FAQ: How to Get a Job at a Silicon Valley Startup

Venture Capitalists (VCs) put up the capital (the money) for new companies (called startups.) They create startups by bringing capital, management, and connections. Yahoo, Amazon, and Google were all startups.

Show Me the Money!

If you join as staff at a startup, you get a salary. You may also get stock options and a stock purchase plan. Just because it's a startup doesn't mean that you get this automatically. You negotiate these items.

• Stock Options: This generally means the right to purchase stock at a set price. For example, during your salary negotiation, the stock price to you may be set at $5. If you get 1,000 shares (just an example number) and the startup becomes a success and the stock shoots up to $200, your options are worth $200,000. You exercise your option by buying the stock at $5/share (or $5,000) and taking possession of $195,000. (I'm using simple numbers here. The actual amount of stock will depend on how many shares have been issued, etc.)
  In some cases, you can ask that a company give you stock options instead of a signing bonus.
• Pre-IPO Stock: If you join the company before it goes public, then you may be granted pre-IPO stock options. (IPO stands for Initial Public Offering.) Generally, these are very low, such as $2/share. If the company goes up to $200, your 1,000 shares become $200,000.
  You should not count the pre-IPO stock as income. Pre-IPO stock is extremely speculative.
• Employee Stock Purchase (ESP): As an employee, you may have the right to buy additional stock at a discount. For example, can be set to the lowest price that the stock reaches on the stock market during a six-month period.
  For example, you join the stock purchase plan in December. Starting in January, up to 10% of your annual salary will be deducted (for example, you earn $100,000, so $10K is deducted. Monthly, that's $833.) On the stock market, the stock is at $40. In February, the competition comes out with a killer product and your company's stock dives to $15. So everyone works 16 hr days and in May, your company ships a mega-killer product and your stock skyrockets to $60. At the end of the six month period (January-June), your company's CFO (Chief Financial Officer) issues you the right to buy the stock at the lowest point that it reached during the past six months, namely, $15. You send an email to the stock broker with a "same day buy/sell", which means you buy it at $15 and they sell it on the market and you get the profit. (You may also just buy it and hold on to it.) In this case, $60 minus $15 is a $45 profit. Since you bought $5K of stock (half of the yearly $10K), you got 333.33 shares (at $15/share) and you sold them at $60 and earned $15,000. Your $5K turned into $15K.
  Again, these are example numbers.

So What Can Go Wrong?

Most likely, everything will go wrong. Someone else comes up with a better idea. The public refuses to buy your company's silly product. Your company's engineers leave for a better company. The VCs were using the whole thing as a front for a insider trading scheme to loot the investors. The CEO gets hauled off in manacles by an FBI SWAT team. The investment bankers flee to Brazil. (Who says the computer industry is dull?) 80% of startups fail within two years. So what happens to your salary, stock, and dreams?

You work at a startup either as an staff employee (IRS W-2 wage earner tax status) or as a contractor (IRS 1099 tax status).

• If you work as an employee (W-2) and the company goes bankrupt, your stock options become worthless.
• If your stock options are set at $15 but the 22-year old CEO goofs up and the price dives to $3, then your stock are said to be "under water." You still have the options, but you'd lose money to exercise the options, so it's worthless. So you hang on, hoping it'll rise.
• If you work as a contractor (1099), you can get excellent rates. However, you rarely get pre-IPO stock, stock options, or stock purchase.
  If the startup goes bankrupt, you will probably lose your unpaid bills. So you should NEVER work without billing weekly and getting paid within 15 days. Otherwise, you run a very high risk of not getting paid (as I said, 80% of startups fail within two years.) If you work through an agency (IRS W-2 status to a recruiter), your recruiter's contract generally won't protect you. If you work as a contractor directly to the startup (1099 status), you are an unsecured creditor. If the startup goes bankrupt, you are at the end of a long line. You might get a small fraction of your bill after 6-18 months. On the bright side, the loss is deductible.

How Do I Pick a Startup that Will Be Successful?

Someone once actually asked this. If anyone knew how to tell which startup will be successful, they'd be richer than Bill Gates. Startups are new companies with new ideas in new markets. No one knows if they will be able to build the product, get it to market ahead of the competitors, build something better, or whether the customers will like it.

Find out as much as you can about the company, the people, the idea, the competitors, and their market. Ask your friends who have real experience.

Startups can be a great learning experience and financial opportunity, but they are not easy jobs. If you want a stable job and a steady paycheck, forget startups.

Enough Philosophy. Where Are the Jobs?

So you read all of the above and you're ready to work at a startup. VCs avoid recruiters in order to reduce expenses. This means VCs have lists of jobs for the companies they are creating. A typical VC company manages about 25-50 startups. Here are several VC companies:

• Kleiner Perkins
• Menlo Ventures
• Hummer Winblad
• Bessemer Venture Partners
• Brentwood VC
• Digital Technology Partners
• Idea Lab
• Sequoia Capital
• Red Leaf
• Partech
• Draper VC

Yahoo's List of Venture Capitalists

There's a partial list of VCs at Yahoo.

• Yahoo's List of Venture Capitalists

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