How to Choose a Startup to Work for by Thinking Like an Investor • Hacker News Board

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

#121

Post by imh » Tue, Jan 08, 2019, 4:36 AM UTC

tschwimmer wrote: post #84

The metaphor of early startup employee as investor seems really smart at first but is ludicrous in reality. It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. VCs can sprinkle (relatively) small amounts of money across dozens or hundreds of startups. If one fails then the impact to the portfolio is negligible. In fact, VCs expect that most of their por…

That's missing the point. You can't get the same deal as an investor, true, but you can still do the due diligence they do. Or at least you should try to as much as you can.

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

#122

Post by tschwimmer » Tue, Jan 08, 2019, 4:42 AM UTC

imh wrote: post #121

tschwimmer wrote: post #84

The metaphor of early startup employee as investor seems really smart at first but is ludicrous in reality. It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. VCs can sprinkle (relatively) small amounts of money across dozens or hundreds of startups. If one fails then the impact to the portfolio is negligible. In fact, VCs expect that most of their por…

That's missing the point. You can't get the same deal as an investor, true, but you can still do the due diligence they do. Or at least you should try to as much as you can.

The entire premise of VC investment is predicated on diversification. VCs wouldn’t do diligence if they could only invest in one startup. They wouldn’t exist.

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

#123

Post by tschwimmer » Tue, Jan 08, 2019, 4:48 AM UTC

Alex3917 wrote: post #93

tschwimmer wrote: post #84

The metaphor of early startup employee as investor seems really smart at first but is ludicrous in reality. It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. VCs can sprinkle (relatively) small amounts of money across dozens or hundreds of startups. If one fails then the impact to the portfolio is negligible. In fact, VCs expect that most of their por…

> It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. As an employee though you can contribute your sweat equity on a daily basis, rather than needing to make your contribution upfront. So if you figure out the startup is a scam after day 3 of working there full time, you're free to quit immediately with basically no sunk cost. If investors could drip o…

I don’t agree with your point about employees being able to ‘get their money out.’ If you have short stints at many startups I am young to see that as a serious red flag as a hiring manager. You can do it at one place but I think even if you do it twice in succession it’s going to suggest a pattern. Disclaimer: I’m not a software engineer so it may be less impactful than I think.

RE: your point about IRR, I also don’t fully agree. Yes it’s bad when when you don’t show return for many years as an investor but as someone who was personally waiting for a prior employer to go public I can assure that a difference of a year or two is not ‘zero material difference’ in my quality of life.

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

#124

Post by naveen99 » Tue, Jan 08, 2019, 4:48 AM UTC

deanmoriarty wrote: post #98

naveen99 wrote: post #94

Earlier quoted context omitted.

Or you could just take a non startup job for higher pay and buy 0.1% of a bunch of late stage startups on EquityZen or Equidate. No need to wait 10 years...

I would advise against that, I tried to dabble with both platforms, but the markup at which those shares are sold is often incredibly high: common shares of most companies on those platforms are actually sold at prices higher than the preferred (crazy), even if such company just went through a very recent round of funding, meaning that the preferred price is pretty much the very top investors valued the company at. I…

well, getting shares as an employee is even worse. You still get common shares, usually with some trade restrictions / lock up period on top of it... The price / premium on the secondary markets is a market price, and in a market that is more efficient than it used to be. Also, the person selling those shares may be an early employee who has many other reasons to sell than screwing the buyer...

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

#125

Post by tschwimmer » Tue, Jan 08, 2019, 4:51 AM UTC

fizx wrote: post #108

tschwimmer wrote: post #84

The metaphor of early startup employee as investor seems really smart at first but is ludicrous in reality. It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. VCs can sprinkle (relatively) small amounts of money across dozens or hundreds of startups. If one fails then the impact to the portfolio is negligible. In fact, VCs expect that most of their por…

It's actually easier to "invest" as an employee than as a VC. VC's have to wait until the next round, and have to compete with other VCs. As a potential employee, you can see a company wildly succeeding (twitter in 2009, uber in 2012-13, slack, github, etc) and yet they will have You will hit some underperformers/duds (coinbase? bird?), but you will have worthwhile stock options a good chunk of the time.

If this is true why not just be a VC? You could pick all these unicorns at a great value. Even if you don’t put any of your own money in the fund you will make vastly more on the fund fees than you would have as even CTO.

I think you’ll find that consistently picking unicorns is essentially impossible across a long time frame.

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

#126

Post by shalmanese » Tue, Jan 08, 2019, 4:54 AM UTC

deanmoriarty wrote: post #96

JohnFen wrote: post #92

Earlier quoted context omitted.

Decades of experience has taught me that stock options are essentially wallpaper. Sure, if a company wants to give me options, I'll take them -- but they are in no way a substitute for real compensation, and I won't accept them in lieu of something real. That said, if a startup is doing something that really turns my gears and I like the company, then I'm absolutely willing to work for less pay in order to be a part…

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but t…

Plenty of lawyers quit Big Law to work in human rights law or as public defenders because they find the work more meaningful. All lawyers are also required to do pro bono work and different lawyers and some treat it as pro forma but many go above and beyond because they feel the work is important.

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

#127

Post by tschwimmer » Tue, Jan 08, 2019, 4:56 AM UTC

danenania wrote: post #105

fhbdukfrh wrote: post #87

Earlier quoted context omitted.

I agree with you, and this was my initial response when i started reading the post. VCs also get far more information about the company and can demand way more control. How many employees of a startup get a board seat, even if you're non-founder employee #1? Even those diversified portfolios aren't going to have huge returns in most cases. I think the lesson is that if your value proposition is exchanging your skills…

On the other side, as an early employee you can have a much bigger impact on the odds of success than an investor. If you think a company has huge potential, but it's missing X/Y/Z, and you're an expert in X/Y/Z, then you have both a unique insight and unique leverage to make a success out of something that might not have been without you. Looking for situations where you make the difference is perhaps one way to hav…

I think this is a good point. If you are the ‘secret sauce’ than you may have an edge over an investor. There is perhaps the question of how you know that the company has huge potential with any confidence but I can think of a number of situations where it may be generally indicated. You should also command a stiff premium for catalyzing the company’s success. =)

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

#128

Post by fyfy18 » Tue, Jan 08, 2019, 5:08 AM UTC

artiscode wrote: post #12

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…

Most of the startups I've come across in Europe usually pay at or near to market rates. Maybe it's just my experience (I've mostly been working as a contractor), but I find this somewhat surprising, given that the social structures here mean that taking a risk by working unpaid/lower pay for a startup isn't such a big issue.

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

#129

Post by BigJono » Tue, Jan 08, 2019, 5:29 AM UTC

deanmoriarty wrote: post #101

the_jeremy wrote: post #100

Earlier quoted context omitted.

I think there are. Teachers (pretty much as a whole) and public defenders seem to fit here. I know multiple photographers whose passion is landscapes/nature and only grudgingly supplement that income with weddings/portraits.

With regards to teachers or photographers, that's not a fair comparison in my opinion: in those cases, low wages are mostly dictated by high supply vs low demand, so from an economic point of view it "makes sense". That's much different than software engineering or medicine, where there is a scarcity of supply (and the only reason why software salaries are in the 6 figures). In other words, teachers are not willingly…

It's still just supply and demand. Sexier products draw more candidates. The only reason you're taking 40% less to work on something cool is because if you don't, someone else will.

Most people eventually have to decide whether they want to make 150k writing CRUD apps or 90k writing algorithms.

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

#130

Post by solveit » Tue, Jan 08, 2019, 5:40 AM UTC

deanmoriarty wrote: post #96

JohnFen wrote: post #92

Earlier quoted context omitted.

Decades of experience has taught me that stock options are essentially wallpaper. Sure, if a company wants to give me options, I'll take them -- but they are in no way a substitute for real compensation, and I won't accept them in lieu of something real. That said, if a startup is doing something that really turns my gears and I like the company, then I'm absolutely willing to work for less pay in order to be a part…

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but t…

The most obvious example is academic research. Many engineers, doctors, lawyers, and economists take massive pay cuts to work in an academic environment.