This article is part of DBA, a series on Mashable about running a business that features insights from leaders in entrepreneurship, venture capital and management.
Want to work for a unicorn? Know what you are optimizing for.
It's hard to read the tech press or go on Twitter without seeing mentions of "unicorn" tech startups. There are now, apparently, more than 100 of them — private companies that have received a valuation of over $1 billion in their most recent round of funding.
Many of these companies are legitimately blowing the roof off. Slack, Zenefits and Uber, for example, are growing at unprecedented rates, and their founders, employees and investors should be proud of what they have achieved.
But if you are joining one now, you may be doing it wrong.
The primary reasons to choose a career at a startup over a more comfortable, better-paying job at an incumbent are the equity upside and growth potential. Make a good choice and you can share in the company's success, enjoy a "rocket ship" career trajectory (as box after box is added to the org chart) and get an incredible education about scale and growth — an education that can be applied to your own future startup.
Make the wrong choice and you're on to the next one.
If this is indeed why you want to work at a startup, there are two major problems with joining a unicorn.
Problem #1: Future growth potential
When it comes to valuations, history has always been a guide. Bubble or no bubble, today's startups are highly valued. If you believe that valuations are going to come back down to Earth, the unicorn that was valued astronomically will likely have years of work to do to grow into its valuation. This means it will be several years before you see any appreciation of the (paper) value of your equity.
Problem #2: Liquidation preferences
This post by / Heidi Roizen about a fictional founder whose unicorn doesn't yield him or any of his employees a dollar nicely demonstrates that the last money in is the first money out. This means that if your unicorn has raised $500 million, any sale of $500M or less means that nobody except investors is getting paid. And that's with benign 1x liquidation preferences. If your unicorn's "jockey" made the poor choice of agreeing to 2x preferences, the story will be worse for you.
If you are optimizing for prestige, base salary or stability (Slack claims to have runway through 2056), a unicorn night be a wonderful place to hitch your wagon (as would Facebook, Google, etc.).
But if you are optimizing for growth and upside, your best bet is a fast-growing startup that most recently raised at a modest valuation (in terms of rarity, those might be considered the true unicorns).
So don't be shy. Ask your potential employer what the company was valued at after its most recent round of funding. Ask them how fast they're growing now and about MAUs, ARR or whatever is relevant. It's a bad sign if they don't share this information.
Then, do some math. For a company that's valued at $75M post, do you think it can grow to be worth $150M or $750M? Is there 10x upside? What are some comps for companies that have been sold for that kind of money?
And for the company valued previously at $4 billion, there may still be 10x upside — but just know that there are only 12 public Internet companies (11 if you exclude Apple) in the world today that are valued at more than $40B.
So, it's fine to want to go work for a unicorn. Just know what you're optimizing for.
