What stage startup offers the best risk-reward tradeoff?

joinprospect.com

2 points·shsachdev··3 comments

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.

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.

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.

Reply on news.ycombinator.com