Chapter 12: Optimizing the Company You Work At
Working for Venture Capitol Funded Companies
Why don’t people investing for their retirement pick a “hot” stock and put all of their money into it? The reason is that most people don’t want to gamble with their life savings. They would prefer to have a diversified retirement plan that invests in many companies. Venture Capital works the same way. They don’t spend all of their time and money into one company, that bet on many companies knowing that of the hundreds they invest in one will be a wild success.
What does this mean for an individual employee of a Venture Capital funded company? The probability of success is very low. One way to look at the opportunity is to look at the expected value. Around 90% of startups fail according to Fortune. Further, it assumed that the probability of a VC startup being a unicorn is one percent. Let’s assume that you get one percent of a company as an early employee. Let’s also assume a one billion dollar exit for a startup. The expected value is quite depressing.
- Probability of Unicorn (One Percent): 0.01
- One Billion Exit: $1,000,000,000.00
- Options (One Percent): 0.01
- Expected Value of One Percent Equity in VC Startup: $100,000.00
VC the VC
If the expected value of working for a startup is $100,000.00, why would you work 100 hours a week for a VC funded company? Instead, it would be much better to do what the VC is doing. Work 40 hours a week and figure out how to make an extra $25,000 per year over four years through a combination of consulting and “green money.”
The typical VC has zero skin in the game. How much skin in the game is required to invest other people’s money.? They are not spending 100 hours a week working at one company, you are! Why risk your physical and mental health for a trivial sum of money? Instead, diversify your risk. You can “VC the VC” by doing what they are doing back to them. Derisk your investment in working at a VC funded company by figuring out how to do consulting or sell products to a massive portfolio of VC funded companies while you work at one.