Twelve months notice

Generally speaking, there are two approaches to relating to other people in the business world. The first approach is transactional and legalistic:  work is primarily an exchange of labor for money, and agreements are made via contracts.   Enforcement is provided by organizations, especially the legal system.  The second approach relies on trust, verbal agreements, reputation and norms, and looks to the community to provide enforcement when necessary.

In the startup world, the latter approach dominates.  It is almost unheard of, for example, to see entrepreneurs or VCs sue each other.  The ones who do tend to leave the startup world, either by choice or by having ruined their reputation.  It is very rare to see someone in the startup world break a verbal agreement.  And, in most cases, employees and employers show loyalty far beyond what is seen in larger companies or what is economically “rational.”   (Most startups do spend considerable legal fees on financing, employee, and IP documents, but that is mostly because they know that those are necessary if they decide to sell themselves to a large company where the legalistic approach dominates.)

For this reason, if you are an employee working at a startup where the managers are honest, inclusive and fair, you should disregard everything you’ve learned about proper behavior from people outside of the startup world.

For example, let’s suppose you are a two years out of college and have a job at a startup.  You like your job but decide you want to go to graduate school.   The big company legalistic types will tell you to secretly send in your applications, and, if you get accepted and decide to attend, give your boss two weeks notice.

What you should instead do is talk to your boss as soon as you are seriously considering graduate school.  Give them twelve months notice.  Any good startup manager won’t fire you, and in fact will go out of her way to help you get into school and get a good job afterwards.  They will appreciate your honesty and the fact that you gave them plenty of time to find a replacement.

(Now don’t get me wrong:  if you work for bosses who have a legalistic, transactional mindset, by all means give two weeks notice.  I gave 4 months notice once to a boss with that mindset and was duly punished for it.  But hopefully if you are at a startup you work with people who have the startup, relationship-centric mindset.)

This way of relating to other people is one of the main things people are talking about when they talk about “startup culture.”  It is why so many people coming from other industries have difficulty fitting into startups (especially people coming from Wall Street where the transactional mindset is at its most extreme).  I personally find the community approach a much nicer way to operate, and try to only professionally associate myself with people who prefer that approach as well.

The ideal startup career path

For most people I know who join or start companies, the primary goal is not to get rich – it is to work on something they love, with people they respect, and to not be beholden to the vagaries of the market- in other words, to be independent.  The reality is being independent often means having made money and/or being able to raise money from others.

A while back, I posted about how I recommend thinking about non-founder option grants.  In the comments, Aaron Cohen made the point that given today’s “good” exit sizes and standard equity grants, most non-founders will not gain independence even in the (non-extreme) good cases:

Most startup employees need to realize they are on a journey and that in addition to making a few hundred thousand dollars on a good outcome they are learning how to become more senior at the next company. Real wealth creation will take founding, seniority, or staggeringly large exits.

As Aaron said, you shouldn’t think of joining a startup as just joining a company. You should think of it as joining the startup career path. This career path could mean starting a company as your first job.  It could also mean working at a few startups and then starting a company.   (In my view, if your goal is to start a company, it is mostly a waste of time to work anywhere but a startup – with the possible exception of a short stint in venture capital).

Maybe you will make some money working at a startup, but more importantly you will hopefully work for founders and managers who are smart and willing to mentor you and eventually fund or help you fund your startup.

The startup world is extremely small.  If you’re smart, work really hard, and act with integrity, people will notice.  Contrary to popular wisdom, you will actually have more job stability than working at a big company.  And hopefully you’ll go on to start your own company, gain independence, and then help others do the same.

The importance of asking people questions

Andy Weissman’s blog has the tagline “Maximizing the serendipity around you.”  It’s a good philosophy.  I think one of the simplest ways to do this is to ask people lots of questions when you meet them.  I’m surprised how often people fail to do this.  Besides being good manners, it’s also an efficient way to learn about the world and sometimes make important discoveries and connections.

About 6 years ago, when I was working at Bessemer as junior investor, I was at a dinner with a group of friends and acquaintances.  The guy sitting next to me was a business school student who spent most of the dinner talking about how he was trying to get a job in venture capital.  He never bothered to ask me what I did for a living and I never mentioned it.

Now, I wasn’t a particularly important venture capitalist, but getting a job in the industry is all about meeting as many people who work in it as you can.  The fact that he happened to be sitting next to one was potentially serendipitous – had he only bothered to ask questions.

Climbing the wrong hill

I know a brilliant young kid who graduated from college a year ago and now works at a large investment bank.  He has decided he hates Wall Street and wants to work at a tech startup (good!).  He recently gave notice to his bosses, who responded by putting on a dog and pony show to convince him to stay.  If he stays at the bank, the bosses tell him, he’ll get a raise and greater responsibility.  Joining the technology industry, he’d be starting from scratch. He is now thinking that he’ll stay, despite his convincing declaration that he has no long term ambitions in finance.

Over the years, I’ve run into many prospective employees in similar situations. When I ask them a very obvious question: “What do you want to be doing in 10 years?”   The answer is invariably “working at or founding a tech startup” – yet most of them decide to remain on their present path and not join a startup. Then, a few years later, they finally quit their job, but only after having spent years in an industry they didn’t enjoy, and that didn’t really advance them toward their long term ambitions.

How can smart, ambitious people stay working in an area where they have no long term ambitions?  I think a good analogy for the mistake they are making can be found in computer science.

A classic problem in computer science is hill climbing.  Imagine you are dropped at a random spot on a hilly terrain, where you can only see a few feet in each direction (assume it’s foggy or something).  The goal is to get to the highest hill.


Consider the simplest algorithm.  At any given moment, take a step in the direction that takes you higher.  The risk with this method is if you happen to start near the lower hill, you’ll end up at the top of that lower hill, not the top of the tallest hill.

A more sophisticated version of this algorithm adds some randomness into your walk.  You start out with lots of randomness and reduce the amount of randomness over time.  This gives you a better chance of meandering near the bigger hill before you start your focused, non-random climb.

Another and generally better algorithm has you repeatedly drop yourself in random parts of the terrain, do simple hill climbing, and then after many such attempts step back and decide which of the hills were highest.

Going back to the job candidate, he has the benefit of having a less foggy view of his terrain.   He knows (or at least believes) he wants to end up at the top of a different hill than he is presently climbing.  He can see that higher hill from where he stands.

But the lure of the current hill is strong.  There is a natural human tendency to make the next step an upward one.  He ends up falling for a common trap highlighted by behavioral economists:  people tend to systematically overvalue near term over long term rewards.  This effect seems to be even stronger in more ambitious people.  Their ambition seems to make it hard for them to forgo the nearby upward step.

People early in their career should learn from computer science:  meander some in your walk (especially early on), randomly drop yourself into new parts of the terrain, and when you find the highest hill, don’t waste any more time on the current hill no matter how much better the next step up might appear.

Getting a job in venture capital

Getting a job in venture capital is extremely hard.  There are a lot of really smart, well qualified, eager people who want to work in VC, and very few jobs.  And it’s likely to only get harder as the industry contracts.

If you look at the backgrounds of partners in VC firms, they generally either came in as a partner after being a successful entrepreneur or worked their way up in VC.  There are books written on how to become a successful entrepreneur, so here I’ll just focus on the other common path – career VCs.

First, you should understand how VC firms are structured.  Every firm is different, some have no junior people, some have just a few, and some have a lot.

The key distinction between junior and senior people is whether they can write checks – meaning they can independently lead a deal.  If you can’t write checks, you have to get a check writer to sponsor an investment you like.  Check writers get almost all the credit and blame for an investment.

The hierarchy within VC firms is basically as follows:  (There has been a wave of title inflation in VC lately, so I’ll put the inflated titles in parentheses).

Partners – Owners of the firm.  Get the most of the management and carry fees.  Can write checks.

Principals – Usually get small piece of carry.  Can write checks.  (Inflated title:  Partner;  in which case it’s hard to tell the “real” partners from the principals).

Associates – Usually post-MBA or 4-6 years work experience.   Usually get little to no carry and can’t write checks.  (Inflated title:  Sr. Associates or Vice President).

Analyst – Usually right out of college.   They do research or cold call companies.   No carry and obviously can’t write checks.   (Inflated title:  they just don’t list a title or say something vague like “investment professional”).

As you can see with the title inflation this is all pretty confusing.  It’s meant to be.  VCs want entrepreneurs to take their junior people seriously.  (Which, by the way, entrepreneurs always should:  even though they can’t directly write checks, they can be extremely influential)

You can break down working your way up in VC into 3 challenges:

1) Getting a job in the first place.  The two most common places to break into VC as a junior person are after undergrad or business school.  VCs are heavily biased toward certain top schools.  On the MBA side, the industry is dominated by Harvard and Stanford.  Undergrad, the VCs I know only recruit from Wharton, Harvard, Stanford and maybe a few other elite schools.  (Please don’t accuse me of elitism-I’m just reporting on elitism, not promoting it). Even if you go to one of these fancy schools it’s still not easy to get a job.  You need to network like crazy.  I did a whole bunch of volunteer research projects for VCs when I was in business school.  I came up with lists of investment ideas so when I got a few minutes with a VC, I could show them I was obsessed with this stuff.  Other things that help you:  computer science or other relevant technology background.  Single best thing is to have started a company (even if it didn’t succeed).

2) Going from non-check writer to check writer.  This might even be harder than breaking into VC.   There is kind of a Catch-22 here:  you can only gain credibility by having led deals, yet you can’t lead deals until you’ve gotten credibility.  Some partners are nice and let high level junior people “virtually” lead deals, join boards etc so they can get credit.  My advice here is to try to get your hands on a checkbook, even if it means leaving a top tier VC and going to a second tier one. Too many junior people hang around top tier firms waiting to get promoted.

3) Once you get your hands on a checkbook, then you just need to find the next Google/Facebook and invest before anyone else figures it out. ;)

If you really want to break into VC and aren’t just now graduating from a top school, my top suggestion would be to go start a company.  If you don’t have the stomach for that, the next best thing is to work in a VC-backed portfolio company, hopefully in a role where you get some VC exposure.

And, finally, if you just want to work in finance, try to get a job at a hedge fund or a big bank.   Breaking into VC so hard that it’s only worth it if you really love startups.