I went on an interview at another flaky startup. When a startup is in one of those “shared office space incubators”, that’s a red flag. Allegedly, the NYC government is wasting taxpayer money financing startups, which means it goes to people with political connections but not good ideas nor the ability to execute.
The head programmer said something hilarious. He said “We have to implement a lot of automated unit tests and test driven development.” I replied “That’s premature optimization. At this stage, all your resources should be invested in developing version 1.0 of your product. You only have 20 users. Wait until you are bigger, before introducing automated testing. I’d only introduce automated tests for problems that actually arise. Test driven development is a waste of resources, especially for an early-stage startup.”
He replied “Most VCs ask for test-driven development. They won’t invest if we aren’t using it.”
That explains why stupid ideas proliferate. If your startup is hype-compliant, you get an investment. Otherwise, you don’t get funded.
I said “Only someone computer illiterate would demand an early-stage startup invest a lot in automated testing.” He replied “Some former engineers are advising the VCs. Therefore, they are correct.”
It’s pretty obvious what happens. If you’re a good programmer, you’ll probably stick with writing software. If I had successfully cashed out big $ from a startup, I’d bootstrap another business while using the money to pay my living expenses. If you’re a lousy programmer, but good at promoting yourself, then you switch to being a VC adviser. If you have high emotional intelligence and low logical intelligence, you evaluate based on hype rather than technical merit.
A successful startup will have some great programmers and some great liars. The great liars will leverage their one success into lucrative jobs as advisers. As overpaid technical advisers, they will never have to produce working code and get discovered as a fraud.
The founder said “Most VCs ask ‘How are you going to scale your product?’” Again, that’s premature optimization. You need users first! You can always add more servers, and optimize your code later.
If the founder says “We’re using. NET!” or “We’re using LAMP!”, then the VC says “Boring! Next!” If the founder says “We’re using Rails!” or “We’re using node.js!”, then the VC replies “You are following the latest hot trend! How much money do you want?” If you’re using Rails or node.js, then you have the hype-compliant answer to “How will your website scale?”
In this manner, the VC industry selects for hype-based businesses rather than merit-based businesses.
You might ask “Wait a minute? Don’t the VCs get paid based on performance?”
The VC is not looking for the business with the best long-term value. The VC wants to flip his shares to a greater fool in the next 2-5 years. In other words, the VC is looking for a good Ponzi rather than a good investment. With a Ponzi, the #1 priority is good hype. It’s much more lucrative for the VC to dump overpriced shares of Groupon/LinkedIn/Twitter/Facebook, than to invest in a genuinely profitable business at an appropriate valuation.
Also, most VC money is “stupid money”. Due to State law, there are huge pools of pension fund money. The pension fund manager is looking for good kickbacks and CYA, rather than the best investment. Some of this money goes to VC funds.
The VC isn’t just investing other people’s money. He’s investing money for people who are investing other people’s money. It’s nearly completely removed from accountability. The VC keeps his job as long as the hype is good.
That explains why stupid programming practices proliferate. A VC will only invest if the startup is buzzword-compliant. The VC thinks he’s smart, because former programmers are advising him. Unfortunately, the VC probably picked the least qualified programmers as advisers, rather than the most qualified.
The USA is a hype-based economy, rather than a merit-based economy.
That startup had a bunch of red flags. I probably should refuse, if they do make an offer.
It was one of those ideas that made me think “It’s sort of neat, but I don’t see it getting enough users to justify the investment.” I’ve interviewed at a lot of startups that had ideas that were sort of interesting, but I didn’t see them ever being worth enough to justify the investment.
If I stay for a month and they go broke, then I have another short-term assignment on my resume. I could not mention it at all, but then I’d have an even longer gap.
The founder is currently financing the business with his own money. I certainly could not afford to do that.
How many startups are financed by people with rich parents, blowing part of their inheritance so they can dream of being the next Bill Gates? The founder said that his father was a doctor, so he may have a decent inheritance.
They offered to hire me as an “independent contractor” rather than an employee. Why does that matter? I become an unsecured creditor, when they default and refuse to pay. Employees are priority creditors. There are more severe legal consequences for cheating an employee, than for cheating a contractor.
Many dishonest employers abuse independent contractors. The know that, when they default, it isn’t worth the hassle for the victim to sue and try to collect.
One rule of thumb is “Screw over the other person, if you can get away with it.” There is a serious risk that I won’t be paid.
The head programmer said that a lot of their code needed to be rewritten. I asked “Who wrote most of your code?” The head programmer replied “A bunch of different people.” I am suspicious that they signed a bunch of people to 1 month contracts, and then stiffed them.
Also, they will string me along while defaulting. If the payment due date is September 1, they will say “Wait one more week!” or “We almost closed a round of investment!” If I get paid on September 15 for work in August, they can squeeze 6+ weeks of free work from me. Once I’m there, the incentive is to stay, hoping that I will someday be paid. That’s the sunk costs fallacy. If your employer fails to make payroll, you should always walk. However, in the meantime, they got a month of free work from me, and I lost the opportunity to search full-time for something better.
They said “VCs are interested in our product!” A VC will always act interested, even if your product is lousy. The VC wants the option to invest later, if you do succeed. It costs the VC nothing, to pretend to be interested. The VC’s goal is to string you along, and see how your business performs before investing. It doesn’t count until the deal is closed and the money is in your account.
I asked the founder “Suppose you don’t raise VC and you don’t sign up enough customers to be cashflow positive. How much longer will you keep this going?” He replied “20 days”.
That’s a huge red flag. He was offering me a 1 month contract! The startup has zero assets. After a month, he may declare bankruptcy and default. He may have cheated other people, because he had high staff turnover.
High staff turnover is a huge red flag. If it really was a great opportunity at a promising startup, the early employees would have stayed. (However, many people would say that about me, because I switched jobs too many times. It becomes a sort of career death spiral. I’ve switched jobs too many times, therefore employers reject me. Many employers would reject me for superficial reasons, therefore I’m forced to take sketchy jobs. My most recent job counts as a sketchy employer.)
Any equity part of the offer is worthless. If I had the opportunity to invest cash in their business, at any valuation, I would refuse. Besides, if you do get an equity grant, there’s all sorts of legal loopholes for cheating minority shareholders. If they would cheat independent contractors out of their salary, they would cheat employees out of their equity share, if they were successful.
This post had a huge fallacy. That post said said “If you do work at a startup, and you have the opportunity to invest cash for extra equity, you should do that. That increases your upside if the startup succeeds,” NO! Only an idiot would do that. That stupid idea is a type of startup porn. If you’re a founder, and you can find someone dumb enough to work for free AND buy equity, wouldn’t that be awesome? I’ve yet to interview at a startup that had better business ideas than mine. If I was going to blow cash on a startup, I’d do my own thing rather than be a minority shareholder in someone else’s startup. As a minority shareholder, there’s too many ways to get cheated. I’d be very suspicious of any startup that wanted to hire me *AND* accepted an equity investment from me. I can afford to work at a failed startup for a below-maket salary for a year. I can’t afford to blow all my savings. If the founder’s only source of funding is from his employees, and not from true angels or VCs, that’s a HUGE red flag. As a great programmer, working for a below-market rate is enough of an equity investment. There’s no need to pony up additional cash. I’d also be suspicious of any startup that couldn’t afford to pay a fair salary, because that indicates they’re underfunded.
At Zygna and Facebook, early employees were cheated out of their options. After rapid growth, early Facebook and Zygna employees had unvested options that were very valuable. At Facebook, employees were fired rather than be paid for their unvested options. Zygna demanded that early employees give back unvested options, or be fired.
If they do offer equity, it would probably have a standard “4 year vesting, 1 year cliff” clause. They could keep me for 11 months, and then fire me, even after I wrote version 1.0 of their product. Paradoxically, if I do a great job, that gives them a greater incentive to cheat me!
In effect, I’d be getting a call option for a paycheck. If they do raise money, they might pay me. If not, they declare bankruptcy and default. Even if they do raise money, they could weasel out of paying, and I’d be SOL.
I should refuse, if they do make an offer. The $ amount proposed was less than my last job. There is a high risk that I could work there for a month, and then they default and refuse to pay. They probably cheated other people, due to high staff turnover. It’s probably a better use of my time to keep searching, than waste a month with them and probably get cheated.
On the other hand, I could take it and keep looking. That’s a possibility. I can take it, expecting to be cheated? That seems stupid. Maybe I should ask to be paid weekly, rather than wait a whole month? That would decrease my risk.
They haven’t gotten back to me yet, so it may go nowhere. They may not make an offer, making it a moot point.
What do you think? They sound too flaky. It’d be nice to interview at a startup that didn’t have a mediocre idea.