Before we get started - I made a startling revelation last week. Hot Topic, the counter-culture, grunge, gothic corner of your local mall, is PRIVATE EQUITY OWNED!!! Yeeesh. Talk about being a sellout. That is SOOO not Punk Rock.
As someone who used to (secretly) fit into their demographic (I actually think I still have a Sum 41 tee kickin’ around somewhere), they should have asked me or the guys from Fall Out Boy for advice before going the LBO route.
Speaking of advice…
I asked my network of CFOs, VCs, and Substack writers, as well as our punk rock Mostly metrics readers:
When’s the best time to join a startup?
If you are trying to learn, accelerate your career, and maximize your equity outcome, when do you hop on board?
Weighing the chance of failure, if you had to do it 10 times over, you’d bet: [Series X]…
Here are the best responses I got, along with my own take:
Fit, Happiness, and Tours of Duty
Fit is by far the most important consideration - years of unhappiness shouldn’t be traded for an equity outcome, at least to me.
I would argue a Series B with top-decile type traction is the best risk-reward.
Why? Strong potential for equity growth but the amount of capital raised is “small” enough to not need a massive IPO or exit to enjoy some upside, even in good, but not great, outcomes.
When you asked this, the 10 tries stood out. An under-told story: plenty of folks work for multiple early-stage companies and never make a cent on their equity packages. Your realistic window where you are senior enough and stay long enough to earn real dollars is more like 3 tours of duty, not ten.
Choose wisely!
-Matt Harney and author of SaaSletter
Types of risk, Climbing out of holes, Validating market size
Yo! I’d join a series B. By then you’ve typically eliminated a good amount of product market fit risk and are shifting into taking execution and scale risk. This is where people like us can add the most value!
I’d also want to understand the total liquidation preference stack, and make sure the company isn’t already in a hole. All of the value that comes with climbing out of that hole won’t accrue to you.
And of course - market size. Must be at least a $1B TAM imo.
-Geoff Byron, Biz Ops leader at Workday
Investors as borrowed credibility, Metric related questions, and Red flags
My sweet spot would be B to C range. Along with a million other caveats, this assumes a reasonable valuation range.
At the B and C, you probably have 2-3 institutional investors that have priced and diligenced the company. In normal times, these investors underwrite the businesses to 5x'ing. Again, this assumes a reasonable valuation and good investor.
The company most likely has good to strong PMF and has a GTM that is working. So there's something that can be scaled. There’s enough traction and metrics that the candidate should be able to ask 2-3 metrics related questions (revenue growth, efficiency, etc) and get a decent response. In other words, the candidate has a reasonable chance of diligencing the health of the co.
The two other things I'd add would be:
One of the more important things to do is just looking out for red flags. If we were to use your framework (10 shots), chopping off the left tail of outcomes simply increases the expected value as well.
Outside of maximizing equity, I also think B to C is where a lot of people can be impactful, scale their careers, etc.
-Arda Capital, Author of Tidal Wave
Go Early, Go Often
The earlier the better, because the options you earn at that stage are less expensive and the startup valuation is lower. It's higher risk, but higher reward at the early stage.
You also have to take into consideration that most companies don't have huge outcomes, but if you got in early enough and the outcome is reasonable, you can still win.
-Ben Yoskovitz, Founder of Highline Beta and Author of Focused Chaos
CFOs, Execs, and the Macro Environment…
For a CFO role, I generally wouldn’t join before the typical software company Series B because the finance side of things are usually not that interesting/complicated before then (i.e. my value add is not as meaningful)
For an executive, the difference between a Seed and Series B in terms of equity outcomes is relatively small, but the likelihood of an exit is vastly different. Yes, you potentially can make more money by joining super early, but it takes a lot longer to exit and know if it will be a success, so you get less at bats at getting a home run.
The current macro environment should likely also play a factor in the decision process. A lot more earlier stage companies (including Series B) are not going to make it. You got to take some risk to make big money, but the level of risk is elevated and the number of huge outcomes are going to be dramatically lower so that should be a part of the math.
First Sales, Shipping the First Product, and Forging Bonds for Life
Of course I will say seed!
But basically the reason for seed is that you will always have the chance to join a startup, but to get the experience of signing the first customer, being the first employee, shipping the first product… that is something you can not recreate at any other time.
And in return for being that early, you get the largest equity package for that role because of the risk and work you're putting in to maximize the outcome of the company.
It's very hard work and stressful, but the team bonds you make and every little thing that is accomplished feels like you've climbed a mountain and you have a bond to share with others for life.
-Shomik Ghosh, Partner at Boldstart Ventures and writer of Software Snack Bites
The path from StratFin to CFO or SVP of Finance
For StratFin, I'd recommend coming in soon after Series B is raised.
The company has likely found PMF and gotten key deals in place with early metrics. Business is starting to scale up and strategic finance is becoming a priority (it's not just about payroll, expense reports, and closing books)
You're likely the 1st or 2nd Finance hire and you'll take an active role in building up the operating model, renegotiating major contracts with scale, defining unit economics / KPIs and driving fundraising.
If you outperform, your path to CFO or SVP of Finance is all but set. Otherwise, you're second in command with a lot of leeway to define your role towards StratFin, FP&A and/or Corporate Strategy (or some combination of all three).
At Series B, with valuations between $75 - $100M, there's still the opportunity for a 10x return so lots of upside for you, with an interesting role, in a position to take on leadership and ownership of the Finance function
-Samir Desai, StratFin at Chime and Unit and writer of Interspace
The efficient market hypothesis, and finding your edge
My short take is that in an efficient market the various stages are equivalent, because the later you are, the less upside, but also the less risk.
What makes a difference is whether you have some edge into the market, or the team, that makes you confident about the outcome (e.g., you are a real estate expert and you know that a certain super early stage product about real estate is going to crush it). Or you know your a friend is a genius and you are happy to join them.
These are stupid examples but you get the idea: rather than the specific stage, look for some edge / insight you may have over any random guy
-Luca Rossi, writer of the engineering newsletter Refactoring
Evaluating the Spectrum of Risk vs Size of Outcome
Everything exists on a spectrum of risk and size of outcome.
Seed stage? X% of companies fail at seed, so it’s a high risk. But if it works you’re more likely to own more and have a bigger personal outcome.
At Series D, only X% fail. So less likely to fail, but likely it’s already a decently high valuation. So you may make less money.
The biggest question is “How big can this business be?”
The bigger the outcome you believe the company can have, the more risk you can get comfortable with.
A 10% chance at a $20B outcome is a $2B opportunity. A 50% change at a $1B outcome is only a $500M opportunity.
-Kyle Harrison, GP at Contrary Capital, writer of Investing 101
My Take:
Post series B with more than $20M on the balance sheet, between 75 and 150 existing employees, annual growth rates above 100%, and just repriced their 409A after a valuation of between $50M and $100M.
Why?
Recent Funding
This means they aren’t going out of business anytime soon - less survival risk
They’re probably better financed than their competition
Product Market Fit Established
If an investor gave them a healthy Series B, they’ve demonstrated PMF
Equity Upside
Major equity upside is still there - the largest absolute pops usually happen from B to C or C to D (so you’ll be there to benefit)
Chapters left in the story, and time to write your own
Ability to contribute to a company on a high growth trajectory
Preserve upside of potentially helping company to IPO and working at a public company if all goes well
Maximal fun, minimal bureaucracy, but still some adults in charge
Ability to see your contributions make a real mark on day to day operations
Build, build, build - without the red tape
And some of the best ones from our readers:
Age
Depends on my age. If in my 20-30s I would go for seed to series B - join, quickly evaluate the culture and then switch on my hunt for the best one. In my 40s maybe C/D.
Post retirement again back to seed or Series A…
But I guess I wouldn’t know all this early in my career.
-Shailesh S
Experience
1-2 years pre-IPO preferably as someone who brings differentiated / valuable experience to maximize equity negotiation.
-Thomas R
Outcome
Series B with good acquisition prospects
-Lucas
Investors
I would actually place more emphasis on investors than stage. Seed led by top tier > Series C from mid tier
-Danny B
Financial independence
Depending on the stage of career and degree of financial freedom I have - Seed stage when you are starting your career, series c/d mid career unless you know the founders well enough to join a seed/a/b, late stage of career as a founder is possible, else if you believe in the founders then early stage, else scaling companies considering you have financial freedom to support your bets.
-Rajesh
People dependent
Pre-seed / seed: If you know the founders really well. If you are the start of your career, you can take bets. For mid senior folks prior work ex with folks starting up matters a lot.
Series A/B: If your ex-colleague/boss refers you. Culture + Equity on the table + Founder vision/ background as massive pull.
Series C/above: If you are an industry leader and the organization is looking for someone to bring in scale
-Abhimanyu R
