Do you see the risk of joining a new startup?

TLDR: Startups have really crappy risk reward ratios. Conventional wisdom has always been to only do a startup if it would kill you not to work on an idea. Brian Chesky (co-founder of Airbnb) asked prospective employees — “ if you had one year to live is this what you would be doing” and that’s kind of the point. If you’re doing a startup for the expected returns there are a 100 better things you could be doing with your time.

Investing your money in Startups is for people with tons of money

If you have a few 10s or 100s of Millions of Dollars ($$$) then yes startups can be a great investment. Invest a few thousand dollars in a few hundred startups. $100k for 1% of 100 startups with the prospect of 1 being Google and waiting till IPO has a risk reward ratio of 10:1 (you will make $10 for every $ you invest).

Assumptions:

1. You are can find a 100 companies that look like Google at seed stage
2. You know how to spot companies that look like Google
3. You don’t pass on Google when you meet them
4. Google IPO’d at $23B, you invested in a seed round for $100k and got 1%. You saw 50% dilution along the way
5. You have $10M to invest. You’re okay never seeing any of it back

Employees should not invest their time at startups

Most folks who do not have money have time. If you have skill on top of it, that’s almost as good as money to someone else. This is why early employees get rewarded in equity. Now 1% of Google for an early engineer makes a ton of sense. But what about the other 99 companies where engineers got 1% that never saw a dime from it.

Startups pay less money than traditional companies and even more so if you account for time and stress. Working at a larger company teaches you a lot more, keeps you sane, well fed and allows you to be a normal well adjusted member of society.

Don’t work at a startup! Work at a larger company. Learn stuff. Save money. Invest in Mutual Funds. Don’t gamble it all away.

So who should be an early stage employee?

Now having said all of this, I still have a job to do; recruiting world class engineers to come and join NanoNets. So in which case should you join a startup:

1. If the money is much better than what you could make elsewhere. This is true in a variety of cases. If the market is over flowing with money, large traditional companies will not be able to compete. Or in case there is some crazy arbitrage at play (raising money in the United States, spending it in India is one example). Most startups pay 10–15% below market on average.
2. If the company is growing like crazy. Sam Altman has written a great piece on this https://angel.co/newsletters/why-join-a-company-that-s-scaling-up-121917. You’re less likely to get 1% equity in this case, but the experience will be invaluable.

3. If you know something that other people don’t. Think of this as an investment, but an investment where you think there is a huge knowledge gap and you know for sure this startup is going to be the next Google. Are you willing to mortgage your house and bet everything on this company killing it? because you literally are.

4. You desperately care about the problem being solved. You travel 100 days a year and can never find cheap accommodation and you really want to join a nomadic tribe. Airbnb make perfect sense for you.

5. If the company is a late stage startup. If you’re joining Uber or Pinterest today, you’re not joining an early stage startup you’re joining a large company that has not gone public yet. The risk reward here doesn’t apply.

As a founder here is the checklist to make sure you’re not screwing people over

1. The person knows wtf she is doing. Startups suck for people who are inexperienced and don’t know how to get the job done. Nobody at a startup has time for constant mentoring. Because if you’re mentoring someone for 2 hours a day 2 people are not doing their actual job for 2 hours a day. You’re going to have a rudderless employee with 0 personal growth. If they are not the reason your startup fails, you as a founder have most certainly failed them.

2. They are in it for the journey not the reward. If solving the problem is their reward then it’s a win win.

3. Their compensation outside stock is sufficient. If someone has a mortgage, a family of 4 dependents and is barely getting by in the hopes of a big payout, be careful about what you’re getting yourself into.

4. Someone is NOT in a startup for the sake of being in a startup. If you see someone doing it for the flexy work hours, cat spas, bean bags and soy lattes then you’re really setting expectations up incorrectly.

5. You absolutely can’t find anybody else with their skillset. You know you’re doing something wrong but you have no choice, it’s do this or die. Then do it but be 100% transparent with all parties involved.

In summary there has to be something really wrong for someone to work at a startup. Don’t ever work for or hire someone in a startup context until you know what it is.