paul graham pittsburgh essays equity equation

I think it's because they've spent so much time in institutions. I think companies that acquire technology will gradually learn to go after earlier stage startups. But as the company grows older, the question switches from meaningless to critical. But they were overworked evolving Airbnb into the astonishingly successful organism it is now. When a startup gets bought for 2 or 3 million six months in, it's really more of a hiring bonus than an acquisition. If you're among that number, Trevor Blackwell has made a handy calculator you can use to find out. I think there are people who could, if they tried, start successful startups, and who instead let themselves be swept into the intake ducts of big companies.

The Equity Equation - Paul Graham

Obviously it's not the experience itself that's valuable, but something it changes in your brain. While perhaps 9 out of 10 startups fail, the one that succeeds will pay the founders more than 10 times what they would have made in an ordinary job. Fortunately, this flaw should be easy to fix. No one in Silicon Valley would think that. Superficially, going to work for a company may feel like just the next in a series of institutions, but underneath, everything is different. Something similar happened with blogs. It's the middle one you get wrong when you're inexperienced. Indeed, you can often do it better if you're not. Writing and Speaking, defining Property, frighteningly Ambitious Startup Ideas, a Word to the Resourceful.


How to Make Pittsburgh a Startup Hub - Paul Graham

Even if your startup does tank, you won't harm your prospects with employers. That's why we insist the groups we fund move to paul graham pittsburgh essays equity equation Silicon Valley for the duration.) And I know I don't get as deeply into things with the groups that don't speak English well. The conventional wisdom among VCs is that hackers shouldn't be allowed to run their own companies. And partly because when founders have slow growth they don't want to face what is usually the real reason: the product is not appealing enough. What's an especially productive 22 year old to do?


But blogging has not taken off recently because of any technical innovation; it just took eight years for everyone to realize the cage was open. This probably undervalues the company, though, because (a) unless your last round just happened, the company is presumably worth more, and (b) the valuation of an early funding round usually reflects some other contribution by the investors. If you start a startup, you'll probably fail. Revenue will ultimately be a constant multiple of usage, so x usage growth predicts x revenue growth. 3 The 1/10 success rate for startups is a bit of an urban legend. Demo Day presentations are only 2 minutes and 30 seconds. May 2005 (This essay is derived from a talk at the Berkeley csua.).


The reason I want to know first whether a startup is default alive or default dead is that the rest of the conversation depends on the answer. What We Look for in Founders. I'd already explained that when I talked about this issue with a, new York Times reporter: But after ranking every.C. For example, stocks are riskier than bonds, and over time always have greater returns. For example, the stated purpose of Powerpoint is to present ideas. Should you take it? 4, asking whether you're default alive or default dead may save you from this.


Essays - Paul Graham

Since this is in effect the company's profit on a hire, the market will determine that: if you're a hot opportunity, you can charge more. Half the founders I talk to don't know whether they're default alive or default dead. Another reason big companies are bad at developing new products is that the kind of people who do that tend not to have much power in big companies (unless they happen to be the CEO). There are plenty of undergrads with enough technical skill to write good software, and undergrads are not especially prone to waste money. There might be 500 startups right now who think they're making something Microsoft might buy. But that doesn't mean you should avoid raising money in order to avoid this problem, any more than that total abstinence is the only way to avoid becoming an alcoholic. Google is a sign of the way things are going. The catch is that Sequoia gets about 6000 business plans a year and funds about 20 of them, so the odds of getting this great deal are 1 in 300.


I mean they don't seem to want to take risks. So you can't make it be work to understand you. Mainly, I think, because they're not used to asking that. The New Funding Landscape, where to See Silicon Valley, high Resolution Fundraising. Don't Talk to Corp Dev. Why are undergrads so conservative? "You can sound like you're from Russia he said, in the voice of an evil Soviet henchman. Life is Short, economic Inequality, the Refragmentation, jessica Livingston. Learning from Founders How Art Can Be Good The 18 Mistakes That Kill Startups A Student's Guide to Startups How to Present to Investors Copy What You Like The Island Test The Power of the Marginal Why Startups. And yet both have the same answer: 1 1 - n whenever you're trading stock in your company for anything, whether it's money or an employee or a deal with another company, the test for whether to do it is the same. And that takes some effort, because the way software actually gets used, especially by the people who pay the most for it, is not at all what you might expect. It's hard to judge the young because (a) they change rapidly, (b) there is great variation between them, and (c) they're individually inconsistent. Want to get hired by Yahoo?


The Hacker s Guide to Investors - Paul Graham

Incidentally, notice how important it is for early employees to take little salary. Hiring too fast is by far the biggest killer of startups that raise money. It allows you to give an impressive-looking talk about nothing, and it causes the audience to sit in a dark room looking at slides, instead of a bright one looking at you. 3, here's a common way startups die. It's to make something people want. It's fine to have an accent, but you must be able to make yourself understood. But it's probably not that dangerous to start worrying too early that you're default dead, whereas it's very dangerous to start worrying too late. Actually college is where the line ends. At this early stage, the product needs to evolve more than to be "built out and that's usually easier with fewer people. How to Get Startup Ideas, the Hardware Renaissance, startup Growth. What does the first round of venture funding for a Web-based startup get spent on today?


Alive or Default Dead?

Everything happens slower in big companies than small ones, and product development is something that has to happen fast, because you have to go through a lot of iterations to get something good. And more generally, when you make any decision involving equity, run it through 1 1 - n) to see if it makes sense. In the general case, if n is the fraction of the company you're giving up, the deal is a good one if it makes the company worth more than 1 1 - n). N (1.2 -.2.167. Your early twenties are exactly the time to take insane career risks. 2, startups that don't raise money are saved from hiring too fast because they can't afford. That last one is a big problem. And so the idea for most of the twentieth century was that everyone had to begin as a trainee in some entry-level job. Acquirers are protected paul graham pittsburgh essays equity equation on the downside, but still get most of the upside. Grad school can be a pretty good deal, even if you think of one day starting a startup. It would improve the average startup's prospects by more than 43 just to be able to say they were funded by Sequoia, even if they never actually got the money. Most batches we have groups that do this.


Now it's so low that it has disappeared into the noise. But that's not what I said, or what I think. I think there are a lot of undergrads whose brains are in a similar position: they're only a few steps away from being able to start successful startups, if they wanted to, but they don't realize. It sounds to me as if the founders are still the most powerful people in the company, and judging by Google's performance, their youth and inexperience doesn't seem to have hurt them. The most productive young people will always be undervalued by large organizations, because the young have no performance to measure yet, and any error in guessing their ability will tend toward the mean. It's obviously better for the people who start the startup, because they get a big chunk of money up front. A startup founder is always selling. But it's not necessarily a mistake to try something that has a 90 chance of failing, if you can afford the risk. And yet when they buy some startups and not others, no one thinks of calling that unfair. Grad school makes a good launch pad for startups, because you're collected together with a lot of smart people, and you have bigger chunks of time to work on your own projects than an undergrad or corporate employee would. Now publishing online is becoming so popular that everyone wants to do it, even print journalists.


How to Make Wealth - Paul Graham

In the meantime the founders were terribly overworked. Or more precisely, I think few realize the huge spread in the value of 20 year olds. A Public Service Message I'd like paul graham pittsburgh essays equity equation to conclude with a joint message from me and your parents. And he'd be right. All this talk about investing may seem very theoretical. So instead of thinking about what employers want, you're probably better off thinking directly about what users want. Instead you'll be compelled to seek growth in other ways.


It's hard to say precisely when the question switches polarity. And could I have honestly claimed that he was harming his future- that he was learning less by working at ground zero of the microcomputer revolution than he would have if he'd been taking classes back at Harvard? But as a founder your incentives are different. All through college, and probably long before that, most undergrads have been thinking about what employers want. They raise their first round fairly easily, because the founders seem smart and the idea sounds plausible. They won't necessarily buy them outright. And so, as people generally do with admissions of failure, they put it off for as long as possible. The Open Cage With both employers and investors, the balance of power is slowly shifting towards the young. Since the best startup ideas are by their nature perilously close to bad ideas, there is little room for misunderstanding. This was true when their parents were in college, but it's less true now. Airbnb waited 4 months after raising money at the end of Y Combinator before they hired their first employee. 2, the obvious choice for your present valuation is the post-money valuation of your last funding round.


What the Bubble Got Right - Paul Graham

But what really matters is what customers want, because they're the ones who give employers the money to pay you. They hope further investment will save them. And yet a lot of the people you encounter as a founder will initially be indifferent, if not skeptical. In 1995 we thought only professional writers were entitled to publish their ideas, and that anyone else who did was a crank. They have more than enough technical skill.


Why go work as an ordinary employee for a big company, when you could start a startup and make them buy it to get you? The route to success is to build something valuable, and you don't have to be working for an existing company to do that. Any conflicts between them have been ironed out under the very hot iron of running a startup. But in practice investors discount merely predicted revenue, so if you're measuring usage you need a higher growth rate to impress investors. And they either don't work for the big company, or have been outmaneuvered by yes-men and have comparatively little influence.


Founders Accents - Paul Graham

So what you should invest in depends on how soon you need the money. You don't need someone else to tell you what users want, because you can figure it out yourself. Any company that hires you is, economically, acting as a proxy for the customer. How much of an additional margin should the company need as the "activation energy" for the deal? General and Surprising, charisma / Power, the Risk of Discovery. Ultimately you always have to guess. The reason risk is always proportionate to reward is that market forces make. The case I was talking about is when founders have accents so strong that people can't understand what they're saying. The three big powers on the Internet now are Yahoo, Google, and Microsoft.


They delayed for an entire year, and when they did finally take a CEO, they chose a guy with a PhD in computer science. With a presentation that short, you can just memorize it at the level of individual phonemes. That kind of switch often takes people by surprise. Plus founders who've just raised money are often encouraged to overhire by the VCs who funded them. The companies that make it through are not average startups. A lot have been paul graham pittsburgh essays equity equation told by their parents that the route to success is to get a good job. This Year We Can End the Death Penalty in California. This kind of thing is out there for anyone to see. Grad School I didn't consciously realize all this when I was graduating from college- partly because I went straight to grad school. When you only have one Web browser, you can't do anything really risky with. The end of school is the fulcrum of your life, the point where you go from net consumer to net producer.


And yet they seem the last to realize. (I said so in the interview, though that got cut from the published version.) There's an important message here that I want to get through to founders, and the danger of people misrepresenting what I said is not just. The big change that "experience" causes in your brain is learning that you need to solve people's problems. My guess is a significant number. Failing at 40, when you have a family to support, could be serious. Notes 1, this is why we can't believe anyone would think Y Combinator was a bad deal. If your valuation grows 3x a year, the total cost in stock of a new hire's salary and overhead.5 years' cost at the present valuation. Most organizations who hire people right out of college are only aware of the average value of 22 year olds, which is not that high. So it is pretty well established now that grad students can start successful companies. For the average startup, that would be an extraordinary bargain. David Filo and Jerry Yang started the Yahoo directory in February 1994 and were getting a million hits a day by the fall, but they didn't actually drop out of grad school and start a company till March 1995. The rate at which they value you (though they may not consciously realize it) is an attempt to guess your value to the user. When a startup spends a lot, it's usually because the product is expensive to develop or sell, or simply because they're wasteful.


Hiring is Obsolete - Paul Graham

And I think that's more efficient than doing the two separately, because you always get people who are really committed to what they're working. Company by its valuation, Graham discovered a more significant correlation. Investors' power comes from money. But you'll have a much more enjoyable life once there than you would on a regular grad student stipend. They don't care if the person behind it is a high school kid.