The worst time to join a startup is right after it gets initial VC financing(cdixon.org)
cdixon.org
The worst time to join a startup is right after it gets initial VC financing
http://www.cdixon.org/?p=363
16 comments
Depends on if you want equity or not. If you are consultant, the absolute best time to join a startup is after they get funding. It means low risk of bounced checks. Several very bad mistakes consulting for prefunded startups leads me to this conclusion.
Exactly. The VCs would expect the startup to spend the capital on growing the business quickly, and if that means hiring consultants and paying them a top rate then so be it. In fact, the startup would get in trouble with their financiers if they didn't do it.
I am certainly no expert, but this doesn't seem surprising for three reasons.
- Significant investment means significant external validation for the company's chances of success. It also theoretically raises its chances of success. it isn't some idea that nobody would fund.
- Before investment the company is comprised of some work that has been done & some ideas. After investment, the company is more work and money. It's bigger.
- They can afford to pay salaries.
Can someone explain why this post doesn't just mean penny stocks are better the blue chips?
- Significant investment means significant external validation for the company's chances of success. It also theoretically raises its chances of success. it isn't some idea that nobody would fund.
- Before investment the company is comprised of some work that has been done & some ideas. After investment, the company is more work and money. It's bigger.
- They can afford to pay salaries.
Can someone explain why this post doesn't just mean penny stocks are better the blue chips?
Exactly, because of those 3 points above the new employee also takes on significantly less risk in comparison to joining pre-Series A. It's very logical and I don't really get what the OP was trying to explain.
That the risk is systematically undervalued post-Series A; funding isn't magic. If you join the same company the day before a term sheet turns up, you do a lot better financially, and it's the same idea, team, market risk. If they're OK then the odds of getting funded are decent; if they're not, being funded won't save you...
If you buy stock the day before it goes up...
But we're not talking about stock: we're talking about whether to take a job or not. When you invest your time in a small company, you're making the same decisions as you were the day before Series A; does the product work? Can the team I'm joining deliver? Is there a market?
VCs have more experience, so, sure, their judgement is worth considering, but I'd want to trust my own intuition too...
VCs have more experience, so, sure, their judgement is worth considering, but I'd want to trust my own intuition too...
Sure, but don't discount the fact that having the VC money is a non-trivial component of the company's success in many cases. So it's not just "is this a good team/business" but also "is this a good team/business and do they have enough runway to reach profitability?" The VC money doesn't change the first half of that equation, but it changes the second half.
In other words: would you join an awesome team that's about to run out of cash? How about joining an awesome team with an 18 month runway? The answers to those are going to be very different.
In other words: would you join an awesome team that's about to run out of cash? How about joining an awesome team with an 18 month runway? The answers to those are going to be very different.
Sure, that's absolutely true; am there, doing that, hoping for the T-shirt.
All these things get set up as dichotomies when they aren't. All I'm really meaning is that "oh, they've got funded" feels like a pretty limiting way of deciding whether you think a startup will be be a winner or not, compared to meeting with your potential colleagues and kicking the tyres yourself - and the premium you get for guessing right if you throw in with the pre-Series-A team is actually pretty big.
All these things get set up as dichotomies when they aren't. All I'm really meaning is that "oh, they've got funded" feels like a pretty limiting way of deciding whether you think a startup will be be a winner or not, compared to meeting with your potential colleagues and kicking the tyres yourself - and the premium you get for guessing right if you throw in with the pre-Series-A team is actually pretty big.
When a stock goes up in price, nothing has changed. It's still the same company. Information you get has changed, sometime just via the price.
OP's point was that if your objective is an IPO cash-out, right after series-A is the worst time to join. If your objective is an interesting, reasonably salaried job in a fascinating businessenvironment it seems to be the very best time to join.
That's a good point - I was assuming that you'd get under-market salary with extra compensation as equity. If you're just getting fair market salary then the company with more money in the bank's always going to look more attractive, all else being equal.
"This is pretty much the opposite of Wall Street’s compensation schemes. To me, as a principle, that means it’s probably a good idea.."
priceless
priceless
Uh, one word: paycheck.
I just joined a startup that recently received funding (although not in the 2M range). If they hadn't received some venture capital I don't know if I would have been up for the risk, I've got a family to take care of :-) Obviously there's still risk involved, but feeling pretty confident that my paychecks are going to clear is good.
I read previously (on here) that pre-money engineers tend to get shafted. Would somebody in the know please opine?