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(2) As a very early employee in a hugely successful startup. But this is roulette, since most startups fail and some only succeed after so much dilution that yo

(2) As a very early employee in a hugely successful startup. But this is roulette, since most startups fail and some only succeed after so much dilution that your share ends up tiny. This is a very poor way of describing the risk / upside of joining a startup. In the aggregate, the odds of any randomly selected startup may present odds similar to roulette, but practically, you have the ability to choose who you work with and which company you work on. Given the ability to be selective, you can dramatically increase your odds of a successful outcome, assuming that you have the skill set to a) identify / evaluate market opportunity / team capabilities and b) utilize your technical ability to add significant incremental value to the company. The early team at PayPal did not have a 1/48 chance of success; it was probably closer to 1/10. Edit - (Not actually 1/10, but significantly higher odds than those of a startup selected at random) Odds were chosen to correspond to the given example of roulette.

wuliwong 12y ago
I would say that being a developer on average doesn't give any special ability to evaluate the probability of success of an early stage startup. And if you don't have an special ability to evaluate the probability of success, 1/48 is probably generous.
wlesieutre 12y ago
Roulette players also have the ability to be selective. You just put your money on the number/color that is going to be successful, and then you have much better odds than someone who didn't put money on the one that will be successful.
- Plough_Jogger 12y ago
  'The number/color that is going to be successful' In roulette, there is no competitive advantage between specific numbers or colors. In startups, that is not the case.
UK-AL 12y ago
If you can predict company success, why would you be a developer? Technical prowess, does not actually mean company success. Some really successful companies, have had some really bad software practices. And companies with really good developers have failed.
- Plough_Jogger 12y ago
  I'm talking about being able to accurately assess the comparative chances of success between two (or many) startups, not to accurately predict the chances of a single startup's success. This is something that many talented developers do. Technical prowess does not mean company success, but if you are able to identify a company that with significantly higher comparative odds of success, in which your technical prowess can directly impact the success of the product, you are in a much better position to achieve a positive outcome than if you had joined a company at random where your talent didn't have significant incremental value-add. With regard to your prowess adding significant value-add, I think it is easiest to give a counter-example / example. SnapChat's success likely doesn't ultimately lie in their ability to create beautiful HTML5 landing pages for their app on the web, so their front-end web developers likely don't add huge incremental value. Conversely, Google's success largely hinged on their ability to return highly relevant search results with great speed, so early developers with talents in these fields had a much larger impact on the eventual success of the company. - This is the kind of situation you should aim to find.
api 12y ago
You're right, and I hit on that at the end. Problem is twofold: (1) You get the most by being a very early employee -- like #1 - #5. It's a hockey stick distribution here. The later you get in, the exponentially lower your stake will be. (2) The most successful startups are outliers. Getting in that early means you do not have a large team or a long track record to look at when making your decision. The big bucks will come from the coffee shop hobo or ramen-snarfing grad student outfit with 1-3 full time people (all founders), barely any capital, and no track record. People will laugh at you and they're probably right. Probably. But if they're wrong, you will laugh more later. If it has success written all over it, it will look "hot" and "cool." That means there will be a ton of competition for those early positions. You will be edged out by someone with a Magna Cum Smartypants degree from an Ivy League school. It's also probably going to be so capitalized (since it looks "hot") that they'll just skimp on the equity and pay more, which invalidates the thesis here and makes it just a regular job from a purely financial risk/reward perspective. (It still might be worth taking for the experience and fun factor.) That's why if this is the strategy you want to take you are more or less doing what seed stage angels do. You are looking for feral unicorns that poop unpolished diamonds. If everyone else thinks it's a good investment too, the market will behave "efficiently" and you will not get rich. The market doesn't "want" you or anyone else to be rich. Rich people are outliers. Google and Facebook are great examples by the way. They both looked stupid: "another search engine?" and "so it's like MySpace and Friendster but with no capital and some Harvard dropout nozzle running it?" Edit: the reason your equity/stake drops off exponentially the later you get in is precisely because of the stupid unicorn factor. Really early stage companies have to offer you a fatter option package because you're an idiot to work for them and they know it. There is no other way they can compete for talent. If they're successful, those options turn out to be very expensive -- they come out of the founder's equity pool.
- chrisbennet 12y ago
  "You are looking for feral unicorns that poop unpolished diamonds." You made my day.

wuliwong 12y ago

I would say that being a developer on average doesn't give any special ability to evaluate the probability of success of an early stage startup. And if you don't have an special ability to evaluate the probability of success, 1/48 is probably generous.

wlesieutre 12y ago

Roulette players also have the ability to be selective. You just put your money on the number/color that is going to be successful, and then you have much better odds than someone who didn't put money on the one that will be successful.

Plough_Jogger 12y ago
'The number/color that is going to be successful' In roulette, there is no competitive advantage between specific numbers or colors. In startups, that is not the case.

UK-AL 12y ago

If you can predict company success, why would you be a developer? Technical prowess, does not actually mean company success. Some really successful companies, have had some really bad software practices. And companies with really good developers have failed.

Plough_Jogger 12y ago
I'm talking about being able to accurately assess the comparative chances of success between two (or many) startups, not to accurately predict the chances of a single startup's success. This is something that many talented developers do. Technical prowess does not mean company success, but if you are able to identify a company that with significantly higher comparative odds of success, in which your technical prowess can directly impact the success of the product, you are in a much better position to achieve a positive outcome than if you had joined a company at random where your talent didn't have significant incremental value-add. With regard to your prowess adding significant value-add, I think it is easiest to give a counter-example / example. SnapChat's success likely doesn't ultimately lie in their ability to create beautiful HTML5 landing pages for their app on the web, so their front-end web developers likely don't add huge incremental value. Conversely, Google's success largely hinged on their ability to return highly relevant search results with great speed, so early developers with talents in these fields had a much larger impact on the eventual success of the company. - This is the kind of situation you should aim to find.

api 12y ago

You're right, and I hit on that at the end. Problem is twofold: (1) You get the most by being a very early employee -- like #1 - #5. It's a hockey stick distribution here. The later you get in, the exponentially lower your stake will be. (2) The most successful startups are outliers. Getting in that early means you do not have a large team or a long track record to look at when making your decision. The big bucks will come from the coffee shop hobo or ramen-snarfing grad student outfit with 1-3 full time people (all founders), barely any capital, and no track record. People will laugh at you and they're probably right. Probably. But if they're wrong, you will laugh more later. If it has success written all over it, it will look "hot" and "cool." That means there will be a ton of competition for those early positions. You will be edged out by someone with a Magna Cum Smartypants degree from an Ivy League school. It's also probably going to be so capitalized (since it looks "hot") that they'll just skimp on the equity and pay more, which invalidates the thesis here and makes it just a regular job from a purely financial risk/reward perspective. (It still might be worth taking for the experience and fun factor.) That's why if this is the strategy you want to take you are more or less doing what seed stage angels do. You are looking for feral unicorns that poop unpolished diamonds. If everyone else thinks it's a good investment too, the market will behave "efficiently" and you will not get rich. The market doesn't "want" you or anyone else to be rich. Rich people are outliers. Google and Facebook are great examples by the way. They both looked stupid: "another search engine?" and "so it's like MySpace and Friendster but with no capital and some Harvard dropout nozzle running it?" Edit: the reason your equity/stake drops off exponentially the later you get in is precisely because of the stupid unicorn factor. Really early stage companies have to offer you a fatter option package because you're an idiot to work for them and they know it. There is no other way they can compete for talent. If they're successful, those options turn out to be very expensive -- they come out of the founder's equity pool.

chrisbennet 12y ago
"You are looking for feral unicorns that poop unpolished diamonds." You made my day.