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 portfolio probably won't pan out.
Good luck diversifying as an employee. Working part time at even 2 startups is obviously laughable.
If you're in it for the money, working at a startup is probably not for you. It really is akin to gambling. There may seem to be more information available than gambling, but there is so much unknown and hidden information it's damn near impossible to make a 'rational' decision.
That's not to say you should never work at a startup. Startups are often great learning opportunities because you usually have both broad and deep scope of responsibility. There's also often better alignment between management and employees because people tend to be working stuff that is materially relatable to the bottom line. It can also be a career accelerator if the company grows headcount rapidly and you suddenly become a 'senior person'™. YMMV.
Stock options: for concentrating your income and your investments when you're excited and biased.
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.
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 and time for money (ie, an employee) you can't parlay that into startup style returns without essentially winning the lottery. If you can pick the next unicorn for employment purposes don't waste your talents on actually being an employee
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: 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.
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 <200 employees and their stock options will be granted at a 409a valuation around ~100million. Its a pretty reasonable bet at that point.
You will hit some underperformers/duds (coinbase? bird?), but you will have worthwhile stock options a good chunk of the time.
I think you’ll find that consistently picking unicorns is essentially impossible across a long time frame.
Engineers spend a grueling month or two getting onsite offers from maybe 8 companies at the most and one or two offers.
Agree 100%, a very misleading metaphor.
No one can predict with certainty which startups will fail and which won’t. If someone did there would be just one VC firm that grossly outperformed everyone else. The truth is you get the smartest people out there, make the most careful bets you can, and you still lose or break even 9 out of 10 times.
Anyone who is joining an early stage startup primarily to get rich has got their eye on the wrong prize. Join because you like the early stage craziness. Join because you care about the mission. Join to learn. If you want to get rich, work at Fang for 10 years. That’s a lot more certain.
Between my wife and I (both software engineers), we have played this VC startup game 5 times. Never again.
This isn’t really true. The experience you can only get at a startup is learning to work with VCs, the board, early strategic partners and so on. This will be dangled in front of you like a carrot but as a mere employee you will never get meaningful exposure here. Unfortunately, like “dilution”, this is something that founders hope you don’t know so they can exploit you.
With that being said...
All three times, despite considering myself a pretty rational person, I got this strange psychological delusion when joining the startup that it was going to somehow magically make me rich. I think it's probably the "honeymoon" stage of joining any company. Things are awesome! The culture is fast-paced, chaotic, and offers plenty of opportunity! This is a rocket ship! It kind of matches the "what if" feeling of buying a lotto ticket. It's impossible not to imagine what might happen.
I think if I jump back into startupville, my cynicism toward the "get-rich-fast with these private options" will outweigh the bright-eyed, bushy-tailed sensation of my 20s.
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.
If there’s one thing I’ve learned after two decades in the industry it’s if you care about earning good money, you can either 1) gamble on the 0.01% chance that you picked the right startup or 2) get on to the Senior Executive track as early as possible. Then it doesn’t matter what company you join because they all pay their executives f-you money.
Thousands of execs doing that around Silicon Valley working through Daversa and other executive recruiters (who themselves get $85K-$100K per executive hire).
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.
For example, as a seed VC there are now about 80 companies at various stages that my fund works with. If someone emails me and says, "I'm a good engineer who wants to join a Series A startup in SF or Oakland that has characteristics X, Y, and Z," there's a good chance I can make a few useful recs.
There's nice incentive alignment here: the VC doesn't get any compensation, they just want their companies and the prospective employee to do well. That means 1) we won't recommend a bad fit to an employee because we want the employee to join and be happy and get their friends to ask us for company recs; 2) we won't recommend a bad fit to a company because we want founders to like us and not feel distracted by us. We're going for quality, not quantity -- and you're welcome to ignore our suggestions. So if you're good at what you do and are looking to join a startup, consider soliciting recs from a few investors with large portfolios.
I wrote a short post about this a few years ago: https://www.codingvc.com/using-investors-to-find-the-ideal-s...
I might regret posting this invite on HN, but if you want to join a startup and want recs, my email is in my blog's header.
smack forehead Yes, what ever could I have been thinking before! Yes, yes, I should only be joining a successful startup, not an average one!
> steep career trajectories, like Jeff Dean, Marissa Mayer or Chris Cox.
Yes yes! New plan: be Jeff Dean!
> Next, you need to evaluate the strength of the team and market
Unfortunately, this is not realistically possible for most non name-brand candidates. The company is not going to entertain the amount of inquiry (due diligence) you would need to pursue.
> Evaluating the relationship between founders is as important as evaluating the founders themselves.
Indeed it is! Good luck getting access to do that ...
This article is just more hyperbole from triplebyte. I wonder how their business is doing ...
https://triplebyte.com/careers:
> We've already achieved profitablity
But if I may quote from this article:
> one thing we learned at YC was not to be fooled by large absolute numbers. What matters most is the growth rate.
triplebyte, put your money where your mouth is and advertise your top line growth rate, not the fact that you are profitable. When your fee is on the order of $30k per hire and your infra and operating costs are low, I expect you to be profitable.
Getting a sense of founder dynamics can be harder, depending on stage, but it's easy if you're early enough. I interviewed at Dropbox when it was 20 people and it was obvious what roles Drew and Arash played, as an example. At a larger stage this is harder, but you have more public sources of information at that point.
Regarding Triplebyte's profits, you should be asking how fast they're growing.
Finally, we should all be Jeff Dean. :)
So there's a few considerations:
- Have you got some savings, in case it dies suddenly? You need to be able to pay rent until you find another job. Hopefully the startup is located near these other jobs.
- Does it allow you to build on existing experience? If you can claim you're in the same industry, you're not losing much (perceived) seniority by trying your luck for a bit.
- Does it give you an easy promotion? This is probably one of the main things a startup can offer. Just being able to add "Senior" to your name or "Team Lead" a few years before you would in BigCo might be worth it.
- Do you get to work with the tech that you want for your CV? You probably have an idea of what's hot to have on a CV, and a startup is relatively new, so maybe you can direct things that way?
The number of people with these sort of "career trajectories" is vanishingly small. This reminds me of what Phil Greenspan wrote (2006?), mocking the college student's career evaluation process:
"I can't decide if I want to be a scientist like James Watson, a musician like Britney Spears, or an actor like Harrison Ford."
The rest basically failures or zombies that made me no extra money.
Probably a little more lucky than most.
Seems like a much healthier risk profile unless you ONLY want a huge Google-like unicorn outcome as an early employee.
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.
The author may sincerely believe in his own advice, but we should note that he did not, himself, get rich this way.
A dropout from elite UK universities, he founded a startup and exited for a small amount of money. Since then he has worked for Y Combinator, invested, and also founded a few companies.
Taggar has never, himself, been anything like a startup employee. And great for him; he seems extremely talented and maybe that route isn't for him. But his company (TripleByte) profits from directing talented people into these kinds of companies.
Honest question; seems like it's a tougher thing to get access to than for a VC, but maybe I'm wrong.
A large reason not to share things is some info is sensitive, for example the share count is a useful number, while the full cap table with each investor’s pricing, terms, and contact info, and other employee grants, would be sensitive and might be more guarded. Same thing about total revenue versus the customer list.
More traditional advice is to ask about the fully diluted share count, so you can see what percentage the options would be, and of course the vesting schedule and purchase terms. Also I’d also ask about cash or runway, which is related to the ability to survive a rough patch.
I was CEO and founder of a YC funded startup and have some experience hiring at the seed stage. For me personally, I wanted engaged people and asking good questions was a positive sign.
Don't try the same with a small business. You will probably get kicked out.
It's sad that Jeff Dean is the last example the article can give. When evaluating a startup as an investor, I see that while investors get great terms, employees get junk options. So until it changes, I'm just staying with big companies, thank you very much.
Does the work look interesting? Will you learn new things?
Do you like the problem space the startup operates in?
How is the culture? Fit or not?
Will you be happy there?
The asking hard questions is very important. I once interviewed with a startup that just raised $3MM. You pay them a small fee and if your flight gets cancelled they find you a new one for free. I pressed the founder hard on why someone like me would buy that insurance and his answer eventually was for the same reason you buy insurance for your car or house. Once he gave me that answer I knew I'm not going to work there. And this was actually a nice startup with some good people. There are much worse startups with founders who have no clue and god knows how they managed to raise money. One founder once told me he is well connected and one phone call and people write him checks (red flag). Then there are the ones who are really shady and will lie about everything. Be very careful and don't ignore the red flags!
Another important point is that you need to make sure the startup really needs you. In the past I talked with two startups that built their pitch around AI but they had very little knowledge of AI so what they had in mind wasn't really possible and even if it was, the product had millions of other things to succeed before AI was even needed. The problem is that founders sometimes focus too much about their pitch and how to impress investors rather than on their product.
Unless you're a valued, seasoned industry veteran, joining a very early stage startup founded by 20-somethings, would you really be able to access all that the author suggests?
But then, my goal is primarily to do meaningful work on interesting projects. I have little interest in getting rich.
There's another option. You can pick a job that isn't a startup, that makes you hate your life, and phone it in every day just to get by. You save your energy and grind away at night on your own company. I say "company" instead of startup because I don't think venture capital is the right thing to pursue for a single founder doing this.
Just have a goal to build a product that has at least 1000 customers paying $10/mon so you can quit your dayjob. The hatred of your dayjob will fuel your motivation to work at night.
A startup is much riskier than taking this approach. You put in 60 hours a week at a startup and even in the very unlikely scenario it pays off and the startup becomes huge - at most you have a 1% stake and become a millionaire. You become a millionaire way easier working on your own project.
So my philosophy is to get a job you hate - work to build the future you want yourself - never let anyone else exploit you to the point where the only way you become a millionaire is if they become a billionaire.
See Dan Luu's articles about "big company vs startups" and "options versus cash"
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.
Do you believe prospective employees, often with little experience in the startup world, can do a better job of picking winners than VCs can?
At a bare minimum. Probably more often.
no idea how to assess the size of a company's pockets. maybe one that has a founder who has already had a successful exit. every other attribute of a company is basically fortune telling.
https://medium.com/@therealpankaj/interview-questions-to-ask...
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 equities.
You can't work for 10+ companies at once like a VC can. And even if you could, the odds are still against you. The idea that you'll be able to pick ONE winner at an early stage is, quite frankly hilarious and naive.
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.
