I disagree - by the time a company is in series B (100m - 1B valuation) it is absolutely possible to take a calculated risk with a reasonable expectation to make money, and companies, especially nowadays, have still a big margin for growth at that stage. I know quite a few people who started as mid and made millions in company like Revolut, Checkout, Klarna, Spotify, Uber, Palantir…
@HeatherKurtz, Exactly. This comment thread apparently believes people joined those companies by random chance and ‘got lucky.’ The Dunning Krueger is a bit mind boggling.
Well, yes and no.
VCs and your average startup PM aren’t at all comparable. One invests a lot of money and evaluates startups for a living; they’re also in it for the long haul. One is evaluating equity as part of their overall job and work experience. So saying that VCs have a 50% hit-rate is like saying that you shouldn’t have a problem trading stocks because Warren Buffet has been successful – it ignores a lot of other factors.
Where I agree with you is that it’s not completely random – you can definitely look at pipeline, CAC, retention, and other business metrics to determine the health of the business. But beyond that, it is largely luck. Things change in a company and in the market all the time.
Hell, my last company had a semi-exit through a private investment where all vested shares got bought out for <$10, while all unvested shares remained eligible for a future exit. That left employees who joined early worse off than later employees, because they had more options worth potentially much less than their future value.
I think that’s what the top commenter meant, really. If you’re not senior management+, it’s not worth factoring equity into your financial planning. If it happens great, but don’t make it your retirement plan.
No, I’m saying that what VCs invest in is public information. So if a VC with a 50% hit rate invests in a startup, then anyone joining that startup shares the 50% likelihood of success. But you are also way overestimating VCs here. A VC has people to do dilligence for them, but they are fundamentally not on the ground level and rarely deeply comprehend the technology. PMs who have that experience can make even more informed choices using their backgrounds by selecting exclusively from the good eggs VCs have already chosen to invest in.
No, it actually is not.
I’m not sure that that has to do with what I said. You’re just describing a failed startup.
If you’re not factoring equity into your financial plan, then why the fuck are you working at a startup? The expectation is that the equity is going to become something meaningful. It’s just like any other investment with a high risk/reward function. Plenty of ways to account for that in financial planning, with expected value being a common one.
There are many reasons to work at startups. Yes, getting wealthy is a big reason but even if you closely study the business, there are countless reasons why the company doesn’t hit it big and the vast majority of startups fail or become “zombies”, which means they are self-sustaining businesses but not home runs for investors.
Equity can be interesting but equity sure as shit doesn’t pay our rent or mortgage.
Let’s say you join a Series A startup valued at $100M in their most recent round. A normal equity package for a senior product or engineering team member would probably be between .1-.25% of the company. It’s like you would see dilution from future raises but also probably get promotions and other grants for good performance.
If that company becomes a unicorn ($1B), your stock is worth $1-2.5M before taxes. If you exercise early, your tax basis is also much lower, and it’s likely you are paying capital gains instead of income taxes on it.
If it becomes Airbnb or some smash hit success, then your kid’s kids are still rich.
At my last role I had half a dozen mid-level people on my team who had been there since series A/B and were all multimillionaires.
That said, there are many futures were the company isn’t successful, where you leave without exercising, where liquidity never happens and a bunch of other futures where the equity doesn’t mean much to you.