Just read the conclusions, the writer is not sure what really works.
How to Choose a Startup to Work for by Thinking Like an Investor
91–100 of 154 posts
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#92The 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…
The best part is stock options. Not only are you not diversified, now you get to concentrate your portfolio by buying stock in the company that provides your income. Stock options: for concentrating your income and your investments when you're excited and biased.
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 of that.
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#93The 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 out their cash on a daily basis then most probably wouldn't put in the work to be fully diversified. So yeah, it's a difference, but I think it's a little overstated if you're just comparing the raw numbers of startups each group has equity in.
What I think is a bigger difference is that employees don't have to worry about IRR. If as an employee it takes you an extra two years to get to liquidity, that makes basically zero material difference in your quality of life. Whereas as a professional investor that can destroy your business. On that basis I think this piece may overstate the value in looking for signal. As an investor, placing your bet on someone who is going to be successful but not for another couple years is basically the same as a loss. But that's not really true as an employee.
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#94Best risk-reward is VP or SVP level at Series C or D company which gets you options for 1-2% of the company... switch every 18 months to diversify and build a portfolio but negotiate 10 year exercise window on your options when you leave rather than the standard 90 days. Thousands of execs doing that around Silicon Valley working through Daversa and other executive recruiters (who themselves get $85K-$100K per execut…
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...
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#95Being an early-stage employee gets you all the downsides of being a founder, with only a fraction of the benefits.
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#96Earlier quoted context omitted.
The best part is stock options. Not only are you not diversified, now you get to concentrate your portfolio by buying stock in the company that provides your income. Stock options: for concentrating your income and your investments when you're excited and biased.
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 that's another thing.
In software instead, that's incredibly common: several of my coworkers (late stage private company) are in mostly for the thrill of working on our technology since we operate in some interesting niche, and I know for a fact they are paid much less than me (30%+), even if they have a bigger impact than me on the company (and they are also older, with more experience!).
It's so common that many times employers use it at their advantage, by preferring people that can be sold purely on the tech rather than the tech AND the market rate for the position.
To me, both the financial aspects and the technical challenges must be absolutely satisfied in order to join a company. Maybe I'm too practical because I'm not a trust fund kid and grew up dirt poor, so I know that in my limited ~20y engineering career (assuming ageism) I need to make enough so that I will be able to retire comfortably, while making sure I work on stuff that stimulates me so I can give my very best.
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#97What about the Groucho Marx strategy of not investing in any company which would have someone like yourself as an employee?
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#98Best risk-reward is VP or SVP level at Series C or D company which gets you options for 1-2% of the company... switch every 18 months to diversify and build a portfolio but negotiate 10 year exercise window on your options when you leave rather than the standard 90 days. Thousands of execs doing that around Silicon Valley working through Daversa and other executive recruiters (who themselves get $85K-$100K per execut…
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 honestly don't know who would buy that, the idea I got by doing some basic due diligence on those deals is that who puts them online thinks "let's see if we can attract some dumb money to give us some liquidity at an insane premium". If you sell things at a fair price (e.g. selling common shares at the preferred price * 0.8, depending on the current stage of the company), investors will want to give you liquidity way before your offer on equityzen gets accepted and pollutes the cap table (I speak from direct experience), so what's left on those crowdsourced platforms is many times overpriced garbage.
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#99Earlier quoted context omitted.
I wouldn't consider 10 bps (0.1%) meaningful. Early stage is very, very risky.
Yes. I generally like to make a reverse calculation when evaluating such offers. To get $1 million out of this risk, the company has to exit for $1 billion if I have 0.1% stake. How likely is it? And that's before considering dilution, preference stocks, option exercise problems, etc. Joining a BigCo can give $1 million (above startup salary) in 5 years with a very high probability.
And AFTER considering all those other factors, you may need to see a $10B exit to get your $1M.
Re: How to Choose a Startup to Work for by Thinking Like an Investor
#100Earlier 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…
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.