Tweet by Dhruv Vasishtha
Here’s the uncomfortable truth no one wants to say out loud to startup employees: 90% of the time, joining a startup is not a good economic decision.
The outcome will likely be zero, if it’s >0 you will be paid out last, and own a fraction of a fraction of the business. But…
Your job as a startup employee is to do two things when choosing a company:
- Pick one that is solidly derisked or appropriately compensates you for the risk you’re going to take
- Pick one that provides you sufficient non economic value in areas like growth, impact, or learning
A few ways to vet a de-risked startup:
- High caliber founders (top 10%)
- High caliber coworkers (top 10-20%)
- Product market fit
- Pathway to grow at minimum 50%+ YoY
- >18 months runway
- Clean terms from investors
The above = your equity has a chance to be worth something
A more direct way would be to value the business 8-12X next twelve months revenue if it's growing >50% YoY.
--> Ask for what ownership your shares = on a fully diluted basis
--> If the # > the amount raised, determine how much your equity is worth minus exercise costs and taxes
A couple of ways to evaluate if a startup will allow personal growth:
- The team has well defined scope for roles and structured thinking around when / why someone’s scope should expand to support the business
- Expanded scope is high priority and relevant to the business
Ways to evaluate if a startup will enable learning:
- emphasis on customer impact and outcomes —> have a strong QBR process to show customer roi
- maniacal focus on tracking business health metrics
- team has domain expertise@+ high potential folks who punch above their weight
I hope more startup operators have honest conversations about what their teams will get out of joining the@.
For better or worse there’s a disincentive for most investors and founders to have these discussions but the transparency will lead to better aligned / operating teams.
Or just do smart employee friendly things to attract top talent:
- be generous with equity
- pay market rates
- don’t overhire and instead coach up existing folks
- increase exercise windows
- offer early exercise
- focus on margin and path to profitability / shareholder value