Launching a startup in 2015? Invest in yourself and think long term advises one founder-turned-VC.
By Mark Suster (Venture Capitalist)
At the end of last year I wrote about obsessive and competitive founders and how this forms the basis of what I look for when I invest.
I had been thinking a lot about this recently because I’m often asked the question of “what I look for in an entrepreneur when I want to invest.” I look for a lot of things, actually: Persistence (above all else), resiliency, leadership, humility, attention-to-detail, street smarts, transparency and both obsession with one’s company and a burning desire to win.
Would You Have Invested in Yourself?
In the comments section, a clever question popped up about whether I would have invested in myself before I became an investor.
My first response mentally was, “Of course!” but then I realized I didn’t even need to answer the question. I had invested in myself for years. I quit a very well paid job at Accenture with very little time remaining before making partner and took a risk of having no job security at all. We had raised a $2 million seed round, which meant taking almost no salary so we could afford to hire staff.
Back then there was no “cloud” so we had to plow money into hardware, software licenses and web hosting. So even after raising a $16 million A-round I still paid myself a paltry salary. In fact, my salary never caught up with my pre startup salary across 2 companies and 8 years.
So I did, in fact, invest in myself.
Taking the Plunge
And that’s what differentiates founders and early employees. They choose a different path. 5 years ago I wrote this well-read piece about whether it was time to earn or time to learn. There comes a moment in one’s life where if you decide you want to go for it, you have to invest in yourself. Literally. As in take less cash compensation than you could otherwise earn. To invest in your future.
To MBA or not to MBA
It doesn’t always have an immediate financial reward.
I have a version of this conversation often. I will speak with people earning good money at a larger company or even well-financed startup who are mulling over the choice of whether or not to quit. Sometimes the discussion veers over into whether or not he or she should get an MBA before trying a startup. I often say:
“If you’re willing to go into debt for $100,000-150,000 to get an MBA and have 2 years of your life with no work experience why on Earth wouldn’t you just join the most ambitious early-stage startup you know and work for a paltry salary to get the experience?
At the end of the period you’ll have zero debt, 2 year’s experience and have at least earned money.”
The point isn’t whether one should get an MBA or not – it’s simpler. Why will people invest 5x the money to get book smart and struggle so much to take a big salary cut to get real life experience? I normally finish with my soap box speech:
“Look. The first job you take may not work out financially. But then you can springboard from there to your next gig and you’ll be an experienced startup employee with functional experience at sales, marketing, product or whatever roles you played.”
I’ve said this to lawyers earning $200k+ / year who felt a yearning desire to do startups. I tell them that they don’t have the experience to charge a startup $200k and even if they did no early-stage startup would want to bring on an in-house general counsel very early.
Why not offer to work for $50k to help run biz dev? Tell them you’re taking a 75% pay cut to prove your negotiating skills and legal background will work well on the job. Promise them you won’t ask for a pay increase for 12 months. It’s gonna suck, I know. It always sucks to take a walk back in comp. But at the end of the year you write your own ticket if you’re talented because now you have experience and it cost you less than your law school loans!
Take the (Short-Term) Hit
I’ve said this to recent graduates from university. I’ve said this to former athletes. I’ve said it to execs at big corporations earning $500k / year. Unfortunately once you’ve earned mega bucks most people have ramped up their lifestyle and cost base such that they can’t take the hit.
If you have the desire to be a startup founder one day – at some point you have to be willing to invest in the skills required to master the job. You’ll likely be paid less than you could earn elsewhere but you’ll learn 3x the skills and be given 5x the responsibilities.
And I have continued to practice what I preach. My starting salary when I joined a VC fund as a partner at the age of 39 (and after 2 exits)?
That’s less than most startup CEOs who have raised a few rounds of VC are paid. And it’s still less than I was paid at Accenture in 1999.
Investment in Every Sense
Why did I join as a partner in a VC fund on that salary? I was investing in myself. I had never been a VC before. My partners wanted to hire me but hadn’t raised their third fund yet and perceived risk in taking on a new partner and a new salary.
So I made them an offer: I would pay 100% of my own moving costs, I would join at a reduced partner salary (I know that $170k is not small by most standards, believe me) and if we didn’t raise another fund they wouldn’t have to pay me anything else. I also took 50% of the normal partner carry in the fund.
At first they balked because they felt like they were treating me unfairly. But I explained
“Are you kidding? If I start my third company I’ll pay myself $0 for the next 12 months and I’ll have to invest my own money in getting started. Anything you pay me is gravy!”
I simply assumed that if I believed in my own skills I should be willing to invest in myself. And if I didn’t prove to be as successful as a VC as I had hoped then I could always go back to being a founder but now with a new set of skills having seen the business from the other side of the table.
If the doors of opportunity open up by even a sliver stick your foot in, take a risk, bet on yourself and then fling them open.
Think it Through
Being a startup entrepreneur is not for everybody and it’s not the only desirable career choice. I also know that many people have families and cost obligations that don’t allow the kinds of financial risks associated with starting a company. And for others the hours, stresses and sacrifices in personal relationships are not worth it.
This post is for the literally hundreds of people I’ve had this conversation with and the countless others who will read and and we never get a chance to speak 1-on-1.
- If you DO want to take the risk, do exactly that. Make it attractive for the person hiring you.
- If you don’t have enough experience, see if you can sacrifice a small bit on your salary for even a year in exchange for experience.
- If you can’t get a raise at that startup then use it as a springboard to eventually find the job you really want.
These days everybody wants to be an angel. Before you start writing your friends checks for their startups, get out your checkbook and bet on you.
A version of this post originally appeared on Both Sides of the Table.
How have you invested in your startup?
Photo credit: Roman Ribaleov via Shutterstock.