Part 1: The Unaware Investor
As a fund, we are well aware that the stock market is filled with opportunities and risks. As a startup options holder, you may learn that your options turned out to be the path to unbelievable success or a painful memory of a missed chance. It all depends on the choices you make at critical intersections along the way.
The following articles in our “Think Like an Investor” content series will discuss what you should focus on before, during, and after you work at a startup in terms of the options it offers employees. We’ll discuss the similarities and differences between you and a traditional startup investor and provide tools and tips to help you make informed decisions. In other words, you’ll learn how to manage one of your most significant assets in the most effective, lucrative way to maximize its value according to your personal financial goals and needs. We will help you understand what you need to know and how to find this information.
The topics we’ll cover include assessing a startup before joining as an employee, negotiating your options,
knowing when you’re “in the money,” understanding and mitigating your investment’s potential risk, and more.
You, a startup investor
Too many employees don’t consider themselves investors and don’t realize that they are, in fact, investing. Investing their time, talent, money, and future. Decisions like joining or leaving a startup, increasing your equity share, or exercising your options make you a stock market investor in every sense of the word.
It’s important to keep in mind that investors can also lose money. The options you’re given may reach a certain when you first join the company, but their value might shift over time, leaving employees who failed to exercise their options at the right moment disappointed.
Knowing when to exercise your options is essential. About 90% of startups fail, and we’ve seen up-and-coming companies reach a less successful ending. Two examples that come to mind are Yik Yak, the anonymous messaging app that was valued at $400 million but failed to deliver, and Pets.com, which had a Super Bowl ad and a promising IPO, but reached insolvency only six months later.
Much like stock market trading, whether you choose to exercise your options or not, some risk is always involved.
So.. What do you need to know?
Venture Capitals typically have a method for examining a company before they invest. They use dedicated tools and resources that startup employees may be unaware of. On the other hand, employees have access to information that external investors don’t always get, even with detailed decks and years of experience.
We know this because, as a fund, we use these very tools and techniques. Robyn Capital has access to public and premium data resources that help paint a picture regarding each investment and assess the risk and opportunity involved. These tools remain relevant after the investment is made, as we continue to track the progress of each company and decide if and when to make our move.
Even though we’re different from VCs since we don’t invest directly in companies but rather in their employees, there are many similarities worth noting. The idea remains the same, and that’s the perspective you should embrace when observing your options. Our mission is to help employees understand how much their options and equity are worth. Assessment tools like our “Know your Worth” service are used regularly by countless employees to better understand their assets’ current value through simple tools and updated information.
Turning knowledge into action
We’ve mentioned that employees have substantial knowledge about companies they work for or consider joining. Now, let’s discuss how this knowledge can be translated into action. First, the employee-investor must assess the company’s value, negotiate the terms of their investment, just as they would any other part of the deal. Ask difficult questions, look at the numbers, and improve your position.
Don’t worry that your potential or current employer might find your questions and interest alarming. Explain that you consider yourself a very loyal employee who wants to feel like an integral part of the company. Most startup leaders would appreciate this vote of confidence and level of partnership.
As you’ll see in the next articles, each of the above points changes based on the specific timing, but they all share this basic notion. Think like an investor, know the value of your knowledge and talent, and turn this winning combination into money.
