I’m in the Bay Area surrounded by a huge presence of people 2-4 years out of college at high growth startups and fairly heavy hitting VCs. I know what many of them make, and while it isn’t quite IB/PE money, it is fairly close ($180k cash all-in for upper-mid start-up sales plus 25bps of the cap table). Their hours are often 9-5 or better and while the title growth isn’t quite there (lot of 24 year olds are already “Chief of xx”), the equity upside is.
My question is: what is the real value proposition of cranking away at banking or middle market PE instead of this? Many of my friends already have $300k+ saved up in equity and cash. I understand it’s the start-up scene’s prerogative to sell the dream, but what are the real downsides/risks besides the company trending downwards (which any “safe” company seems capable of doing these days anyways)?
Bumpppp
Huge, massive chance of the startup failing. What percentage of startups go public or are acquired (when your equity hits)? Something like 10% of VC-funded startups (so we're already excluding a huge number of startups that never got funded). That means an overwhelming percentage of your friends' equity is ultimately worthless. Sure, some of them might hit the jackpot, but most are only going to get the cash comp, which is pretty small. IB is very heavy on the cash comp, PE is as well and carry is reasonably likely to vest, much different calculus there than startup equity.
Not to mention job safety. The current market is exposing a lot of startups who shouldn't be around, and people are getting laid off every day. On the IB/PE side, it's huge news that GS laid off a handful of bankers. The job security in IB/PE is about the best you can get in finance. Even if you're bad at your job, you get to collect a fat base salary and if you eventually get pushed out there's another shop down the street too.
Yeah VC is great but it's next to impossible for the average college kid to get in. If you're at Stanford with multiple VC internships already, congrats. Some kid with a 4.0 from Midwest University has no shot, but there's a real path to IB and thus PE laid out for him if he follows the steps.
These people are still in growing start-ups despite the market conditions and their equity (save for those I know at Twilio) are down, but are beginning to re-appreciate. Sure, a lot of the smaller start-ups and lower-caliber VCs have gotten culled, but if you are a similar caliber to a person in IB and came from a semi-decent school, odds are you're at one of those start-ups or VCs that can survive the downturns, such as the top 10% you're referring to. So assuming that these people have a greater likelihood of selecting these successful start-ups, is there any other downside? I was thinking of career stalling, lack of mobility, but right now I'm frankly a bit envious of the comp and WLB these people have.
The cuts have just begun. I wouldn't want to be at any startup right now, even one that I thought was the golden ticket, 100% success rate, etc - because so much of it depends on luck and market timing, and this is not a good time to be in the early stage market.
I'm no economist, but I think everyone expects significantly deeper cuts in the pre-IPO space. They've been so aggressively funded for years and none of them are profitable. Public companies are expecting at least a year of this, private companies are not just going to bounce back and many have a surprisingly limited runway. You could come from GS / Harvard, be the smartest person in Silicon Valley, and still get caught up in a deep cut.
VCs are kind of a different animal than startups but again, hard to get into that field, and not achievable to the average MM IB guy unless you have startup experience. That's like saying a single-manager HF is better than LMM PE... yeah it very well might be but not a likely path for most.
Look, I'm in IB for a reason - I'm risk-averse and I would be anxious as hell at a startup. There's a case for startups but I don't think it skews as heavily towards startups as you're saying, especially right now.
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