One of the benefits of working at a startup is that you receive equity in a company that has a low present valuation which implies the possibility of a high multiple exit. If you join Google at a $2 trillion market cap, the chance they grow 10x to $20 trillion is essentially zero. If you join an early stage startup valued at $5million, there is a greater shot they can 100x.
Common advice in the industry is that you should treat equity in early stage startups as a lottery ticket. While true that the chance of a large outcome is small, the comparison is superficial. You should think of it as a targeted bet into non-public, high variance asset. Startups are how people get rich now.
Other than VCs, only founders and employees have direct access to the investment class of startup equity. Most VCs will never be allowed to invest in the most promising of startups, but those same startups will happily hand substantial equity to a 20-something engineer. In this way, you’re getting access to a unique opportunity.
Approach startup interviews as a venture capitalist evaluating potential investments. Assess founders carefully: ensure they seem competent, intelligent, candid, and understand the market. Trust your instincts; if something feels off, probe deeper or pass.
Do your due diligence. You have every right to ask about revenue, customers, and problems the company faces or may face. Talk to employees about why they joined and how its going. Maybe even find out if there are some former employees you can talk to. Do your own research about the market and try to understand how the company is positioned.
Unlike passive investments, startup roles allow direct influence on outcomes. In the early stages of a startup, small, critical wins like landing key customers or shipping vital features can determine success or failure. Effort often trumps exceptional talent.
Moreover, smaller teams mean your voice carries substantial weight. It’s much easier to get alignment on changing things at a 10 person startup than at a large company. Early employees build rapport with founders and key stakeholders. They will respect your input when key questions about the company’s direction come up.
If you’re offered a seat on a rocket ship, don’t ask what seat. Just get on.
- Sheryl Sandberg
Throughout your career, you will have the opportunity to work at multiple startups. It’s reasonable to analogize the equity you earn at each to building a stock portfolio. But startups outcomes are more binary; either the company soars or goes to zero. There are very few medium-sized outcomes.
Though due diligence is crucial initially, internal visibility after joining a company provides clearer signals about its trajectory. Dysfunction and stagnation are noticeable, and leaving is always an option. On the other hand, you can really tell when things are going well.
Genuine product market fit is unmistakeable. You have access to the metrics of how the company is doing at an even deeper level than what is presented to investors. And once you find early success, it snowballs.
If you’re lucky enough to find a company like that, enjoy the ride.