MBA? Go to Wall Street NOT a Start Up!

Now that the title hopefully grabbed some attention...

There is a growing trend in the business school crowd where many people are taking higher risk start up positions with the hopes of making it big off of the equity portion of the compensation package.

The problem?

People don't seem to be running the numbers.

Here lets outline why one should go ahead and turn to a front office Wall Street job instead of a Start up.

1) Job Security: Sure Wall Street is volatile and it is a cut throat business, however... What is worse? Adding no value to the company you are working for.

Yes we can go back and forth over what an MBA can add to a Start Up in terms of value, but at the end of the day the real driver to growth is engineering talent (see primary value add in the business model). If you're in a sales position you may be more stable, but then again a sales role on Wall Street would likely have the same or similar meritocracy.

The final push that solidifies the job security issue is simple, what is more likely to go belly up? Morgan Stanley or a Start Up? The answer of course is the Start Up. You're also first out the door because you add the least value by number crunching and sitting in on strategy meetings.

2) Debt: Here is the bigger issue, you've invested a lot of money in yourself. If you're an MBA candidate who is flush with cash, feel free to skip this, but if you have debt you've got to think about your personal finances. If you take the job with the $90K base salary and $50K in stock options from the Start Up... all of your leverage is entirely on the Equity side of the compensation package.

Look on the other side of the table, you can clear ~$200K in gross income over a full year. This is 2.22x your cash compensation in a Start Up... Last we checked debtors don't take start up equity as payments.

3) Stock Diversification: Run the risk profile. If you're still not sold after bullets one and two lets look at it assuming that you will survive in both positions for a full two years. That would be roughly $420K for a solid investment banker and $180K + $100K in higher risk stock for the Start Up job.

Here's the catch, how much equity can you buy if you simply lived a minimalist lifestyle? If you can simply live off of $90K as an investment banker (yes this is harder than you think in major cities like NYC) then you can essentially save the rest of your cash.

$420 - $180 = $240K... Lets tax this at 35% and you're left with $156K

This is a huge change. Why? You can now take a $50K position in three different start ups. If you turned down a job at Start up XYZ you can simply obtain trading approval to purchase shares on a secondary market (such as sharespost.com) and buy that $100K+ position if you truly believe in the story. In addition, to really push this diversification move you can take an Investment Banking/Wall Street job in a field unrelated to the start up you wanted to work for. You have even more diversification at this point.

4) Less Competition: With more and more people attempting to obtain the homerun position at a Start up there has been a meaningful decline in candidate quality (note our sample is small so feel to debate this) but overall, Wall Street experience at the Associate level is a bit harder to find (also impacted by the 2009 recession - adding three years means not too many A to A promotes are around). Yes it is still extremely competitive.

But.

With more people trying to join the next hot company that means your resume is going to get a little bit more traction. Maybe your resume will stand out enough to jump from a middle market type candidate to a lower end bulge bracket type candidate. (don't mean to derail this into a bank competition but you get the point!)

5) Relationships: This is a largely overlooked piece of working on Wall Street. Be it on the buy-side or the sell-side, you're going to meet more people as you age in the industry. You attend more meetings, conferences, events etc. where you can build out a much thicker Rolodex. The chances of being taken to important meetings as a fresh MBA at a start up is much smaller compared to your chances of being quickly thrown into drafting sessions for an IPO.

Hint: you can meet other Wall Street employees and build a soft relationship at these meetings upon hello.

To make this clear, if you obtain a slot on the buy-side the same principles apply. You will still interact with sell side clients and you will have more relationships (Rolodex) over time. The interactions are likely to begin within a few short months of starting your career.

6) More Career Control: Hate to say this but if you're good at politics in your office, you're going to have more control of your future. Look at a large bank with many managing directors and directors. Anyone who has actual real life experience on Wall Street knows that if you don't have political skills in the office, it does not matter if you are a high performer. If the right people don't like you, you'll never get any traction in the future. A tough business indeed.

The positive flip side?

In a larger Wall Street setting you will have more opportunities to correctly position yourself under the *right* group. Again this means you're competent at telling who matters in your group. With this set up, if things go bad you're likely not losing your job and if the group continues to outperform you're first in line for the head nod. At a Start Up? Not so much since the size is small and you'll be tied much more heavily to the firm as a whole.

7) More Personal Financial Control: This was alluded to in point 2 and 3. If you have a higher cash flow (personal) you can swiftly make adjustments to your personal finances. With ~$90K per year it is tough to live an amazing life in any big city, this is why there is a saying on Wall Street

"Spend your salary on strippers and drugs if you like, but save your bonus"

If you go into your Wall Street position and *act as if* you can only live on a start up salary for a few short years, you'll likely amass six figures. While you're not Mark Zuckerberg you have multiple options including 1) a solid 401K program with a company match, 2) healthcare choices and 3) IRA choices off your first half year. All of these small personal finance adjustments add up if you can look at the long-term time horizon.

8) Big City Life: This is a personal one. Unless the Start Up is going to be in a major city it is tough to imagine a regular fun life in a major city. Sure, if you follow this minimalist plan for a couple years you won't be driving around in an M3 but at least you will have a lot of interactions with people on your weekends. You can take advantage of easy transportation (no need for a car) and you can stick to the bar scene instead of spending all your money at LeBain, Marquee, Catch, PHD and the other high end venues in NYC (think of it as inspiration for the future).

9) Easier Sell: We did a longer post on how to work with headhunters in the recruiting for a hedge fund post, but that is something that should be emphasized here. If you work in a finance position at a Start Up (operations or otherwise) you're much more likely to gain traction with head hunters...if... you have a solid Wall Street resume. Say what you will about the cookie cutter 'top gpa, top school, top GMAT, Bulge Bracket" resume, but it will make sure you get interviews if you can simply survive for a couple of years.

There is no logical reason to burn the headhunter bridge.

10) Timing: Finally, the last reason that you should choose Wall Street?

Timing. Timing. Timing.

If you piece together this entire article you can see that you can 1) have more free cash/capital in your hands 2) have more access to jobs and 3) have a slightly larger network. This means you can now time your exit as you please. Instead of worrying about debt payments, look at how much you have increased your ability to jump into a new opportunity. Companies will always pop up over the next 5 years (unless you think the world is ending) so you can simply pack your bags, close your outlook and jump on the option when your risk profile allows it.

*******

Now the fun part.

You personally get offered a position at a Start Up you believe will grow at a rapid rate... You also got a nice offer from a bulge bracket investment bank... The battle lines are drawn.

When would you take the risk?

Overall, this analysis says the following... if the equity portion isn't worth more than ~$80-100K... you should run for the Wall Street gig.

Comments (52)

Mar 19, 2014

Job desirability and popularity among BSchool students is probably the clearest lagging indicator around, herd mentality at its finest.

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Mar 20, 2014

Working for a startup is a job, not a career. Unless you're Mark Zuckerberg (which you're not).

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Mar 21, 2014

that's the dumbest comment i've read all month, and i read a lot

WSO's COO (Chief Operating Orangutan) | My Linkedin

Mar 20, 2014

I agree. Also, I think if everyone wants to work at a startup they should go do it BEFORE business school and save all the money .. If nothing else it increases the strength of your candidacy dramatically (as long as your co is cool and not total crash and burn)

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Mar 20, 2014

Also all these I wanna be a startup master kids are disillusioned of they think getting 5 percent equity in a hot funded startup is a possibility just because they went to an M7- try again, founders and the people who bootstrapped the company from its origin are going to laugh at you (and I'm sure 5 percent is a moderate to low expectation some have). When I told people how much equity I have in my co I got told by MBA students 'ohh.. That's low' and I had to unleash the fact that its unrestricted and also, no its not a low percent nor do you auto get a multimillion golden parachute with your minted MBA job.

Best way to do it is go slave at a startup for a year and learn as much as you can and then bootstrap your own company and idea with your 200k and doling out equity a year later if you want to go the startup route vs getting your MBA . that shows a lot more hunger for it (as an entrepreneur you have to be intelligently willing to put everything on the line and focused on your company, not saying oh if this doesn't work out I guess I can fall onto this MBA I have from xyz) and I'm sure you'll actually learn a shit more about business and operations than you would from an MBA program.

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Mar 22, 2014
shorttheworld:

Also all these I wanna be a startup master kids are disillusioned of they think getting 5 percent equity in a hot funded startup is a possibility just because they went to an M7- try again, founders and the people who bootstrapped the company from its origin are going to laugh at you (and I'm sure 5 percent is a moderate to low expectation some have). When I told people how much equity I have in my co I got told by MBA students 'ohh.. That's low' and I had to unleash the fact that its unrestricted and also, no its not a low percent nor do you auto get a multimillion golden parachute with your minted MBA job./p>

This is accurate. Even at a seed stage company, a MBA should expect 0.1% - 0.5%. You would be VERY lucky to get 1%. 5% isn't happening unless you are there from day 1 or have some exceptional value add/relevant background.

Mar 20, 2014

This needs to be frontpaged fyi

Mar 20, 2014

Glad many of the users get the idea.

Where is the line for you guys though?

At about $100K in equity it starts to look good. But the offers right now (given to MBAs) aren't all that great to be honest.

Mar 20, 2014

As someone on the sales side of a startup, I'll chime in.

Do note that everyone's situation is different.

Age: early 20s (23/24), pre-MBA
Hours: 40-50 hours a week.
Pay: $80k (should hit closer to $100k which would go a long way, even in Silicon Alley)
Equity: zero (founder controls all equity)

Let me put it to you all this way: if you're a founder or on the management team, and someone wants a piece of YOUR pie .... do you give it to them? As much as I love equity and will have to ask for it, I'm getting a sweet deal already. We just always want more, that's all.

Mar 20, 2014

Not to be rude here but doesn't that mean Wall Street still wins?

IBD analyst at $130-150K

Then you can save the delta (130-80) = $35K post tax and just buy equity in a start up on a secondary market?

Don't get me wrong $80K out of college isn't bad for the hours you are working... but it seems the move is still go to Wall Street?

Mar 20, 2014
WallStreetPlayboys:

Not to be rude here but doesn't that mean Wall Street still wins?

IBD analyst at $130-150K

Then you can save the delta (130-80) = $35K post tax and just buy equity in a start up on a secondary market?

Don't get me wrong $80K out of college isn't bad for the hours you are working... but it seems the move is still go to Wall Street?

No equity = no upside.

WS wins for any kind of multi-year, forward-looking model.

Mar 20, 2014

Certainly not on an hourly basis, where he's making $80k (up to $100k he said) working 40-50 hours vs 80-120 hours. He actually gets to enjoy his money/life!

Mar 20, 2014

Yeah I work in tech and agree 100%.

I've seen an MBA be valuable for engineers looking to become executives, but I'm pretty sure that's not who you're talking about in this post.

If you want to break into tech/start-up just do it. It isn't particularly hard to get in at the entry/mid-level. Getting an MS in something technical can make sense, but an MBA really doesn't IMO.

Mar 20, 2014

That's an interesting one, never considered that one in the post, but even so the debt load probably forces that engineer to MBA type to stick out a couple years on the street.

If you are in a strange engineering + finance role at the start up, guessing that would mean higher equity compensation.

But don't see those roles posted anywhere (ie: never heard of it)

If there is then it's looking a lot better (ie: more equity).

Mar 21, 2014

I was referring specifically to software engineers. I've seen a few get an MBA and it has helped them transition from being a code monkey to more of a manager/strategic role. These people might be able to work on the street as a programmer, but they're getting an MBA to try to become a VP or exec at a tech company.

But regardless, that's a specific example and not who this post was geared towards. If you want to work in tech, work in tech. Don't spend 100k on a degree that isn't really relevant.

Mar 20, 2014

Agreed. We hear all the hype over Stanford GSB being an incubator of start-up talent, but guess what? Most successful Stanford start-ups are from undergrads or Stanford dropouts. Where are the hundreds of amazing businesses coming out of Stanford GSB or with senior people hired out of GSB? Short answer--there aren't a bunch.

Mar 22, 2014
DCDepository:

Agreed. We hear all the hype over Stanford GSB being an incubator of start-up talent, but guess what? Most successful Stanford start-ups are from undergrads or Stanford dropouts. Where are the hundreds of amazing businesses coming out of Stanford GSB or with senior people hired out of GSB? Short answer--there aren't a bunch.

Bonobos and Trunk Club are GSB grad founded startups (the TC guy was also part of Bonobos).

Mar 22, 2014
TechBanking:
DCDepository:

Agreed. We hear all the hype over Stanford GSB being an incubator of start-up talent, but guess what? Most successful Stanford start-ups are from undergrads or Stanford dropouts. Where are the hundreds of amazing businesses coming out of Stanford GSB or with senior people hired out of GSB? Short answer--there aren't a bunch.

Bonobos and Trunk Club are GSB grad founded startups (the TC guy was also part of Bonobos).

That doesn't nullify my point even remotely. There are about 400 students in each GSB class. People fall all over themselves at the idea of going to Stanford so that they can become the next mega millionaire entrepreneur. The reality is, there aren't a bunch of successful start-ups out of GSB. There are barely a handful spread out over 4,000+ graduates. There are more successful Stanford start-ups from Stanford undergrads and dropouts. The reality is, you don't need business school to become an entrepreneur. The OP is correct--going to business school so that you can join a start-up is idiotic.

Again, to your point--there are people who win the lottery. However, playing the lottery is mathematically a negative investment. Just because a few people defy the odds doesn't mean it's good strategy. And it's bad strategy to attend business school if your sole intent is joining a start-up.

Mar 20, 2014

Why can't people get involved in a start-up before or during an MBA? You'll have more free time and be able to try it before you buy it.

Honestly, people need to create shit instead of running to another persons creation.

Mar 21, 2014

While I agree, I feel that current sentiment is along the lines of - creating shit just to create it; too many people romanticizing the industry (although, to be fair, finance is often the same way).

Mar 21, 2014
Anihilist:

While I agree, I feel that current sentiment is along the lines of - creating shit just to create it; too many people romanticizing the industry (although, to be fair, finance is often the same way).

I agree. Another issue I have is that everyone wants to be the next Facebook. Only a rare few will make it to that level. If people would simply focus on creating the next $250,000 idea in their free time you'd see a lot more good ideas realized. Might not be Tesla sexy, but it is realistic.

Mar 21, 2014

Considering a lot of startup founders or initial staff were college dropouts, why on earth would you do an MBA to enter the startup scene? What can those guys teach you at b-school considering many were never even involved in the scene? You don't need an MBA to be part of the start-up scene.

Mar 22, 2014

How about you leave MBA and make $300-400k in PE or HF? Forget about $220k...

Mar 22, 2014

While I agree with your financial assessment of the decision, I think it fails to touch on the actual reason people go to startups... They're the 'cool' jobs right now, and it feels better to tell your friends and family that you will be "creating value" and "driving the economy" rather than working for an investment bank. That's the Decision Point. As another user mentioned, it is basic herd mentality.

I am not sure how you are estimating the "quality" of the applicant pool for Wall Street jobs, but I think you are wrong if you believe it is getting easier to get a job. The numbers at my bank (BB) have gone up since 2009 while the total number of positions has decreased for almost every major bank. Since there is no public information available in support of a decline or a rise, I think you should drop this argument. It's extremely tough to get a job on Wall Street, especially in IBD (or front office in general), that would allow you to rake in the kind of money your model assumes.

Mar 22, 2014
TheDiscountRate:

While I agree with your financial assessment of the decision, I think it fails to touch on the actual reason people go to startups... They're the 'cool' jobs right now, and it feels better to tell your friends and family that you will be "creating value" and "driving the economy" rather than working for an investment bank. That's the Decision Point. As another user mentioned, it is basic herd mentality.

I am not sure how you are estimating the "quality" of the applicant pool for Wall Street jobs, but I think you are wrong if you believe it is getting easier to get a job. The numbers at my bank (BB) have gone up since 2009 while the total number of positions has decreased for almost every major bank. Since there is no public information available in support of a decline or a rise, I think you should drop this argument. It's extremely tough to get a job on Wall Street, especially in IBD (or front office in general), that would allow you to rake in the kind of money your model assumes.

@"TheDiscountRate"

Is it difficult to get into IBD even at top tier business schools? There is so much conflicting info. A lot of finance clubs I spoke with said odds were good and that majority of IBD job seekers are successful

Mar 23, 2014

It depends on your definition of difficult. If you're talking about how H/S/W place into bulge bracket banks, then yes, of course you are looking at a majority of the job seekers enjoying success.

But if it is hard to get a job in investment banking, one should expect good success rates from the top business schools. That is, after all, one of the things makes them top-tier.

Mar 22, 2014

You stated yourself there are more people going to start ups from an MBA and yet that has literally no impact on the pool of applicants to Wall Street?

It certainly does

That said, yes our sample size is small, we don't have writers around the world at 100 locations but...

I guess the real point is if you have the choice to go to Wall Street versus a start up...

Well go to the street. Will leave it at that.

A start up job is certainly NOT a bad job at all. We are simply saying if you have the choice go to the Street.

Perhaps you disagree with that assessment and that's cool.

Mar 23, 2014

Right, but I also mentioned that the number of jobs available (Associate, specifically) has likely decreased significantly across the bulge bracket (because it has at my bank). I suppose we just disagree on which variables have had the most prevailing impact on the chances of getting an offer from a BB bank.

Ultimately, neither one of us can prove or disprove our opinions because we lack the data to settle the argument.

I agree with your primary argument- The bulge bracket offer is the right decision from an expected value point of view. (I did, after all, accept a job at a bank..)

But not everyone is good at math, and fewer are fully capable of truly rational economic decision making.

Mar 23, 2014

I am an IBD Analyst from top tier bank (GS/MS/JPM) who also found/runs a tech start up company alongside my full time job in banks. In total it's like 120 hours+ a week for me but it's totally worth it.
I agree with OP from my experience. Working in banks provides me with all the capital I need for my business without the needs for seed funding/angels. More than that, IBD in top tier bank also gives me a track record and a "brand" that I can use to network to advance my business. Not to mention all the technical skills that IBD has taught me about valuation and how to analyse company data.
Although I didnt do MBA, an advice for those who has both start-ups offer and bulge bracket offer: choose banks. For many reasons that OP has mentioned, I have never regretted starting in IBD although having found a business myself. It's once in a life time chance to meet many incredible people AND even if you change your mind, when you leave banking, you're still better off than if you didn't.

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Mar 23, 2014

Another consideration would be the size and nature of startup. Not all startups are equal. If you go to work at Nest Labs, then it wouldn't have a lot of the downsides a no-name 6 month old 3 person startup would have.

Mar 24, 2014

Not to mention that not everyone wants to do banking. It seems like personal interest and liking has been completely discounted here! What if you WANT to work at a startup?

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Mar 25, 2014
RustyR:

Not to mention that not everyone wants to do banking. It seems like personal interest and liking has been completely discounted here! What if you WANT to work at a startup?

You probably won't ever land a banking job with your critical reasoning skills. The answer to your question is, don't go to business school if your desire is to join a start-up. They have absolutely nothing to do with one another and getting your MBA doesn't increase the likelihood that the start-up will succeed.

Mar 27, 2014

Yeah, I think the article was written with the intent to elucidate the difference between the financial compensation of the two paths. It's not surprising that "wanting" to go to a start-up has not been taken into account, because that's an unknown variable and can't be simply thrown into the model.

Mar 25, 2014

I have a friend who was employee no 7 in a $30,000 start up at the time, that company is worth $12 Billion with a B on the NYSE today. I bet he din't read this article.

Mar 25, 2014
Capo:

I have a friend who was employee no 7 in a $30,000 start up at the time, that company is worth $12 Billion with a B on the NYSE today. I bet he din't read this article.

Did your friend join the start-up after graduating from an MBA program in lieu of going into finance? If not then your anecdote is utterly meaningless to this discussion.

On another point, I know a person who has won 2 $10,000 lotteries within the same month. Should that person have quit his job by assuming he'd win 2 $10,000 lotteries a month? Doesn't seem like a very sound strategy. In the same way, it's not a very sound strategy to join a start-up and assume that you'll create a billion dollar company. You join a start-up expecting the worst and hoping for the best, but the worst cast occurs in more than 90% of businesses and the absolute best case scenario--a billion dollar + company--happens so infrequently that I doubt it could even register statistically with 2 decimal points.

Mar 26, 2014

By no means am I suggesting that this is what everyone should follow. That guy was indeed an engineer, big on coding and not an MBA. I just wanted to make a point that if one is going with a start up, you gotta dream big. To make 20-30k less or more at a start up is inconsequential, pick a steady career over that any day.

Mar 27, 2014

I bet he didn't either, given the fact that the article was written in March 2014 and your friend likely joined that company 2-10 years ago.

Chronology :)

Mar 25, 2014

Everyone has "a friend"

Hey guys I have "a friend" who did X and is now worth $Y. This disproves everything!

Fact is, if your "friend" did succeed, chances are he did not get an MBA and actually had the correct skillset for a start up. Eg: likely an engineer as someone alluded to here. If you have the value/skills to hop into a start up that is fine, if you're a fresh grad with no skills that a start up will respect = paved.

Final note when someone says "a friend" then goes into their story, chances they are really "friends" is next to zero. Usually an acquaintance at best.

Calling a spade a spade here.

Mar 25, 2014

Full disclosure: I read very few of the comments after the first 10 or so.

It all depends on what you want to do with your life. If you want to be an entrepreneur or a VC GP, the startup route, however uncertain, can be better than Wall Street. It's not about the money now or later for some. It's about the opportunity to do something big. Underwriting an IPO is one thing, taking a company through one is totally different. neither is "better", but for the guy who wants to be going through the IPO, the startup route may just be much better.

Mar 25, 2014

Joining a start-up is like winning the lottery: sure some people get it done, but at the end of the day so much of it is sheer luck. I would much rather guarantee myself a lavish lifestyle instead of hoping of dreaming that my $30k salary and 0.1% equity is worth something one day. Oh wait, I'm not factoring in the "meaningfulness" of working 120 hours a week to create shit that probably no one will use.

And whoever said getting into IBD is tough as an associate from an M7 must be as retarded as the post-MBA associates themselves.

Mar 30, 2015

Working as an IB analyst wont gurantee you a lavish lifestyle. 300-400k in NYC in your thirties is far from lavish lol.

Aug 29, 2015

Edit: I am an idiot.

Mar 29, 2014
WallStreetPlayboys:

The final push that solidifies the job security issue is simple, what is more likely to go belly up? Morgan Stanley or a Start Up?

I think former employees of Merrill Lynch, Lehman Brothers, Bear Stearns, Salomon Brothers, et. al would tend to disagree with you.

If anything, the past five years have shown us that job security is a figment of the imagination at bulge brackets.

Mar 29, 2014

If you have a bulge bracket on your resume then you have great job security. I know a ton of Bear Stearns and Lehman guys who not only landed on their feet but who have actually thrived post collapse. Even if you get laid off from one of these firms you will land on your feet, especially with the right academic credentials.

Apr 1, 2014

I am really struck how people on this thread seem to focus on "career" and "money".
The start-up work environment is dramatically different, the skills required for the job not really similar as in investment banking and the aspirations diverge dramatically. I would suggest readers to go on start-up forums and see there how many people would consider a career in WS... for the money and the glory? Or for the politics, brain damaging work, sale pitches to clients, "creative" valuations and health destroying tombstones?

[Author of The Investment Banking Eyeopener Blog on ibeyeopener#blogspot#co#uk]

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Apr 1, 2014

Right, because entrepreneurs live in a stress free padded environment where success and 30 hour work weeks are guaranteed. May I ask who your pot dealer is?

Apr 13, 2015
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