Rakesh Agrawal's blog

There are many reasons to join a startup. Camaraderie. Working with a close knit team on a big challenge. Joy (for many) of ups and downs. Being close to the center of the action. Getting to work on things that you wouldn’t be able to work on for years at a big company. Working with a great CEO.

But money shouldn’t be one of them.

Yes, you will get equity. But if you’re junior, it won’t be a lot. Yes, you could be at the next WhatsApp, that sells for $19 billion. But the odds of that are exceedingly slim.

I’m often asked whether someone should join a startup or a big company.

If your primary concern is maximizing financial outcome, statistically, the best choice is to join a big company.

Evaluating compensation at a big company is fairly easy. You’ll typically get at a salary, a bonus and possibly some RSUs. These are company shares that you get over time.

It’s harder at a startup. You’ll get a salary and equity. (Possibly a bonus.) Equity typically comes in the form of options. This gives you the right to purchase a certain number of shares at a certain point, once it is vested. The typical vesting schedule is over four years. At one year, 1/4 of your shares will have vested. After that, shares vest proportionately monthly.

I’ll explain a rudimentary method of calculating the value of your equity. The short version is that you should expect your equity to be worth zero.

For the simple math, you’ll need to know the percent of the company you will have if you are fully vested. The company will tell you the number of shares of the initial grant. They should also tell you the number of outstanding shares. (If a startup won’t tell you the number of outstanding shares, that’s a strong signal you shouldn’t work for them.)

Let’s say you have a grant of 10,000 shares and the company has 10,000,000 shares outstanding. That gives you 0.1% of the company.

Now you can model potential outcomes. You can plug in your own numbers to see what it would be like for you.

If the company sells for $10 million, that 0.1% would be worth be worth $10,000. At $100 million, $100,000. At $1 billion (extremely unlikely), $1 million.

“That sounds pretty good.”

Not so fast. That represents a most likely best-case scenario. It assumes that your shares don’t get diluted down. If the startup needs to raise more funding, then your stake would shrink. It could become 0.05% or less. It also assumes that you stay there the full four years. If you leave within the first year, you get nothing.

There are also a lot of other potential complications, if your company (like most) struggles. Future investors may want protection on their investment. They might be guaranteed a certain return on their investment; that happens before any employee sees anything.

And we’re not done yet. Let’s assume that when you joined the company, you were deciding between $125,000 at the startup and $200,000 at the big company. That means that in addition to working longer hours, you are investing $75,000 a year to work at your startup. (The foregone salary.)

So to get your 10,000 shares, you’ve essentially paid $300,000. That’s a lot of money to invest in one company. Would you invest that much in any other company?

“I’m the best developer on the planet. The company has the best management team ever. They’ve got the best VCs. I’ll make it big.”

There are still many factors outside of your control that could break your company. A competitor may come out with a better product. Consumers may not want your product. A regulator could shut you down. The overall macro environment could go to hell and no one will want to buy anything. I can think of many well pedigreed companies that got a lot of buzz that are struggling.

“So you’re saying I shouldn’t join a startup?”

I’m not saying that at all. I’ve done startups and big companies. The startups are a lot more fun. I got to build products, meet potential partners and go on sales call. Moving the needle on a small company is a lot easier than moving the needle on a $100 billion company. It gives you a great sense of accomplishment, even if you don’t ultimately succeed.

“But I want money and my foot in startups.”

It used to be you couldn’t. But with AngelList, you can. You can take the difference in salary and invest it in a portfolio of startups. (To do this, you have to be an accredited investor. I won’t get into details here, but if you’re making $200,000 a year, you probably are.) You can take the difference in salary (or a portion of that) and invest it across a portfolio of companies. Invest $10,000 in each of 5 companies.

The odds of 1 of those 5 companies making it big are greater than the odds of 1 of 1 company making it big. This is what VCs do, they invest their money (really, other people’s money) across a number of companies. They fully expect most of their investments to fail, but to make it big on one or two.

“What should I do?”

That’s a very personal decision. I can’t answer that for you. But I hope that this post will give you a framework to make an informed decision. If you have questions, hit me up at @rakeshlobster and I’ll try to help.

I was at Great America amusement park yesterday, getting my annual dose of being dropped from towers and jolted on roller coasters. When we stopped to eat, we saw a bank of food-ordering kiosks.

As unlikely as it may seem, it is a symbol of income inequality. That kiosk allows the park to reduce staffing. Instead of having someone wait while a customer makes a decision, push the ordering buttons on the machine and then take payment, the customer can do all that work. The staff just prepares the food and presents it at the pick up window.

Those kiosks are taking away people’s jobs. A much smaller group of people at Nextep Systems has much higher paying jobs.

Those jobs are at the low-end of the pay scale. But we’ve seen it happen up-and-down pay scales as technology gets better and better.

I’ve been saying for a couple of years now that the rise in economic inequality will cause an uprising among disaffected voters. We’re starting to see that come to pass.

Faced with diminished prospects, voters are turning to an outsider who they think will address their concerns. Never mind that the person they’re looking to is a hateful, deceitful billionaire who has left a trail of bankruptcies.

I’ve been trying to put myself in the shoes of Trump voters; to understand why they support him.

I can see a lot of reasons to be bitter about the status quo, especially if you’re living in the middle of the country.

I grew up in Michigan, the son of an autoworker. My dad came to the United States at 29. His college degree from India didn’t count here, so he worked on automotive assembly lines. It was a decent wage that allowed him to bring me and my family over. While working that job, he went on to get an associate’s degree at the community college. He turned that into a job as a computer programmer.

We lucked out.

But today, people aren’t as lucky. In my lifetime, the minimum educational requirement for a middle-class job has gone from no schooling, to high school to a college degree.

What people don’t like to talk about (not politicians and certainly not tech folks) is that a lot of those jobs have been lost to technology. Walk through a car factory today; most of the work is done by machines. Jobs like what my dad did weren’t exported. They just don’t exist. Trump harps on Ford building a plant in Mexico. He ignores the fact that BMW, Toyota, Mercedes, Hyundai, Kia, Nissan, Honda and others all operate plants in the U.S. It just takes fewer people to build each car.

You used to be able to make $30 an hour without having graduated high school. In the Midwest especially, manufacturing jobs were plentiful. If you could turn a wrench on an assembly line, you could make a middle-class living.

(To be sure, there are jobs lost to China. But those jobs aren’t coming back. They’re more likely to be automated away in China as well. There are also jobs being lost to resource depletion. There’s only so much coal you can mine. Those jobs aren’t coming back either.)

We are seeing this in every aspect of society. Service jobs, once though immune from disappearance, are also being automated away.

Some tollways have implemented all-electronic tolling. You used to have to give your $6 to a few people standing in a booth on your way into the city. Those jobs used to pay $40,000-$50,000 a year. If your skill set is making change, where are you going to go to earn that kind of money?

It would be absurd to argue that we should still have toll collectors. It’s clearly better for society that we can zoom through the toll gates. We reduce our commute times. We reduce our carbon footprint. (Less time spent in traffic.) That’s a net good. Unless you’re the person who lost your job.

True, there aren’t that many toll collectors. Multiply this by hundreds of industries and you begin to see the scope of the problem.

I remember waiting in line for more than an hour to deposit my paper route money in the bank, along with all the autoworkers who’d just gotten their paychecks. Now, ACH makes that happen instantly. I don’t have to go to the bank; I almost never do. All of those tellers required to take deposits? No longer needed.

Technology like Smart Meters connect our power meters to the grid. I can log into PG&E’s Web site and see minute-by-minute usage details. By shifting some energy-intensive tasks (like dishwashing and laundry) to the evening, I can reduce stress on the energy grid and save some money. But PG&E no longer has to pay someone $40,000 a year to drive by and read my meter.

Airlines used to employ tens of thousands of people to check in travelers. You’d wait in line to speak with someone who would look at your ticket, print out a boarding pass and and staple your ticket coupon to the boarding pass. Someone would collect your ticket at boarding. Those paper tickets would be sent for reconciliation and settlement. Now, I pull up an app, click on my flight and I have my boarding pass. Reconciliation and settlement are done electronically. I no longer have to wait to accomplish a menial task.

Some of these jobs get chipped away slowly, in ways you don’t even think about. For residential deliveries, UPS will try three times before they will return the package to the sender. With technology, UPS now allows you to delay a delivery, send the package to a neighbor or have it held for pickup. No more missed deliveries. But those deliveries are fractions of someone’s job.

These examples could go on an on. In most of these examples, technology has greatly improved consumer convenience. It has also dramatically increased the efficiency of society. But, your inefficiency is someone else’s paycheck.

YouTube and Google also have an impact. In my condo building, the garage door codes had to be reset. We were all supposed to gather to have our remote codes programmed into the opener. If we weren’t there, the garage guy would have to come back again for $250. I couldn’t make it. But I Googled how to program the opener and was done 3 minutes later. I always Google first when I need to fix something.

The Jetsonian promise of technology was that it would improve everyone’s lives. We’d all have more leisure time as we enjoyed the fruits of technology. Instead, the wealth created by technology has largely flowed to those at the top of wealth distribution.

There are also attitude issues that I can see causing frustration among those have become Trump’s base. Tech elites expound on the values of 10x engineers who come from a dozen elite schools. The message to many — sometimes explicit, sometimes implicit — is that those without such qualifications aren’t meaningful contributors to society.

“Universal basic income,” the idea that everyone should be guaranteed a certain income has become popular in tech circles. A less charitable interpretation would be, “Let us have all the money and we’ll give you some crumbs.”

Neither party has presented a credible way to address these issues.

The biggest thing that has been missing from the current discussion is how to address worker training. Given that many of these jobs are never coming back, how do we train the workforce for those jobs that do exist?

One way not to do is it to rely on for-profit institutions like the University of Phoenix. To a large extent, their role is to rip off the desperate, with the federal government as a co-conspirator.

Even if you solve re-training, you have the issue of geographic concentration of jobs. Clinton suggested that coal miners could get jobs in green energy. Yes, there is a need for workers in green energy. But those jobs are in California, not Coal Country. If you were born and raised in Coal Country and all your family is there, it would be hard to pull up roots.

There aren’t easy answers to these problems. But I fear that we aren’t even talking about realistic solutions. Trump wants to blame immigrants and China. For the most part, unskilled immigrants take the jobs Americans don’t want to do.

Clinton’s proposal — increasing the minimum wage — makes things like the Great America kiosks more compelling to Cedar Fair.

I was walking with my wife through an art gallery at Wynn the other day. We saw this remarkable clock that made us stop while it went minute-by-minute. We weren’t the only ones — another couple stopped, too.

Instead of standard readouts, it lights up different words in different positions. You can see it work in the video above.

Depending on the size and the material, it can cost you $15,000. The one that was in the window was $1,700.

We were thinking about buying it. Just for grins, I decided to check if the App Store had anything like it. Indeed it did. For 99 cents. It wasn’t a knock off; the company that makes the $15,000 piece also sells the 99-cent piece.

What makes art then? Obviously this isn’t as a utilitarian piece. As my wife said, she can get the time for free on her phone. We liked the design of it; that’s what really caught our eye. The design is fully represented on the iPad app. It’s even better because I can change faces and languages with the flick of a finger. (Both of which would require hundreds of dollars per faceplate.)

We can buy another iPad and mount it on the wall. Does the art have to be the acrylic or the stainless steel? A lot of people (including me) consider Jony Ive’s industrial design to be art. The iPod is in the collection at New York’s MoMA. Is it more art if we show the clock on an iPad versus an Android device?

Digital imaging is another area where technology blurs the lines. We have Vladimir Kush’s Diary of Discoveries in our home. It’s a limited edition print. It takes a lot of space on the wall. It could easily be rendered beautifully on a 4k TV. Where is the art? Is it in the JPG you see below?

Does a larger reproduction on a 4k TV constitute art? Or the hand signed, numbered print on my wall? Or is it just the artist painted original? I might actually prefer to have digital, 4k resolution images so that I can have more of them without having to worry about storage. (We can’t buy more “art” because we don’t have enough wall space.)

Photos we take could be art. We have them by the thousands in our phones, computers, iPads and cameras. But in the context of thousands of images they don’t feel that way. I’ve had several of my photos printed in magazines and books. Does the fact that someone else deemed it worthy make it art? Maybe the number of likes or shares that a picture gets? (It would be much easier to use these definitions of art if Facebook allowed me to pull up most commented, most favorited and make slideshows from them.) What if we have Shutterfly print it as a canvas triptych and post it on the wall?

Does it have to be a physical object to be art? We have an original Chihuly.

That’s an original, but they make a lot of them. And it’s highly unlikely that Dale Chihuly made the one that we have.

From a societally optimal point of view, wouldn’t it be better for me to buy the 99-cent app and donate the difference to charity?

One thing that is for sure is that art is highly contextual. Where it’s staged, your relationship to the object or image, your relationship to its creator.

In 2007, Joshua Bell performed in the DC Metro, much as a busker would. In a concert venue, Bell would have them filling the seats at more than $100 a pop. In the morning rush, people couldn’t be bothered to stop to listen to a world class violinist playing on a $3.5 million violin.

While I keep figuring it out, I’ll continue to support art in the forms that I can. Maybe next time you visit, you’ll see an iPad hanging on the wall with the QCLOCKTWO app. Or the piece we were looking at in the Wynn window.

Preface: Obviously my experience is nowhere in the same league as those we saw this week., but I think it illustrates some of the problems that lead us to where we are.

A couple of years ago, I was at Katz Delicatessen in NYC with my brothers. They use a bizarre ticket system. When you go in, you are handed a ticket. They write the items you order on your ticket. At exit, they use the ticket to total up your tab.

I ordered roughly $10 worth of food. I managed to misplace my ticket before I headed to the exit.

They had a sign in fine print at the entrance that if you misplaced your ticket, you had to pay something like $50. (Which would be really hard to spend there.) I consider this a contract of adhesion, because no one would reasonably expect that kind of requirement in a restaurant.

They refused to let me leave and physically blocked the door. A large man physically restrained me as I tried to exit. I considered this assault and called 911, saying that I was being unlawfully imprisoned. (Which I was.)

The staff laughed. “We do this all the time, the cops won’t do anything.” They were confident.

Before the 911-dispatched officers arrived, the staff managed to flag down the beat cops in the neighborhood. The cops gave me the same story.

I explained my rights. Clearly, one of the cops understood that I was right. But he wasn’t going to say so in front of his partner. I insisted they call a supervisor. When they got someone on the radio, they confirmed my rights. At best, Katz could only file a civil case against me for $50. I hadn’t committed any crime.

Three issues here:

1. The beat cops were basically in the pocket of Katz and defaulted to what Katz wanted.
2. At least one of them didn’t understand the basics of the law.
3. The one who did refused to say anything.

I should note that I doubt I would have done any of this if I were African American or in a non-public place.

We see such intransigence among law enforcement and others with authority all the time.

Cops generally refuse to stand up against other cops.

The TSA will refuse to acknowledge when their agents step over the line.

Airlines almost never apologize when their flight crews clearly discriminate against people of color by refusing to let them fly. (I have been pulled off aircraft twice; fortunately, in both cases, I was able to re-board.)

To the extent that there is ever anything close to an apology or recognition of wrong doing, it is blamed on bad “apples.” How are we going to root out bad apples if the ones closest to them won’t say anything?

This is a quadruple trick question.

The first trick: Many people who don’t know the depths of globalization today would say Miller or Bud. Although Budweiser brewer Anheuser-Busch was a long-term St. Louis based company, it is now part of Dutch conglomerate AB InBev. Miller, though started in Milwaukee, is now owned by SABMiller, which started in South Africa and now has its headquarters in London. Miller products in the U.S. are actually marketed by a joint partnership between SABMiller and mostly Canadian MolsonCoors. Now, AB InBev and SABMiller are in the process of merging, subject to regulatory approval in the United States, China and South Africa. Despite this summer’s gag-inducing gimmick of calling Budweiser “America,” it isn’t an American company anymore.

The second trick: It depends on how you measure it. As I always tell people, the best answer to most complex questions is “it depends.” In this case, it depends on whether you measure volume or valuation. If you measure by volume, it would be California-based Pabst. If you measure by value of the company, it would be Boston Beer Company, brewer of Sam Adams. It turns out swill isn’t as highly valued as Sam. Boston Beer Company is publicly traded and worth about $2 billion. Pabst is owned by private equity and worth roughly $700 million.

The third trick: If you accept that Pabst is the top American brewer, then the new president can drink any of its brands. So instead of there being one beer label, she can choose among: Pabst Blue Ribbon, Schlitz, Ballantine IPA, Old Milwaukee, Lone Star, Rainier, Olympia, National Bohemian, Old Style, Primo, Stroh’s, Stag, Schaefer, Schmidt’s, Pearl, Blatz, McSorley’s, St. Ides, Champale, Colt 45.

The fourth trick: Pabst is contract-brewed by MillerCoors.

So my best answer is any of the Pabst brands. Or, if you want to be a stickler about MillerCoors, she can drink Sam Adams. (Which sounds like a better fit for D.C. anyways.)

Do you have a better answer? Let me know.