Stock options in startups that are external, but under their control
Large tech companies have figured out a new compensation model to incentivize their most productive employees: stock options in startups that are external, but under their control.
Compensation is not structured consistently in the tech industry.
Startup employees, especially founders, earn a base cash salary but the vast majority of their compensation, in upside cases, comes through equity. The most successful startups employees can earn many millions of dollars or more if their company has a big exit. It’s pay for performance.
In many cases it's not just worth less—it's worth 0
Many founders and employees don’t realize what the startup downturn means for their equity. In many cases it’s not just worth less–it’s worth 0.
The crash in startup valuations in the last 24 months is difficult to overstate. In the space I know best, ecommerce, average revenue multiples peaked at ~5x. Today, the new normal is 0.5-1x–down 80-90%.
But it’s not just ecommerce. Recently, Bessemer estimated that SaaS multiples are down 75% from peak. Fintech multiples are down from 19x revenue to ~5x now, also down 75%. Multiples for marketplaces businesses like Fiverr or Etsy are down from 10x to 2x, or 80%.
Of hundreds of public VC-backed companies founded in the last 15 years, only one is meaningfully profitable
Do you know how many public VC-backed companies founded in the US in the last 15 years are meaningfully profitable? One.
Here’s a list of some of the most prominent venture-backed companies which went public in the last few years, along with the net income of each company in 2022:
Doordash (food delivery): –$1.36b
Uber (ridesharing): –$9.14b
Snowflake (cloud computing): –$796mm
Roblox (online gaming): –$924mm
Palantir (big data analytics): –$373mm
Coinbase (crypto exchange): –$2.62b
Rivian (electric vehicles): –$6.75b
Crowdstrike (cybersecurity): –$183mm
Draftkings (sports betting): –$1.38b
Peloton (home fitness): –$2.83b
Datadog (cloud monitoring): –$50mm
Robinhood (stock trading): –$1.03b
Pinterest (social network): –$96mm
Beyond Meat (plant-based meat): –$396mm
Snap (social network): –$1.43b
I’ll stop there, though the list is several hundred long. Nearly none of them are profitable.
Don't hire people based on job interviews—part-time work trials are better for everyone
Startups: don’t hire people based on job interviews. Part-time work trials are better for everyone.
I’ve hired dozens of people directly and my companies have hired many hundreds more. After my first few hires, I quickly learned that interviews are, at best, only weakly correlated to future job success. At Hubble and now Agora, we almost always try to instead work with late-stage candidates first on a paid part-time or consulting basis to decide if we should hire them full time. Our hiring hit rate has soared.
The conventional wisdom about working with friends is wrong
The conventional wisdom about working with friends is wrong. In many cases, friends are the absolute best people to work or start a company with.
I’ve started several businesses with good friends: Hubble Contacts + Agora with Jesse Horwitz (friends for 5 years before working together), Willow with William Herlands (9 years), and BZR with John Shi (7 years). Also, our first two hires at Hubble were some of my and Jesse’s closest friends.