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hn_neverguess | 3 years ago
But there are three caveats:
1. That last statement is only true because most of the people who start or join a startup don't see a material increase in the value of their equity. But a little known secret in the startup world is that you only have to be right once. It doesn't matter one tiny bit if your previous 5 startups failed, if the 6th one ends up finding the product market fit. My batting average is pretty poor, and even so I am way ahead of anyone I grew up with. You only have to be right once.
2. People think of startup success as this all or nothing thing, where you're either super poor or super rich. In reality, if you give it your best and do a decent job, even if you end up failing you'll be getting calls from people who you would have never met in any other way. For example, I failed with a startup about 10 years ago and ended up at Square only because of that exact same failure. There's no way in hell it would have happened any other way.
3. Most startups are run by first-time founders, and most first-time founders are still early in their learning process. A direct consequence of that is that they are cheap. But every once in a while you come across someone who's had one or two big exits, and I guarantee you that they are thinking differently about comp. In PG's words, Apple could have given Steve Jobs 95% of their equity to lure him back, and it still would have been a great deal for them. Experienced startup founders know that, and they have levers that FAANG doesn't. There are two senior people in my current startup that I poached directly out of FAANG.
Apocryphon|3 years ago
2. Sure, startups are a fine place to hone your talents, show your worth, and network. Same as any other type of workplace. Who's to say you wouldn't have met someone else at a big company who could've gotten you into Square?
3. For every serial entrepreneur who truly has a knack for it and truly learned along the way, there are those who are persisting in error. You're combining your first and second caveats here, describing the possibility of networking one's way into working for a quality experienced founder who will be your lottery ticket.
Nothing wrong with startups, but this is just another set of hoary old truisms more optimistic than the previous one.
hn_neverguess|3 years ago
Let's do the math. YC has had 378 exits out of 4314 investments [0], so roughly 9% so far. Most investments have been made recently enough that those companies are still baking, so let's double that number to 18%.
The only other number of you need is how likely you are to get into YC. Their overall acceptance rate is 1.75% per application[1], so if you apply three times with the same startup, you get to 5.25%. That figure includes literally everyone and their grandmother, so let's assume you're deciding between a startup and FAANG. Well, FAANG's acceptance in late stages of interviews is around 15% [2], so your YC acceptance chances are around 33%.
Combine 33% and 18%, and you get 6% per lifecycle of a startup. If you try that with four startups, you're at 24%.
Is 24% a good deal? Well, it depends on the upside and the opportunity cost. Let's assume it took you 16 years to build 4 failed startups. In that time period, you could have earned around $5m at FAANG ($300k/year). Of course, things could have also gone wrong (bad manager, your screwed up, layoffs), so let's peg that chance at 80%, which gives the opportunity cost of $4m.
The average YC exit is $24m (not taking into account the whales, which ballooned the overall YC portfolio to over $300B) - the $24m seems like a pretty conservative take [3]. That yields almost $6m upside, not including dilution. Hard to guess what the average dilution is, but I bet you it's higher than 33%, which would have been the breakeven point. Darn it, startups suck! :)
[0] https://www.cbinsights.com/investor/y-combinator
[1] https://www.ycombinator.com/investors
[2] https://www.teamblind.com/post/Whats-fangs-interview-selecti...
[3] https://www.shawnngtq.com/projects/y-combinator-startups-ana....
scarface74|3 years ago
So for me personally, I don’t have time to risk on startups when I can be certain that my RSUs will be worth something when they vest and I can sell them and diversify. Even if they are down 25% year to date.
On the other hand, I mentored an intern last year, who got a return offer of $150K and can live anywhere in the US - right now he is staying at home rent free. This already puts him in the top 10% of income earners in the US.
In three years, he can be making $250k- $275K. Three years after that, he can be making close to $400K-$500K. But he will need to switch from an IC if he doesn’t want to switch from consulting.
Because of the time value of money, it makes much more sense to make as much money as possible while he is younger and avoid startups like the plague unless they can offer as much in cash as he is getting in cash+RSUs.
You are looking at things from the founders side. I am looking at things from the employee’s end. It’s your company. You should be passionate it about. From our end it’s a job.
As far as finding “product market fit”, how often has a company found product market fit, and a larger more profitable company came in, put a department on duplicating the effort and crushed the upstart?
We saw it in the 90s with Microsoft and we see it today with Facebook. Even Netflix isn’t immune. It’s being outcompeted by Warner Bros and Disney.
Everyone likes to point to Apple and Amazon. But they are the exception not the rule.