7 ms·

I completely disagree. It's really not hard to find a company with great product market fit, say series B, get a bunch of equity, a decent salary, and wait a co

I completely disagree. It's really not hard to find a company with great product market fit, say series B, get a bunch of equity, a decent salary, and wait a couple years for your equity to be valuable. Assuming the company is successful (of course there's risk there, but by series B a lot has been mitigated), your equity will likely be quite valuable. I actually think, risk adjusted, that's the easiest way to make a bunch of money. I joined a startup long after product market fit, it was pretty obviously going to be moderately successful, and I was employee ~100. I never worked too terribly hard, and my equity was worth about 50% of my (not too low) salary each year. If you're not joining at or before series A, a lot of the risk has been mitigated, and there are markets opening up to sell your equity into.

bumbledraven 9y ago
> my [startup] equity was worth about 50% of my salary each year. The equity of many AmaGooFaceSoft employees is also worth at least 50% of their yearly salary.
- austenallred 9y ago
  Yes but that's if I were to sell it after ~1 year at a company you've likely never heard of. If I wait 3 more and there's a large exit it could easily be worth millions.
  - bumbledraven 9y ago
    Do you have a convenient way to sell your startup equity after ~1 year? (i.e. before there's an exit)
    - austenallred 9y ago
      Not convenient, but definitely possible. Equidate is a fairly open market for that kind of thing.
    - JumpCrisscross 9y ago
      There is a developed secondary market for venture-backed companies' stock. (Source: I do this.)
      - AlexandrB 9y ago
        I thought private stock transactions were subject to board approval, or is that just Canada?
        austenallred 9y ago
        Depends on the terms. In most startups board can only match the offer.
        JumpCrisscross 9y ago
        It depends on the company. Some companies are quite liberal with transfers. If you have a bona fide offer, they'll amend the cap table. For others, my having a relationship with the founder or Board is critical. A good starting point for American companies is is their Certificate of Incorporation. If you exercised options, the Restricted Stock Purchase Agreement should also contain terms, e.g. the company's transfer policy or right of first refusal. I have never heard of a Canadian company looking to raise capital structuring itself under Canadian law. Commonly, you'd have a Canadian law subsidiary wholly owned by a Delaware corporation. Disclaimer: I am not a lawyer. Hire a lawyer before selling private stock. Do not take investment or legal advice from my Internet comments; they are neither.
        ardoi 9y ago
        There's an EU startup that's trying to create a blockchain based market for shares of pre IPO startups: https://markets.funderbeam.com/market https://markets.funderbeam.com/market
      - sjg007 9y ago
        Lol.. good luck.
    - jacquesm 9y ago
      That is an exit of sorts.
  - s73ver 9y ago
    But there's also a much higher risk that your options will be dilluted to nothing.
- jacquesm 9y ago
  > if your company isn't one of the top companies of the decade GGP covered that option quite nicely. Those are companies that are clearly at the top companies of the decade, maybe even longer.
orthoganol 9y ago
> Joining a series B startup and waiting a couple years is the easiest, risk adjusted way to make a bunch of money. Sorry, what?
- ryandrake 9y ago
  I'm glad I'm not the only one who did a double-take at that statement. The key qualifier is "risk adjusted", but that's not really meaningful from the employee's standpoint: You can only bet on one company at a time. Imagine what kind of stock investments you'd make if you were only allowed to invest in one stock at a time. Let's say 10% of start-ups succeed to the point where employee 100 makes "a bunch of money", which I think is very generous. You would need to join 10 of these start-ups throughout your career (and of course remain at each for the 3-5 years it takes to learn if the lottery ticket pays off) to have an expectation of one case where you end up that bunch of money. So yea. Risk adjusted. While the EV might look good, the variance makes it a losing game.
  - feral 9y ago
    I'm not sure what you mean by 'expectation of one case' here, but just to clarify: rolling a ten-sided dice, 10 times, gives a 65% chance of rolling at least one 10. So you still have a 35% chance of zero 'wins'. I can't comment on the rest of your model, but its worth keeping in mind how the binomials shake out.
    - ryandrake 9y ago
      Ack, you're absolutely right. Don't know where I was going with the hypothetical example but my math was totally wrong.
      - waterhouse 9y ago
        Actually, your statement was entirely correct. "Let's say 10% of start-ups succeed ... You would need to join 10 of these start-ups ... to have an expectation of one case [of success]." It is a true statement that the expected number of successes after 10 tries would be 1. It is also a true statement that your chance of zero successes after 10 tries is 34.8%. (The balance comes from the outcomes that include multiple successes.) It may be that the latter is the more relevant and interesting statement to make, but your math was totally right. ;-)
wuliwong 9y ago
This is just an anecdotal account of your single experience, it isn't making a strong case for your general point.
jacquesm 9y ago
> but by series B a lot has been mitigated Or, the fact that a series B is needed is indicative that there was more risk than anticipated. Series B is not always good news (in general it is though, but there is still plenty of risk at that stage). So always verify what the reason for a funding round was and make sure that it was an 'up' round rather than a 'down' round.
caseysoftware 9y ago
Even post-B, the odds aren't good. They're better than pre-A obviously but it could still be 4-5 years and there are a ton of ways to f* it all up before then. I just wrote about this last week - https://medium.com/@CaseySoftware/tech-ipos-an-inside-out-view-a3b468efdbdf https://medium.com/@CaseySoftware/tech-ipos-an-inside-out-vi... - after personally experiencing IPOs of both Twilio (joined post-B) and Okta (joined post-F). Edit: Replaced the link to my site with the Medium post.
evancharles 9y ago
If this is easy for you, you should quit engineering and run a growth equity fund.
- austenallred 9y ago
  > If this is easy If what is easy? Making a few million in a few years is never easy, but I don't know of a better way to do that on a risk-adjusted than joining startups after product/market fit. And for what it's worth I don't build very much anymore, unfortunately
mbesto 9y ago
> It's really not hard to find a company with great product market fit, say series B, get a bunch of equity, a decent salary, and wait a couple years for your equity to be valuable. Still so many phony companies out there even at Series B. > I actually think, risk adjusted, that's the easiest way to make a bunch of money. It's really not. Risk-adjusted go work at Google for 10 years and you'll probably make more.
einarvollset 9y ago
Yes. However, you are basically making the argument that your options are worth ~50% salary. The problem with that argument (at least in the valley) is that you are making the calculation off the initial starting salary. Salary/RSU growth at companies like Google, FB, etc is surprisingly rapid in the first ~24 months, to the point where I would argue that if you haven't doubled it in that timeframe you need to work on your extrovert/self promotion skills
- austenallred 9y ago
  I only stayed 1 yr
mgummelt 9y ago
> and wait a couple years for your equity to be valuable Product-market fit does not imply appreciation. Growth is priced in. Unless you think you know more than the market (the VCs), you shouldn't expect a return.
- austenallred 9y ago
  Product market fit and further growth are generally pretty correlated, though
  - mgummelt 9y ago
    Yes, but growth and appreciation are (theoretically) not. Growth is priced in. You're saying product-market fit -> growth -> appreciation. The first part of that is true. The second isn't. Assuming market efficiency, the VCs know just as well as I do that the company is going to grow, so they'll pay a higher rate, which means my options will be priced higher (or I'll get fewer RSUs, accordingly). Growth does not imply appreciation.
    - austenallred 9y ago
      Assuming market efficiency at series B is quite a leap, IMO. That said, let's roll with that assumption; you need to find a company that continues to grow, or in some other way derisks itself.
      - mgummelt 9y ago
        This is like saying "To make money in the stock market, you have to find stocks that will go up." It's tautological.

bumbledraven 9y ago

> my [startup] equity was worth about 50% of my salary each year. The equity of many AmaGooFaceSoft employees is also worth at least 50% of their yearly salary.

austenallred 9y ago
Yes but that's if I were to sell it after ~1 year at a company you've likely never heard of. If I wait 3 more and there's a large exit it could easily be worth millions.
- bumbledraven 9y ago
  Do you have a convenient way to sell your startup equity after ~1 year? (i.e. before there's an exit)
  - austenallred 9y ago
    Not convenient, but definitely possible. Equidate is a fairly open market for that kind of thing.
  - JumpCrisscross 9y ago
    There is a developed secondary market for venture-backed companies' stock. (Source: I do this.)
    - AlexandrB 9y ago
      I thought private stock transactions were subject to board approval, or is that just Canada?
      - austenallred 9y ago
        Depends on the terms. In most startups board can only match the offer.
      - JumpCrisscross 9y ago
        It depends on the company. Some companies are quite liberal with transfers. If you have a bona fide offer, they'll amend the cap table. For others, my having a relationship with the founder or Board is critical. A good starting point for American companies is is their Certificate of Incorporation. If you exercised options, the Restricted Stock Purchase Agreement should also contain terms, e.g. the company's transfer policy or right of first refusal. I have never heard of a Canadian company looking to raise capital structuring itself under Canadian law. Commonly, you'd have a Canadian law subsidiary wholly owned by a Delaware corporation. Disclaimer: I am not a lawyer. Hire a lawyer before selling private stock. Do not take investment or legal advice from my Internet comments; they are neither.
      - ardoi 9y ago
        There's an EU startup that's trying to create a blockchain based market for shares of pre IPO startups: https://markets.funderbeam.com/market https://markets.funderbeam.com/market
    - sjg007 9y ago
      Lol.. good luck.
  - jacquesm 9y ago
    That is an exit of sorts.
- s73ver 9y ago
  But there's also a much higher risk that your options will be dilluted to nothing.
jacquesm 9y ago
> if your company isn't one of the top companies of the decade GGP covered that option quite nicely. Those are companies that are clearly at the top companies of the decade, maybe even longer.

orthoganol 9y ago

> Joining a series B startup and waiting a couple years is the easiest, risk adjusted way to make a bunch of money. Sorry, what?

ryandrake 9y ago
I'm glad I'm not the only one who did a double-take at that statement. The key qualifier is "risk adjusted", but that's not really meaningful from the employee's standpoint: You can only bet on one company at a time. Imagine what kind of stock investments you'd make if you were only allowed to invest in one stock at a time. Let's say 10% of start-ups succeed to the point where employee 100 makes "a bunch of money", which I think is very generous. You would need to join 10 of these start-ups throughout your career (and of course remain at each for the 3-5 years it takes to learn if the lottery ticket pays off) to have an expectation of one case where you end up that bunch of money. So yea. Risk adjusted. While the EV might look good, the variance makes it a losing game.
- feral 9y ago
  I'm not sure what you mean by 'expectation of one case' here, but just to clarify: rolling a ten-sided dice, 10 times, gives a 65% chance of rolling at least one 10. So you still have a 35% chance of zero 'wins'. I can't comment on the rest of your model, but its worth keeping in mind how the binomials shake out.
  - ryandrake 9y ago
    Ack, you're absolutely right. Don't know where I was going with the hypothetical example but my math was totally wrong.
    - waterhouse 9y ago
      Actually, your statement was entirely correct. "Let's say 10% of start-ups succeed ... You would need to join 10 of these start-ups ... to have an expectation of one case [of success]." It is a true statement that the expected number of successes after 10 tries would be 1. It is also a true statement that your chance of zero successes after 10 tries is 34.8%. (The balance comes from the outcomes that include multiple successes.) It may be that the latter is the more relevant and interesting statement to make, but your math was totally right. ;-)

wuliwong 9y ago

This is just an anecdotal account of your single experience, it isn't making a strong case for your general point.

jacquesm 9y ago

> but by series B a lot has been mitigated Or, the fact that a series B is needed is indicative that there was more risk than anticipated. Series B is not always good news (in general it is though, but there is still plenty of risk at that stage). So always verify what the reason for a funding round was and make sure that it was an 'up' round rather than a 'down' round.

caseysoftware 9y ago

Even post-B, the odds aren't good. They're better than pre-A obviously but it could still be 4-5 years and there are a ton of ways to f* it all up before then. I just wrote about this last week - https://medium.com/@CaseySoftware/tech-ipos-an-inside-out-view-a3b468efdbdf https://medium.com/@CaseySoftware/tech-ipos-an-inside-out-vi... - after personally experiencing IPOs of both Twilio (joined post-B) and Okta (joined post-F). Edit: Replaced the link to my site with the Medium post.

evancharles 9y ago

If this is easy for you, you should quit engineering and run a growth equity fund.

austenallred 9y ago
> If this is easy If what is easy? Making a few million in a few years is never easy, but I don't know of a better way to do that on a risk-adjusted than joining startups after product/market fit. And for what it's worth I don't build very much anymore, unfortunately

mbesto 9y ago

> It's really not hard to find a company with great product market fit, say series B, get a bunch of equity, a decent salary, and wait a couple years for your equity to be valuable. Still so many phony companies out there even at Series B. > I actually think, risk adjusted, that's the easiest way to make a bunch of money. It's really not. Risk-adjusted go work at Google for 10 years and you'll probably make more.

einarvollset 9y ago

Yes. However, you are basically making the argument that your options are worth ~50% salary. The problem with that argument (at least in the valley) is that you are making the calculation off the initial starting salary. Salary/RSU growth at companies like Google, FB, etc is surprisingly rapid in the first ~24 months, to the point where I would argue that if you haven't doubled it in that timeframe you need to work on your extrovert/self promotion skills

austenallred 9y ago
I only stayed 1 yr

mgummelt 9y ago

> and wait a couple years for your equity to be valuable Product-market fit does not imply appreciation. Growth is priced in. Unless you think you know more than the market (the VCs), you shouldn't expect a return.

austenallred 9y ago
Product market fit and further growth are generally pretty correlated, though
- mgummelt 9y ago
  Yes, but growth and appreciation are (theoretically) not. Growth is priced in. You're saying product-market fit -> growth -> appreciation. The first part of that is true. The second isn't. Assuming market efficiency, the VCs know just as well as I do that the company is going to grow, so they'll pay a higher rate, which means my options will be priced higher (or I'll get fewer RSUs, accordingly). Growth does not imply appreciation.
  - austenallred 9y ago
    Assuming market efficiency at series B is quite a leap, IMO. That said, let's roll with that assumption; you need to find a company that continues to grow, or in some other way derisks itself.
    - mgummelt 9y ago
      This is like saying "To make money in the stock market, you have to find stocks that will go up." It's tautological.