Joining a Startup Is Like Early Stage Investing

The other day, I was at a lunch get-together with some Ex-Googlers to talk about early stage investing. On the bike ride home, a thought popped into my head: joining a startup is exactly like early stage investing — except you invest time, not money. And that raises the stakes.

In contrast to $$$, time spent on a job is non-fungible (a term that we love in crypto). While you can invest a fund’s capital in different ventures at the same time, you as an individual can only work one full-time job. If you take the wrong job, you’ll spend a chunk of your life doing something that doesn’t bring you closer to your career goals. In addition, you’ll lose out on the extra salary you could make in a more lucrative and comfortable corporate job. So, take the time to evaluate — as you would with any other decision where you’re putting thousands of dollars on the line.

Like an early-stage investor, you need to ask yourself some questions. I’m assuming that you’re in active talks with the company that you’re considering to join.

1. Is it a good team?

Any investor will tell you that they look at the team first and foremost. So much so, it’s almost a cliché. As someone evaluating the next step in their career, however, it’s a must-have. These are the people you’ll spend 50, 60, 100 hours a week with, possibly in a cramped office space. Talk to them before you commit. Are you sure you won’t go insane seeing and smelling them day in and out? Do you trust that they’re excellent at what they’re doing, know where they’re headed and that most if not all of their decisions make sense? Does the thought of being around the team excite you, because you’ll enjoy their jokes and you’ll learn a ton? Finally, does the team composition make sense — are they building a technical product but only have one freelance developer, or the other way round?

Check the founder’s credentials: have they founded companies before, and if yes, were they successful? If not, why, and can they explain to you what they learned? If you have mutual connections, talk to these people and get their feedback. Look at existing and past investors, and their reputation. Ask the founders for an informal chat with someone who invested in them, and get their opinion and reasoning for the investment. Reference checks shouldn’t be one-sided, and aren’t optional. You need to have backchannel information to make an informed decision.

2. Does it fit my portfolio?

As an investor, you’d ask yourself “does this company fit into my portfolio, and into where I want to go with my fund?”. You need to ask yourself if the role and company fit with your background and your career goals. Make sure you check the role requirements and responsibilities against the job title — are the two a match? And, are the requirements and responsibilities aligned with your interests and strengths? This is a personal assessment. Make sure you’re honest to yourself — just because the title sounds exciting doesn’t mean that that role is.

Also, try to get some insights into the financing of the startup. Which rounds (if at all) have they raised, what is their runway, and what are plans for the future? Are they in the clear for another 12 months or will they be running out of money in the next three weeks? Evaluate if you’re comfortable with the risk profile.

3. Is there a market opportunity, and is it big enough?

In order to make your time investment worth your while, you need to understand how big the company could grow potentially. Look at the company’s pitch deck, and look at the numbers. Do they make sense? If you don’t have a clue, ask someone who works in that industry and does. Try to evaluate the true size of the market opportunity, and how much of the market the company may be able to capture. Will the absolute numbers still be large, even if the captured % is small? Then, think about what that means for the potential future value of the company. There are tons of resources out there to help you figure this out.

4. Does the business model make sense?

This is related to the market opportunity, but it’s a more qualitative evaluation. In your opinion, can the proposed business model be successful? For a blockchain startup, get your hands on the whitepaper, read it, and read it again. Does it propose a novel solution to an existing problem, and is the reasoning sound? Is the reasoning backed up by published work on Github, and what’s the quality of the code? Check out the company’s narrative on Twitter and Medium to see if they are continuously working on refining their ideas and thesis. If something doesn’t click, ask the team and ask people who can help you figure it out. If the business model sounds fishy, it probably is.

5. Do I believe in the company’s mission, vision & values?

Now, this is more of a gut-feel thing, especially with start-ups that are building products in so-called frontier tech. Once you’ve done your research on the company and on the space that they’re in, you should have a good understanding of their vision for the future. Think about the specific goal that the company set itself (even if it’s in 10 years, or 50, or 100 years time): is it a goal worth pursuing? Reflect also on the values which the company subscribes to. Will you be happy to go to a meet-up or conference and say “I work for company X, and this is what we stand for”? And, more broadly — are you excited to go to industry events and meet people in the space or does the mere thought of spending time with people in the field make you want to run away?

6. Am I getting a good deal?

You’ve just crunched the numbers and made a qualitative evaluation, and you’re still excited. Now it’s time to talk. What is the deal that’s on the table? In an early stage startup, salary will most likely not be that exciting — equity is where it’s at. Given the numbers you just calculated and the equity they’re offering, try to get a sense of what your equity may be worth once it’s vested. At the time of vesting, will the value of the equity compensate you for foregone salary earnings? In that context, make sure to understand how the equity is vesting and what type of stock options you’re holding, and don’t forget about a potential tax burden. If that’s too complicated to wrap your head around, ask the company to walk you through it — they should be happy to do so, and they should make it clear that all they can offer as to any future value of your equity is a guess within a corridor of probability. Then, weigh the uncertainty of the value gains versus the size of the value gains and contrast them with you opportunity cost (likely four years in a corporate job). Don’t forget — you can always try to negotiate if the initial offer doesn’t put you into your green zone.

Now, it’s time to make a decision.

At this point, if someone walks up to you and asks you “So what’s happening with your job search?”, you should be able to explain your future role at the company, what the company wants to achieve, why the company will succeed at what they’re trying to do and why you’re personally excited to join them.

Granted, you’re not always in the situation where you can pick and choose where you want to work. Or the perfect opportunity doesn’t present itself. Then you need to make trade-offs and make sure you know what you’re trading. You may trade in greater alignment in values for a smaller economic upside, or the other way round. You may not believe 100% in the market opportunity, but the team is off the charts — so you go for it anyway. A lot of this is based on personal preference, your risk tolerance and on where you are in your life. The important thing is to be aware of those trade-offs when you make them.

For me personally, joining Centrifuge was a journey. I looked at all of these aspects in turn and then circled back to individual elements as I started to understand more about the opportunity. I love the team — not only are Maex, Martin, and Philip experienced founders who know their stuff, they are also great human beings with good values and broad interests. The same goes for Miguel, Lucas, Maya, Lea and Razvan. They’re incredibly good at their jobs and fun to be around. My role, Director of Operations and Special Projects (=“token stuff”), plays to my skillset, allows me to learn a ton and was what I was looking for in terms of career progression. I love our mission and vision, and subscribe to our values. The market opportunity we’re pursuing is huge and there’s a good chance for Centrifuge to become the blockchain-based system that will revolutionize how data is exchanged and services are executed across the financial supply chain. Finally, on a personal level, the deal made sense. That’s why I joined Centrifuge in March 2018 and I’m excited to be on board for the ride!

We’re hiring, of course. Check out our jobs page and read about our work on Medium!