There’s something about startups

My two sons are enjoying the National Geographic TV Series “America’s National Parks”.

Did you know that the sequoias in Yosemite each disperse 400,000 seeds per year? One in a million germinates into the next generation of arboreal giants.

Venture capitalists strategically sprinkle their funding across thousands of startups each year. A small handful put their dent in the universe, small or enormous, and produce the outsized investment returns that pay for the whole party.

On the other side of the ecosystem, founder-entrepreneurs make one all-in bet on their company – with at least their human capital, and sometimes their financial capital, too. Early employees typically work for reduced pay in exchange for a piece of the potential upside.

Read: Equity, Glorious Equity and The Seven Sins of Stock Compensation

My earliest exposure to startups

In my high school class, the separate journeys of two female founders played out like a gripping TV series to me. I drew inspiration and optimism from these young women. I remember their success feeling inevitable, convinced that the world would change exactly according to their vision. Neither plan played out precisely how they drew it up, but each founder has been radically successful in her own way.

During college and since, I’ve maintained friendships with classmates showing the world what they are made of through the companies they founded or shaped as early employees.

And in my career transition between BlackRock and Target Rock, I ran with a half-decent startup idea for a few months. I soon wised up to the scale of the mountain I would have to climb and gained clarity with my wife about our priorities and risk tolerance. I decided to re-allocate my human capital back to a somewhat safer business I knew better – wealth management.

Do radical risk-takers subsidize the economy?

I have this theory that the economy is subsidized by bold risk-takers who stake way more than is rational on unproven ideas. One could never justify – with traditional methods of portfolio analysis – a single startup as a dominant investment holding. The risk-adjusted return profile is too skewed to the downside, despite the possibilities of far right-tail outcomes.

Yet founders and their early employers pursue their ideas with passion and purpose, bringing them to life, building a fresh domain of human knowledge, and, hopefully, creating broadly shared wealth along the way. The rest of us benefit without ever having to make such concentrated bets ourselves.

How many products and services do you consume from companies that were once only a twinkle in some founder’s eye?

How many of you have fulfilling, well-paying jobs at a company that started in a garage or a dorm room?

How many of the world’s existential problems are currently being solved by new companies you may never transact with directly, but whose impact still might affect you greatly?

My favorite compliment: “Good Question.”

I’ve had the pleasure of speaking and working with dozens of members of the startup community lately. These conversations are some of my favorites, as they help me see the world through new perspectives.

I love asking questions deep in the weeds, and finding opportunities to introduce great people working on fascinating projects who could benefit from knowing each other.

Many of our clients are startup employees navigating how their stock compensation relates to their tax picture and investment goals.

Here are some other themes from conversations with people in various roles, industries, and company stages within the startup ecosystem:

• When should I exercise my options? When confidence is high and/or liquidity is nigh.
• What stage startup should I join? Should I be a founder? How much cash do you have and what’s your burn rate?
• When should I sell my stock? When you have a plan to manage the tax implications.
• How do I find the right investors? Don’t underestimate the number of times you’ll need to tell your story, nor overestimate how easily they’ll understand it.
• Is the company I’m joining a good one? Put your investor hat on top of your employee hat.
• How do I balance career satisfaction, upside opportunity, and cash compensation when searching for a job or negotiating an offer? Yeah, that’s a hard one.

I am so grateful for the diverse network of clients and friends who have graciously shared the details of their startup journeys.

You won’t hear a more sincere “tell me about your startup” than from Matt and me at Target Rock.

Put on some time to share what you are working on!