What stage startup offers the best risk-reward tradeoff?

https://www.joinprospect.com/blog/which-stage-startup

by shsachdev • 2 years ago

2 3 2 years ago

quantified2• 2 years ago

Having worked at an a16z/NEA/Greylock venture from B round, a Sutter Hill venture from B round, and a 2nd-tier venture from B round, I can say it's all just lottery tickets. Only the 2nd tier paid out, there was no benefit measurable from "top-tier" VCs, they aren't any better at sniffing out bad management than anyone else.

1-in-20 odds from the article is better than 1:275MM odds from Powerball, but Powerball is a lot cheaper to play too.

sam-alt• 2 years ago

I think that the data in the article shows it's not just "all lottery tickets" - there's a meaningful difference between the odds depending on stage and "top tier" VC's do make a difference - just because your anecdotal experience doesn't align with the data doesn't mean the trend isn't there. Looks like the authors run a site where they highlight the best startups to join, and include other factors like headcount growth and traction so you're not just relying on VC pedigree.

quantified2• 2 years ago

The odds improve. What you want is the economic odds, ie was your exit worth it. If you are earning 50% less for having joined that early and stayed that long, did the payout for those 34.5% exceed 100% of your annual cash pay x 1.655? You need equity to function as a make-up bonus for the pay you forwent to work at the company, that's the 100%. The economic odds require enough payout per hit that the misses that give you zero are exceeded as well. Since 65.5% of the startups from top-tiers don't pay, you need to further bonus up by that amount to make up for the 1/3 odds to took.

The criteria used in the article are poor as well. Exited for more than invested is not useful. Investors get preferences, including exploding preferences. So "exited with a payout to the option-holding employees" really should be the test.

What stage startup offers the best risk-reward tradeoff?

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