101 — Evaluation Of Rocketships and Racketships
Following on from Stage 1 — we dig into the stages of the company -
Rocketships — Your Slack is an example of this. Typically you will be kneeing fellow students in the gut for a chance to make eye contact with a recruiter. The huge crowd in and around their table at career fairs is a dead giveaway. Sometimes these rocket-ships are great for your brand and by virtue of being a rocketship — you will work with super awesome people. An example of this is AirBnB, Uber. Even if they were to spectacularly implode right now, you’d still be pretty well off.
Racketships — These companies continue their growth for a while on the hype machine. They raise a ton of venture dough but don’t really do much else. Look out for these and stay away. A dead giveaway is if they talk in Silicon Valley code and brag about how much money they have raised. So if they have a “truly disruptive sense of the market with a laser focus on a radical new market”, then brag about the validation that you get from 20 Million USD from a Private Equity firm, run. PE firms typically look at startup investing like loose change. Remember how you look at 1 cent coins? Kind of like a nuisance? Similar to how PEs view startup investing.
Blue chips — Your Google. Category leaders, industry leaders. Stable cash cows that will pay you, feed you and clothe you (Although you buy the jeans, pants are not giveaways). Also, you have little to no autonomy. Your leverage is also severely limited. For everyone who thinks they can do better the company has about 100 resumes and so they know they can, in fact, do much better. In any negotiation, they hold all the cards. For example — take a look at this good natured tactic.
The middle — There are companies that are in the middle — they have been around for about 3–7 years. They say they are in “growth” mode with “new” products. Do your due diligence and actually figure out what the company is up to. Every company has its own story. They meander, they learn, they thrive and they become awesome, or not. There is so much grey area here. You can find diametrically opposite companies who have taken on similar money from similarly branded VCs and are roughly in similar spaces. Here you have to let the evaluation criteria come through. Remember, as with all evaluation criteria — it is fairly arbitrary, I made it up and I am not a smart man. We’ll get to that model in the next edition.