Dot-Com-arama: The Start-Up Job as an Investment Decision

For many young scientists and engineers, the dot-com phenomenon is an intoxicating vision. Imagine having a bold idea and starting a company with your best friends. You work like demons, bring a product into reality and, 6 months later, stand together on the floor of the New York Stock Exchange as your company's shares trade publicly for the first time. Pretty cool, huh? Sure, you're a multimillionaire, but the allure is about more than money: It's about vision, passion, camaraderie, and success.

Oh yeah; and risk. Remember risk? The news media has covered the success stories so relentlessly that one could be forgiven for believing that all start-ups end in a blaze of IPO shares and beautiful mansions in Los Altos Hills. Most do not; indeed, success rates of only 20% are typical. But that does not mean that you should abandon your interest in the technology start-up world--only that you should go in with your eyes open.

Unfortunately, most people spend far more time analyzing their financial investment decisions than they do considering their career decisions. But joining a hot start-up is just as much one as the other, although unlike buying stock, making a career decision means you are investing far more than money. You are also investing your time and your career options: For every path you select you are "deselecting" many others. And depending on the environment, you may also be foregoing a relatively relaxed lifestyle for a 90+-hour-per-week "work tornado." Thus, in considering an offer from a start-up, you should look at least as closely at that company's products, organization, and funding as you would if you were planning to invest money in it. You might even want to use the same tools used by investment analysts to vet start-ups.

Due Diligence

Applying a process known as due diligence, investors typically look at three factors: the quality and experience of the management team, the soundness of the financing, and the business plan. If you find yourself considering a specific job opportunity at a start-up, you should examine these same three factors.

Scrutinize the Management Team

Any venture capitalist will tell you that the quality of the management team is the number one predictor of a start-up's success. Managers who have had experience in the industry or, better yet, experience leading earlier start-ups are the jockeys to bet on. Ironically, failure at a previous start-up can be a more informative experience than success. Failures teach people to do things differently. Success only teaches them to do the same thing over and over again until it is a complete failure. (Don't believe me? Go rent a copy of Rambo V from the video store!)

Analyze the Business Plan

If you do not understand the business plan on which the start-up is based, you have no business taking a job with the company. Certainly, the recent rash of hugely valued, totally unprofitable dot-com companies gives one pause when evaluating antiquated business notions such as profitability. But rest assured, issues such as market share and profitability will, in the long run, decide the value of a company.

OK, so you're not an M.B.A. and you may not have all the tools you need to analyze a company's value. But you should, nevertheless, ask yourself a few basic questions. For example, does the product or service seem valuable to you? How large is the potential market? How much of a breakthrough does the product represent? Often the business plan discusses all these issues, and if you do get an offer you should inspect the business plan thoroughly before you say "yes." Sometimes a company may be hesitant to show you its business plan--but if you are willing to sign a nondisclosure agreement, there really shouldn't be any reason for the company to withhold it from you ... unless it doesn't have one! And if the start-up doesn't have a business plan or is unwilling to show it to you, just walk away. Didn't your mother tell you not to get into cars with strangers?

Investigate the Financing

Just as a public company's stock price represents the market's assessment of that company's value, the quality of the money behind a start-up is often the best measure of the industry experts' assessment of a start-up's long-term prospects. Presently, there is plenty of money out there to fund new start-ups. (It seems that everybody and his parakeet is calling themselves a venture capitalist these days.) However, not all money is equal. Backing from a top-flight venture capital group with experience in the industry sector is an excellent indication that some very knowledgeable people think the prospects for the start-up are good. One way to assess the quality of the venture capital firm backing the start-up is to look at its track record. If it has a string of successful start-ups in the same industry, then you're probably in good hands. Other positive signs are backing from major corporations, many of which hold venture groups that invest in hot new ideas strongly aligned with the parent corporation, or strategic partnerships with industry leaders. Receiving money from these sources suggests that the start-up's product has a place in the parent company's plans--a good sign indeed.

In contrast, start-ups that are self-financed or are running on "sweat equity" (people are paid with shares rather than cash) may have a tougher climb. Beware the CEO who reassures you that "series A funding is right around the corner." If it was a great idea, the company would have its funding by now.

Invest in Your Happiness

Even if you do not own a single share of stock, you have been making important investment decisions all your life. The decision to go to grad school, for example, was one of the most important investment decisions you made. In entering grad school, you chose to make a long-term investment in your career and your future by sacrificing several years (and a lot of potential compensation) to gain specialized training that will allow you to pursue options not otherwise available to you.

Your career decisions are also investments. By choosing one path over another, one job over another, you are making an investment that will hopefully pay off in all the important ways: with a fulfilling career, monetary compensation, a lifestyle you enjoy, and, most importantly, the opportunity for further learning and development. Although the idea is nothing new, the boom in technology start-ups and the wealth of new opportunities for technically trained individuals have made the "job-as-an-investment" concept clearer than ever. Thinking like an investor can help you evaluate both specific job opportunities and general career choices you make throughout your life.

Peter Fiske

Peter Fiske is a Ph.D. scientist and co-founder of RAPT Industries, a technology company in Fremont, California. He is the author of Put Your Science to Work and co-author, with Dr. Geoff Davis, of a blog (at on science policy, economics, and educational initiatives that affect science employment. Fiske lives with his wife and two daughters in Oakland, California, and is a frequent lecturer on the subject of career development for scientists.

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