Myth: Money showers for startup success

As part of the con­tin­u­ing series on star­tups myth, let me address the per­cep­tion that every­one in a suc­cess­ful startup gets rich.

Get­ting rich

Peo­ple out­side the startup world put way too much focus on the finan­cial rewards of star­tups in my view. Lit­tle atten­tion is paid to how excit­ing it is to put a new prod­uct out, to how amaz­ing it is to solve a prob­lem that has never been solved before, to how incred­i­ble a feel­ing it is to bring some­thing use­ful and mean­ing­ful to your customers.

The money view is prob­a­bly one of the thing that pol­lutes most of the dis­cus­sion about star­tups when it comes to chat­ting with peo­ple out­side of the tech indus­try. Many of the best star­tups of today are com­pa­nies that were founded dur­ing an eco­nomic down­turn and where many peo­ple plugged away for a long time before becom­ing the prover­bial overnight suc­cess. LinkedIn was founded in 2002, Face­book in 2004, Twit­ter in 2006: see a pat­tern? Most of the “overnight” suc­cesses are com­pa­nies that have at least 5 years in the field.

Their founders worked hard and kept on plug­ging away for a while before mak­ing it. Where were you 5 years ago? Have you worked a bru­tally pun­ish­ing sched­ule since? Paul Gra­ham once pointed out that you could make a mil­lion dol­lars by work­ing in the post office sav­ing every penny but that in a startup, you com­bine all the stress of those 50 years into 3 years and get equally rewarded.

Dan­ger­ous investments

How­ever, the real­ity is even more com­pli­cated. Some peo­ple do get the stress with­out get­ting as much of the reward. Some­times, unscrupu­lous investors will destroy the chances startup founders can have at mak­ing it big when their startup suc­ceeds. For peo­ple who are cur­rently in the startup world, I’d encour­age you to look at things like liq­ui­da­tion pref­er­ences. If it’s higher than 1x, run away as it’s a bad deal.

For peo­ple join­ing a startup, or look­ing at dif­fer­ent forms of invest­ments, be mind­ful of things like dilu­tion, option pools, or pro­tec­tive pro­vi­sions. They are all legal terms that can make huge dif­fer­ences in the com­pen­sa­tion of individuals.

For­tu­nately, there is now a lot of great advice now avail­able online. Read the likes of Fred Wil­son, Brad Feld, or the excel­lent team behind ven­ture hacks to get a sense as to what you need to suc­ceed. Their posts pro­vid­ing vis­i­bil­ity and increased trans­parency in the work­ings of the invest­ment world have pro­vided advice that would have been more than wel­come in the first dot­com boom.

It’s not about the money

Yes, it’s true that join­ing a startup can be a path to riches. But it’s also true that most star­tups fail. So if money if your main goal, please do a favor to those of us that are and have been in the indus­try through both good and bad times: stay away.

Star­tups are about chang­ing the world and turn­ing it into a bet­ter place. The money is inci­den­tal. If you don’t believe those last two sen­tences to be true, your join­ing a startup could con­tribute to its fail­ure and will fail to con­tribute to its success.

Note: this is part of a 5-parts series about startup myths. You may want to read all the parts: ideas, path, risk, money, cap­i­tal.