Is software a great industry to job hop?

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JASON LEMKIN

Yes.

But then you will never make any money off your equity that way.

Sure, if you stay for a year, you may vest into a bit of stock. And it might even seem like, if you quit after you hit your cliff, and do another start-up, you’re collecting more stock from more companies, and you might do better this way.

But that’s wrong:

  • First, obviously if you leave before Year 1, you get no stock at all. Keep leaving and leaving and you may get nothing.
  • More importantly, even if you leave at Day 366 (i.e., getting to your cliff), you won’t really get 25% of your stock. That’s because if you are good, as long as the company you are at is under a few hundred employees — you’ll get more options. Either you’ll get promoted and get more options (promotions are quick in a start-up if you are a rockstar), or you’ll get more options because in a start-up, you can easily be appreciated if you rock. So really if you leave after Year 1, you’re probably only getting 15% of your total expected options.
  • If the basis/strike price is other than nominal, you have to pay to buy your stock. And it may be too expensive to buy all of it when you leave. This is a downside of the monster, high valuation rounds these days (combined with the relatively modest discounts for common stock to preferred since the mid’00s). In which case, you’ll end up with nothing. If you stay through a liquidity event, this issue goes away. More on this problem here.
  • If you get RSUs instead of options, in some cases, you may get nothing when you leave anyway pre-liquidity event.

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Published on July 8, 2016
  • BobWarfield

    Jason, you’re right about the absolute amount IF YOU SUCCEED. But you haven’t considered the probability of success. Having multiple jobs is the only way an individual can get a portfolio effect like what VC’s take for granted.

    Let’s do a simple Monte Carlo simulation. Here are the assumptions:

    – You can either stay in 1 job for 8 years (about what it takes to go from 0 to liquidity in round numbers) or you can take 4 jobs and stay 2 years each.

    – Your chance of picking a winner is 1/8. 1 in 8 deals wins. That’s actually pretty good odds for VC’s, perhaps an individual can do better, but perhaps not.

    – If the 1 job guy gets a win, he gets 100%. If the 4 job guy gets a win, he gets 30%.

    Now we do 5000 iterations of that in an Excel spreadsheet for a Monte Carlo simulation. Here are the results:

    – The 1 job guy only has a 14% chance of getting his 100% of shares to return. I wonder how many would sign up for a startup if they soberly concluded those were the odds?

    – The 4 job guy has a 42% chance of getting his 30% of shares in the money.

    Whoa!

    Way better odds for the portfolio effect. So now the decision is a utility curve issue. Say we’re talking $10 million. Do you want a 14% chance at $10 million or a 42% chance at $3.3 million?

    How lucky do you feel?

  • Philippe Kahn

    No, software and real high-tech companies are not good companies to job-hop. Quite the opposite. Venture capital plays statistical games to win. It works for venture capital funds because they get to invest in hundreds of companies. Statistics makes sense for large datasets. As a talented professional don’t be a statistic. Pick carefully, a challenging technology and a very talented team with proven track record of IPO and high valued M and A success, leadership with real technology vision, real IP with serious patents issued, hop-on and enjoy the rocket-ship ride! ,

    You will benefit from the “perseverance effect”. Perseverance is the key to success in breakthrough visionary companies. Persevere in where your engineering talents are not in stock market style job speculation. That almost never works. It works for venture capital funds because they get to invest in hundreds of companies. Statistics makes sense for large datasets. As a talented professional, a few jobs are meaningless statistically and you will not benefit from the “perseverance effect”.

    I personally interview with my talented team often job hoppers that have little to show. Right now we are recruiting experienced data-scientists, and I am amazed at the job-hopping and in the end at the opportunity lost of learning deep team-play know how which is key to be successful in a talented team. But then they hopped so much that we are hesitant to make them part for the team. If we are talking about a real technology startup that needs to build a differentiated technology platform, perseverant core talent is key.

    Think of it as a sports team: The best ones built their talent and team play over time. Stick with the rocket-ship, hop-on and enjoy the ride!

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