When Do You Know It's Time To Join Startup?
I have the opportunity to join my bestfriend's start up in a mature but very fragmented industry. He did 30k sales in 2019, 218k in 2020 (3 months of no revenue during peak of covid) and is aiming for 500k this year. The business is profitable and he has barely penetrated the market in the city were living in. He offered me 50% equity at no cost because were basically brothers and were an insane duo. He also offered me to join as part-time CFO (i.e., having all financials in order for books and model growth plans) at 10% equity while I do a 2-3 year stint in banking. The second option would enable me have a cash reserve and also learn the business and help him on the side.
Do you choose option 1 or 2? Option 2 is definitely a safe decision but would like to hear your thoughts.
b
b
2 for your analyst stint and then go for 1. Make sure you’re clear about this plan beforehand; startups have killed the closest of friendships.
Bullets:
He's going to regret giving someone 50% for part-time effort.
Quit everything and work on the business with him if you think it can scale.
Unless you're SaaS/tech with negligible COGS, you probably need to be at $1.5M - $2M in revenue before you can pay yourself ramen wages + float growth.
I would plan on a 2 - 4 year grind before being able to live "well". If you're not OK with that, then don't do it. I'd also recommend avoiding it if you don't think you can scale faster and get to a real exit. Given you're able to earn so much in IB...a "risk-adjusted" exit needs to be really really big. You aren't some idiot drop out (like me lol) with no options other than entrepreneurship.
Other considerations...is it a co you can raise for? Pretty much any idiot who can prove large TAM can raise atm at a stupid valuation which is great for entrepreneurs. If you raise you can upgrade from ramen to fishsticks pretty fast.
Please see my comment below for clarification
B, but would probably want 20% equity if you are joining out of banking. That gives you some cash, real job experience, and 2-3 years to see if the startup or your relationship with your friend goes underwater quite frankly.
Saying you came from investment banking gives the team more cred than if you just came out of college with no business experience.
Please see my comment below for clarification
Ummm idk if people are reading the same post as me (option 1 doesn't appear to be a part time gig and option 2 is during banking, not after) but 2 is not realistic lol look at all the posts on this forum about banker burnout... zero chance you can do IB and be a part time CFO
Spot on with the options. I do think that 5 hours on the weekend is very possible though.
I don't think you'll be able to contribute if you only have 5 hours and feel tired af after the week of banking and sleepless nights. It'll probably only take 5 hours to learn what new happened during the week with the business.
Tbh I don't think it's going to be worth it to either you or your friend if you're just putting in 5 hours a week. You can't add much value if that's the extent of your involvement, and after a few months of IB, you're going to want those 5 hours to sleep/party/mindlessly scroll through social media.
OP HERE
Option 1: Graduate university and join FT as a partner with 50% equity at 0 buy-in cost.
Option 2: Do 2-3 years of banking while being part-time CFO (few hours on the weekend) with 10% equity starting today at 0 buy-in cost. In 2-3 years from now, if I'm ready to drop my career and join him FT, then he will give me 50% equity at 0 buy-in cost. Very lucrative incentives. We're like brothers and together we both know we can do serious damage.
FYI, without giving too much detail, it is similar to Gildan in the beginning years. Our goal is to be the next Gildan in the next 20 years.
Alternative perspective here but people on this site love to take the safe path. Joining the startup would be by no means safe, but likely would be a hell of a lot more fun. Banking sucks, as you can see by whats been said on this site, and are you learning valuable things? I don't know, how much do you value putting together powerpoints?
If I were you I'd say fuck it, this is a once in a lifetime opportunity, you're not going to have multiple shots at joining a startup of this nature ever again. This truly will happen once in your life. I'd say go all in. If it fails makes for a good story when applying to MBA's and you can go do banking from there if you truly still want to pursue that shitty career path.
Thinking the same... only thing is that I have a nuts network and have been actively trying to bring in my own mandate at work. Ultimately this would fast track my career in banking. I don't just do analyst work given that I know tons of CEOs and have successfully set up 3 formal meetings with my MDs.
You sure you can handle the responsibility of guiding a startup in your first years as an analyst?
Only one way to find out but I think its VERY doable to spread out 5 hours over 7 days. I'm incentivized to do it as well especially given that I would be learning the business part-time during my stint. When i'm ready to jump over, we won't be wasting any time to prep me.
Would a bank even allow you to have that kind of role while employed as an analyst? At least in trading we have to inform our employer of any other activities we do work for (excluding volunteering for charities). That sounds like a trainwreck waiting to happen-I can't imagine the work you would do in whatever free time you have while banking is worth 10% equity.
I was pretty much in the exact same situation and took option 2. My rationale behind it was that if I joined the startup full-time, and it failed, I had nothing to fall back on, let alone a financial cushion. It would then make it very hard to go back to the corporate world and find a high-level job such as IB.
Option 2 gives me the flexibility of gaining IB and resume experience. This will be helpful if the startup fails since I can just go back to a corporate finance job and just have the startup as an interesting story in my resume. Take all this with a grain of salt, however, as I usually play it safe in general.
Freestyle thoughts:
- Giving a part-timer 10% equity of an evidently-growing business is nuts, in my view... Especially when the business is of a size where it doesn’t likely need a true strategic CFO and an outsourced accountant would do. Then, once you go full-time, you’re going to sweep up half of the equity? Even crazier. Something about that sounds off, especially your friend giving you half of the business 3 years into growth from where it is today. If you’re staking your decision on that, I seriously recommend you get it in writing today.
- I had Option #1 when I was finishing school and decided to go do IB for a few years to see tens and hundreds of different businesses to inspire my own ideas, build a resume in the event of my own business failing and make some good seed capital along the way. I don’t regret that decision, given the way the startup at that time during school played out but it could have gone either way so this is all hindsight. I recently quit my IB job to focus on a venture idea full-time with a partner and enjoy the idea that I can go back to IB if this doesn’t work out. I wouldn’t have as easy of a path into my preferred corporate job if I didn’t have this experience.
Good luck with whatever you decide.
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