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As someone else said, as an employee my goals align better with investors than with bootstrap founders. I want good salary and equity that will grow rapidly in

As someone else said, as an employee my goals align better with investors than with bootstrap founders. I want good salary and equity that will grow rapidly in value and be liquid in reasonable time. I also want some reasonable measure that my equity is in fact growing in value. Even if the company doesn't go liquid in reasonable time with outside investors the chance of them being able to buy my stake at fair market value is decent.

winphone1974 6y ago
IME you're not getting equity but options, which have no ownership or value, no market and restrictions on transfer, exercise and lifespan. No one is going to buy you out in the future, so if there company doesn't make it big they have no value. Established, profitable companies can do profit sharing or use a shadow equity plan that actually rewards you in an ongoing basis. YMMV
robocat 6y ago
> as an employee my goals align better with investors than with bootstrap founders. If you are a gambler, VC equity is best. If you want to maximise your expected returns, equity in a bootstrapped company is better IMHO. VCs have their risks spread across multiple investments, where you will only be able to work for a limited number of companies before burnout or ageism hits you (if you don’t win a D10 die roll). Also VCs get liquidation preferences. Finally, when younger we undervalue money in our wallet and the value of our own time: $200k at 20 (if invested) is often worth a lot more to you than $x at middle age; and as you get older you tend to start valuing your vacation time very highly! Work through the numbers for your time investment (time is your pot because we all only have x years) using the Kelly Criterion[1] and you will be surprised to see what drops out as the optimal strategy. I would be interested to see a Monte Carlo simulation of outcomes where we can choose different strategies. Edit: many people seem to be chasing money and joining the cult of startup to achieve high status. If you care about status, there are far more optimal paths than chasing a big equity payout. One thing I notice as I get older is that money is a very poor proxy for status, and that you tend to find your peer group earns about the same regardless of earnings, so chasing $ for status is loser’s race. Disclaimer: I just want to not work if I don’t have to and to be able to spend my time on my own goals. That requires enough $ for a nice house, some fun, and a comfortable retirement - and it appears I have got that via being a cofounder of a bootstrapped company. Edit 2: The IRS would have the stats on actual returns for startup employees over the whole sample population. That would be fascinating to know! [1] https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion
- marcinzm 6y ago
  If you want expected returns then I'd argue that FAANG (or late stage startups) makes a lot more sense than a bootstrapped company. Same guaranteed monetary outcome, they're likely to pay much better and look much better on your resume. Startups offer higher potential return for lower average return than FAANG. Bootstrapped companies, unless you're a founder, offer neither. edit: This is explicitly about employees at these companies rather than founders.
  - robocat 6y ago
    I strongly agree. People joining or founding a startup business also tend to extremely overestimate their ability to pick a winner. You have to be smarter or luckier than a VC. The point of a bootstrapped business is to be making enough money within a short period to know you can pay fair wages. Derisking. If a business isn’t paying wages and doesn’t take VC money, then it shouldn’t be called bootstrapped, it is still a startup (with sweat equity and opportunity costs instead of VC). Also it has been my experience that successful bootstrapped businesses are usually started by people that have worked in an industry, then founded a new business starting with the best people they had worked with. That is a good strategy. Edit: https://hbr.org/2018/07/research-the-average-age-of-a-successful-startup-founder-is-45 https://hbr.org/2018/07/research-the-average-age-of-a-succes... In my experience in Christchurch New Zealand, watching founders and first employees for startups that have taken VC cash, the expected return on equity is very low for them. I see massive winners’ bias in most thinking and media. Getting in to YC validates something that an individual cannot easily determine: what are my own chances of winning the startup lottery? If YC picks you, that is a strong signal that you have the right skills. The signal is extremely noisy though (fail after accepted, succeed although rejected). Edit: anecdotally I saw a young founder with what I thought was a good bootstrap opportunity in NZ get accepted into YC where he promptly crashed due to lack of knowledge of the US market and culture.
triceratops 6y ago
Bootstrapped companies can do profit-sharing though. They don't necessarily have to pay less money.

winphone1974 6y ago

IME you're not getting equity but options, which have no ownership or value, no market and restrictions on transfer, exercise and lifespan. No one is going to buy you out in the future, so if there company doesn't make it big they have no value. Established, profitable companies can do profit sharing or use a shadow equity plan that actually rewards you in an ongoing basis. YMMV

robocat 6y ago

> as an employee my goals align better with investors than with bootstrap founders. If you are a gambler, VC equity is best. If you want to maximise your expected returns, equity in a bootstrapped company is better IMHO. VCs have their risks spread across multiple investments, where you will only be able to work for a limited number of companies before burnout or ageism hits you (if you don’t win a D10 die roll). Also VCs get liquidation preferences. Finally, when younger we undervalue money in our wallet and the value of our own time: $200k at 20 (if invested) is often worth a lot more to you than $x at middle age; and as you get older you tend to start valuing your vacation time very highly! Work through the numbers for your time investment (time is your pot because we all only have x years) using the Kelly Criterion[1] and you will be surprised to see what drops out as the optimal strategy. I would be interested to see a Monte Carlo simulation of outcomes where we can choose different strategies. Edit: many people seem to be chasing money and joining the cult of startup to achieve high status. If you care about status, there are far more optimal paths than chasing a big equity payout. One thing I notice as I get older is that money is a very poor proxy for status, and that you tend to find your peer group earns about the same regardless of earnings, so chasing $ for status is loser’s race. Disclaimer: I just want to not work if I don’t have to and to be able to spend my time on my own goals. That requires enough $ for a nice house, some fun, and a comfortable retirement - and it appears I have got that via being a cofounder of a bootstrapped company. Edit 2: The IRS would have the stats on actual returns for startup employees over the whole sample population. That would be fascinating to know! [1] https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion

marcinzm 6y ago
If you want expected returns then I'd argue that FAANG (or late stage startups) makes a lot more sense than a bootstrapped company. Same guaranteed monetary outcome, they're likely to pay much better and look much better on your resume. Startups offer higher potential return for lower average return than FAANG. Bootstrapped companies, unless you're a founder, offer neither. edit: This is explicitly about employees at these companies rather than founders.
- robocat 6y ago
  I strongly agree. People joining or founding a startup business also tend to extremely overestimate their ability to pick a winner. You have to be smarter or luckier than a VC. The point of a bootstrapped business is to be making enough money within a short period to know you can pay fair wages. Derisking. If a business isn’t paying wages and doesn’t take VC money, then it shouldn’t be called bootstrapped, it is still a startup (with sweat equity and opportunity costs instead of VC). Also it has been my experience that successful bootstrapped businesses are usually started by people that have worked in an industry, then founded a new business starting with the best people they had worked with. That is a good strategy. Edit: https://hbr.org/2018/07/research-the-average-age-of-a-successful-startup-founder-is-45 https://hbr.org/2018/07/research-the-average-age-of-a-succes... In my experience in Christchurch New Zealand, watching founders and first employees for startups that have taken VC cash, the expected return on equity is very low for them. I see massive winners’ bias in most thinking and media. Getting in to YC validates something that an individual cannot easily determine: what are my own chances of winning the startup lottery? If YC picks you, that is a strong signal that you have the right skills. The signal is extremely noisy though (fail after accepted, succeed although rejected). Edit: anecdotally I saw a young founder with what I thought was a good bootstrap opportunity in NZ get accepted into YC where he promptly crashed due to lack of knowledge of the US market and culture.

triceratops 6y ago

Bootstrapped companies can do profit-sharing though. They don't necessarily have to pay less money.