Hacking inequity: how to engineer a career out of venture capitalist greed
The world we live in today has more inequity than ever.
The average person born today stands an overwhelming probability of being poor, and a tiny, almost infinitesimal chance to become absurdly ultra-rich.
There is no in-between.
Maybe in the 60s there was such a thing as a “middle class”, but this once fat economic band has all but disappeared.
We see winner-takes-all style economics play out in every arena from sports to authorship to business to media.
This is Kylie Jenner.
At the age of 21, her net worth stands at over $1 Billion.
This is most likely larger than the combined total net worth of the poorest 90% of her entire 150 million Instagram following.
Well done Kylie.
The combined market cap of the five FAANG companies stands at around $2.3 trillion. To put that in context the GDP of the entire U.S. was just over $20 trillion in 2018.
Read that again.
Five companies are worth 10% of the entire yearly output of over 330 million hard-working U.S. citizens.
And the millions of defunct tech startups that failed to make it to this elite club are now worth literally nothing in comparison. What’s more, you have never even heard of them - and this is what makes it so dangerous.
Survivorship bias ensures you most likely have a mistaken idea of your own probability of success since you never see the failures.
We live in what Nassim Nicolas Taleb would call Extremistan (as differentiated from Mediocristan) and the world is becoming more, not less, extreme by the day.
This runs counter to our intuitive way of thinking.
We are apt to consider results roughly proportional to efforts. Not so!
Taleb shows us that random chance plays a much larger part than most are willing to admit and wildly compounding effects mean that tiny advantages are amplified into enormous differences in outcome.
So how does a smart, ambitious person maximise their probability of success in an extreme world where random chance dominates?
Well, it depends on your resources.
If you have the resources of a venture capitalist, you can expose yourself to extreme upside by spreading your bets across tens (or preferably hundreds) of startups.
Here’s how it works.
Let’s say the chance of a startup blowing up and becoming huge is 1%.
There is a 99% chance it fails and becomes worth nothing.
As a VC, investing in 100 startups makes total sense if the expected payoff of just one success is more than 100 to 1.
In 2004 Peter Thiel made a $500,000 angel investment in the social network Facebook in exchange for 10% of the company.
He sold his investment for over $1B. That’s a 2000x return.
Well done Peter.
However, the maths that works for VCs does not work for individuals.
It is extremely important to understand this point.
You are not a VC. You don’t get to use their maths.
You don’t get 100 lifetimes. You only get one.
Gambling it all on a 1% chance of making it big is not a sensible decision for most people. In fact, it’s a statistical certainty that you will fail.
The fact that many people take the chance anyway is a vicious function of how information spreads - you only ever hear about the successes so your mind builds a delusional and highly biased idea of how likely extreme success actually is.
For this reason you should favour looking around at real people you know personally and real experiences.
I’d wager that the extreme successes there are in rather poor supply compared to what you see in the news stories.
So we are stuck in a quandary. How does a person of average to little means take advantage of extreme economics?
Luckily there is a hack we can leverage.
We can do it the same way people of average to little means have gotten rich throughout history:
Take advantage of the greed of those with means.
One certainty that’s been true for thousands of years and will most likely continue to be true for as long as money exists is that those who have plenty will always want more.
And in Extremistan there is no sure bet. Steady returns of 5-10% a year are a false security - you run the risk of blowup.
Smart investors are forced to expose themselves to extreme upside and the only way to do that is to spread bets across many companies, each of which stands a large chance of failure but a small but potentially unforeseen chance of succeeding wildly.
You as a smart, canny young flea can engineer a stable career for yourself by becoming indispensable to these moonshot enterprises.
And indeed we are starting to see an entire industry of people who hop from failure to failure getting paid handsomely for the mere probability that the next one might be a home run.
To play this game effectively, you have to develop a skill that has inherent leverage. Tech skills are the best example of this because software is infinitely scalable, but there are others.
Some examples of scalable skills:
- UI/UX design
- Product management
- Software development
- Marketing funnel design
Positioned correctly these skills have enormous power.
For example: a 1% increase in Stripe signup rate is provably worth many millions of dollars. If you’re the Growth Designer who can take credit for this, expect to collect a sizeable bonus.
But you don’t need to be working at a Stripe or a Facebook to take advantage of this.
Nor do you need to hang your hat on the terrible odds of starting your own unicorn startup.
You can smooth things out so your potential payoff isn’t quite so astronomical, but your risk of being worth nothing becomes negligable.
This is a worthy trade for almost everybody.
As long as you have a scalable skill, you can ride on the coattails of VC money.
Any VC that wants to take a punt on a tech moonshot must invest in your kind of scalable skills or they will never make it.
They don’t have any choice.
In short, they need you.
As a matter of fact, you can build an entire career out of startups that never make it. You simply ride the wave of other people’s money taking chances.
On the off-chance that the company actually does succeed, you may get a nice employee equity payoff (probably not a life-changing amount) but far more importantly, you can catapult your own career off the back of the company’s success.
“I designed the onboarding flow for X startup that grew from 100 to 100 million users in five years.”
So your rate is $30k/week you say… Where do I sign?
But even if the startup doesn’t make it, it doesn’t torpedo your career.
You still get paid, and you can still land a job at the next potential unicorn because someone will always need to get leverage on your skills.
Your upside is potentially unbounded, and your downside is a nice fat salary.
So you’ve hacked the system. You get exposure to extreme events, but you still guarantee a steady paycheque in the more likely scenario that you don’t hit the jackpot.