startup, whose stocks might not be worthless one day.

However I do see a lot of benefits that come with working for a startup. You can voice your opinion and be heard. Pushing code to production on your first day. Owning what you do and being able to make decisions. Creating your own environment in which you can learn and become a better developer.

And, most importantly, startups are more open to remote than BigCo Inc.

Monetary compensation might be less, but freedom has a price. If I'm able to work remotely, I can move to a place that is cheaper to live.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#13

Post by jacquesm »

pembrook wrote: post #8

This kind of advice is similar to the "get rich day trading stocks" narrative. It only sounds realistic if you are ignorant of the statistical probabilities involved (it seems most people are). A vast majority of VC funds produce weak or negative returns. And this is after diversifying their fund investment across 10+ start-ups and assuming that 90% are going to be losers compared to putting that money in public equi…

Another major reason that you won't be able to pick the winner is because you only get to pick once, and then you are booked for a long time. If you think a better one comes along you now have a sunk cost, and you'll be starting all over again, with a very good chance that your 'better' one will end up being worse. So the odds are very much against you if you are evaluating start-ups serially.

The better way to do it is to evaluate a whole pile of them at once, and then to pick the best one that you can find. And you're going to have to do a lot of work to evaluate those options, about as much as though your future depends on it, because it does. If you're not prepared to put in that kind of work then it really is just a lottery, and you're most likely better off to just take a job that pays you roughly what you are worth on the market, in the longer term that + a good savings regime will be a much surer path to some serious cash than buying lottery tickets at an opportunity cost of 300-500K each.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#14

Post by OiNG »

arachnids wrote: post #4
Harj wrote: post #2

Rather than treating predicting startup success as an intractable problem, I think anyone considering joining a startup should act like a startup investor making a bet on how much the value of equity in that startup will grow over time. Startup investors do this for a living and that's essentially what you are too. You're investing your time and they are investing money.

Hrm, the parallel feels really forced to me. You can invest money in multiple startups at the same time, to hedge your bets. You can't do that with your time if you plan on working full-time.

Its not even about hedging but about diversification. If you are in a position where you can't diversify fully, you should require a higher return on investment in order to take on the risk.

For example. If you could bet on a coin flip 100k times at $1 a bet, you might be willing to accept getting paid $1.01 per win. But if you had to bet $100k on a single coin flip, you would likely need the payout to be much greater before you were willing to take the bet.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#15

Post by jacquesm »

davidw wrote: post #9
acconrad wrote: post #6

This is how I've approached joining the last two companies I've signed on with. In the hiring process I ask to speak with finance and the founders to see if the company has the legs to be a real rocket ship. Remember that an interview is just as much about them interviewing you as it is for you to interview them .

How likely is it that you as a potential employee get to see the books and know what's going on like that these days? Honest question; seems like it's a tougher thing to get access to than for a VC, but maybe I'm wrong.

That depends on what the company is looking for in you. If you're going to do mission critical stuff or they want you for an important role they might even enjoy showing you their internals. And if they don't want to show you then that's a pretty good indication that you are probably better off elsewhere. Transparency in an early stage start-up is good for everybody, including the founders. If founders are not willing to share their position they are effectively asking you to buy a cat in a bag.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#17

Post by chrisbennet »

Harj wrote: post #7
arachnids wrote: post #4

Earlier quoted context omitted.

Hrm, the parallel feels really forced to me. You can invest money in multiple startups at the same time, to hedge your bets. You can't do that with your time if you plan on working full-time.

Sure, you can't diversify in parallel but you can in series.

Considering how long you would have to stay to get anything from an equity event (4-8 yrs?) you realistically can't work for 10 startups. If you luck out and work for one that does have some success, you will probably find that, unlike a VC, you don't have "2X preferences" or an anti-dilution arrangement so you get nothing or next to nothing.

In the meantime you may have traded your youth for magic beans - putting off things like getting a house, a girlfriend, etc because you are working long hours for sub-market pay. That is the real tragedy.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#18

Post by echevil »

pembrook wrote: post #8

This kind of advice is similar to the "get rich day trading stocks" narrative. It only sounds realistic if you are ignorant of the statistical probabilities involved (it seems most people are). A vast majority of VC funds produce weak or negative returns. And this is after diversifying their fund investment across 10+ start-ups and assuming that 90% are going to be losers compared to putting that money in public equi…

I think the right way to think about this problem is treating picking the winner at an early stage as a probability. Even though the value of the probability is small, you'd still want to maximize it when you're picking a startup to join, and you can do much better than picking randomly. You can continue to evaluate the probability after joining a startup.

Re: How to Choose a Startup to Work for by Thinking Like an Investor

#19

Post by dawhizkid »

sharkweek wrote: post #5

I worked at three startups before taking the current break I'm on - one I left before my stock was worth anything (would have paid out a small amount in an acquisition), another, the stock is now worth zero, and the third has a shot at being worth about a year's salary if current late-stage valuation is to be representative of a potential buyout/IPO (I'd say odds are alright this will happen). While I try not to thin…

IMO there's only two paths that really makes sense now when considering a private co. Either a) join super early (e.g. penny strike price) with a meaningful % of total company (at least 10 bps) OR b) join late stage growth co that offers RSUs over options (e.g. "Softbank" stage cos).

Joining a "middle" stage co where you are offered expensive options is the worst, since you've missed out on the early upside and you take on a ton of risk due to cost of exercising.

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