Advise me on NY finance vs. Silicon Valley startup scene

[recursor]

I have a pretty good (excellent, actually) quant job in NY. I'm well-paid and at a great company, though I am starting to worry that I might be sliding in an IT/developer (as opposed to pure quant) direction, given a lot of what I've been working on, and I don't want to get pigeonholed. This arrangement is very good for the short-term, since I'm learning a lot about technology and improving my programming skills. In the long term, however, if I stay in finance, I'd rather be a quant-trader or pure-quant than quant developer since, while I like technology, if I'm in that instead of trading, I'd prefer to do tech work in a startup or research lab over a financial context. My company is really good, but there are a lot of things about finance in general I don't like: living in New York, the conservative culture, working set hours rather than those that work best for me. (I tend to work best at night and, while I loved winter when I was in school, I've been getting serious SAD ever since I started working due to being inside during all the daylight hours; the only long-term solution I see is to work for myself, but that can wait a few years.) If I really like trading-- though I'd want to be a quant trader and not a pure trader-- which I haven't tried yet, it might pay those negatives off. Otherwise, I don't see a long-term future in NYC finance as very likely.



I've been where I am for 6 months and, although I'm learning a lot by getting a little bit of mentorship from many people, no one has formally taken me under his wing, which concerns me as it seems to be a necessity for advancement in finance. I'd consider my professional status among my peers (a select group) to be roughly average; I don't see myself at much risk of getting fired, but I've been having health problems so I don't think I've distinguished myself as having unusually high potential or in any way that would inspire someone to mentor me formally. Of course, I'll know where I actually stand this winter.



Ca. summer '08, if I feel like my prospects aren't good, or are decent but not great, where I am now, I'm considering heading to the Bay Area and becoming a single-digit employee for one of the Y Combinator startups, or maybe even trying out for YC funding and starting a company of my own. (I know that YC is a "ripoff" in expectancy terms, but the mentorship and connections a YC company gets are worth it, in my opinion, due to the added value.) I've always thought the Bay Area startup scene to be a lot more interesting than NYC finance, and I'm more likely to regret not starting a company in my 20s than not trading. Finance is safe in that it provides the certainty of getting rich within ten years (unless the industry changes in some on a fundamental level in some unlikely way) but after doing that I'd be in my mid-30s and might not have the energy to put 80 hpw into a startup, and I might end up regretting never having started my own company. A startup clearly doesn't provide certainty (or even likelihood) of getting rich, but I figure I'll always be able to go back into finance, and even if the startup(s) fail they'll open up venture capital as an additional option. So, startups seem to win over finance, at 25, if only because they don't preclude the other possibility and, if anything, support it.



Of course, I know very little about the Bay Area or about startups in general, aside from what I read related to Graham and YC. I'm probably having "grass-is/might-be-greener" syndrome; it's possible that startups aren't as fun and interesting as I believe; I really just don't know. I attended the YC "Startup School" in Stanford and had a really positive feeling about the people there. It seemed like they were having a great time, and a lot less uptight than people are in NYC. On the other hand, I could just be making this comparison because I was on vacation at the time or due to prior conceptions of the West Coast.



Can anyone who knows more than the obvious about the Bay Area startup scene tell me about it? Please tell me why my image of it is all rosy and wrong, if it is, because I'm fairly sure I'm just exaggerating the upside due to exposure to YC hype, but maybe I'm not.



Also, can anyone tell me about the Boston startup scene? My girlfriend is tied to the east coast for a few years, so if the Boston scene is as strong as the Bay Area, maybe I wouldn't have to move so far, but I've heard that it doesn't really come close.

[jslade]

I've lived out here for over 10 years now. I am sociable, and a bit of a character, and as a result, I know lots of people, some of whom are famous l33t h6x0rs. I know exactly one guy who got even modestly rich, and he was an early netscape employee (to his credit, he cashed out and opened a bar -he's also one of the few people I know who has appreciably improved the lot of humanity; mostly for opening the bar). I have numerous friends who started companies. Some are famous companies you have heard of. None of them got rich. One of them might, but his company's main product is presently failing miserably, and he doesn't seem to notice. I'll compare that to people I know in finance. All of them have an appreciable pile of loot after 5 years of work. Not cash-out money, but more than 99% of the .com drones have in playing stock options lotto and all of the entrepeneurs. Considering what these people put themselves through for .com lotto, the payout ratio looks pretty bad. While you can wear rollerskates at work, you'll be there until 2am most nights, just like in the bank. People I know in the real estate business are doing much better.



That said, it's easy to get a job out here, the weather is pleasant, and the natives are friendly. If you want to start your own company, you don't even really need an idea, as long as you can do stuff. I have done so myself (and am pretty happy doing it). YC is, of course, almost completely retarded; anyone with a job and a bit of ingenuity can provide a deeper pool of funding than that, and the "connections" are worth zilch, based on their track record. Just save some money. While I, too, fell under the spell of Paul Graham, I refuse to drink any more of his kool aide until he comes out with his magic language he's been promising us for the last half decade or more. Yes, interpreted languages with compilers and fancy debuggers are great. That doesn't mean it has to have a bunch of parenthesis, or that you should waste your life with horrible crap like Common Lisp.



If you have an actual prototype, venture capitalists are so thick on the ground out here, I have to beat them off with a sharp stick when I go outside to pick up the morning paper. If you have no real ideas, the larger (ebay, yahoo, google) .coms are decent places to work at, with many interesting problems. There is also a large defense and banking industry here. Doubtless you can find them on your own. If I were moving out here, I'd take a job with a big firm that pays a relo, go to burning man, meet some clever people, then think about doing your own thing. Starting your own company as a stranger in a new town is kind of nuts. You don't even know where to live yet.



NYC most certainly sucks butt, and I don't blame you for leaving, but nobody is going to give you a lolly out here either.

[recursor]

Thanks for helping clear away my misconceptions on this.



[i]I have numerous friends who started companies. Some are famous companies you have heard of. None of them got rich.[/i]



What's your definition of "rich"? I'd be happy to have enough money so that I don't have to work (though I still would). That's probably about $2 million, and I'd be really surprised if people could found successful companies and not get rich by that definition. Of course, most startup founders fail, but even they can easily get venture capital jobs (which are otherwise virtually inaccessible for fresh college grads) at the end of it, so it doesn't seem all bad.



[i]YC is, of course, almost completely retarded; anyone with a job and a bit of ingenuity can provide a deeper pool of funding than that, and the "connections" are worth zilch, based on their track record.[/i]



Funding is obviously not the point of becoming a YC startup, since the implied valuation is very low. People join YC for the connections and prestige, figuring that giving up ~6% of the proceeds (if they hit) is a small fee to be Paul Graham's protege. As for YC's track record, I've heard that the success rate is about 50%, which is damn high for a startup. Moreover, YC also provides access to a set of young people who are likely nearly all to be highly successful in the future, so I'd imagine that the YC parties are great networking opportunities.

[svquant]

recursor



You need to do a lot more research on how start ups work and what really goes on out here in the valley. This information goes well beyond what anyone on NP will post. There are many boards like this around stat ups and what goes on. Getting $2M out of a start up even on a "successful exit" is not easy at all. Study the history or epinions - which was bought for a few hundred million and the founders got ZERO in the end... There are books and magazine articles on VC finance and what goes on for real.



Are you sure YC haircut is only 6% - I'd be surprised. I heard Garage.com took 25% back in the day for mediocre support from some startups I know. Maybe this is an additional 6% fee on top of the 50% they took for the first $250K-500K they put into the company?



Another misconception you have is that you do a start-up it is a success or failure then you can become a VC. This is so far from the truth of the VC business. Sure there are a lot of new firms just like in the late 90s... but look at the A-players in the field and read the bios of the partners and you'll see it takes a lot more than 1 start-up, make $2M then become a VC.



Perhaps you should try for a job at Google in NYC before you make a leap to the valley?



In general there is nothing in the world like Silicon Valley, the area, the people, the technology, the energy - but you work damn hard just to stay in place and be relevant. Most people do not have lives that the popular press likes to write about - start a company, have nothing but fun for 2 years, cash out in the millions.... Yes it happens but in no different proportion than in finance especially with hedge fund payscales.



The grass is very green out here not not necessarily greener.

[jslade]

recursor wrote:

[i]"What's your definition of "rich"? I'd be happy to have enough money so that I don't have to work (though I still would)"[/i]



Mine is about the same as yours or anyone else who puts their pantaloons on one leg at a time. I'm not talking about Chester no-Name in his garage either; I am talking about people who have been featured in Wired magazine, Photonics West, PC Mag, der Spiegel, or whatever your definition of "really well known entrepreneur" is. People who have had 50 or 100 employees at their peaks. Most of them don't even own their houses. Guys who have tried and faceplanted, or merely done well enough to pay off their houses: I don't know what imaginary VC Valhalla you think they go to. Most of them get regular crappy jobs afterwords. If you want to come out here to make serious guaranteed money, get your real estate license. Those guys are making bank. If you want a real business opportunity; find something you can sell those assholes to make their lives easier.



I say YC provides neither connections nor prestige; their success rate is [redit: almost] exactly 0%. There are excellent and well known VC types out here which will offer far better connections and some degree of credibility. Go figure out who gave angel capital to companies which succeeded: that's the VC you want, if you want to be taken seriously by real investors. The only people who will be impressed by YC funding are PG fanboys. One of the common regressors for PG fanboys is; they don't have enough money between the lot of them to underwrite the IPO for a chain of gumball machines -not even if you include PG among them. You have to figure there is a reason for that. You want real networking: go talk to someone at a Score meeting, or a professor at one of the local colleges.



Also, we're talking about California here -there is no such thing as "prestige." Prestige here is "smart enough to get smart person job, but never went to college and dresses like a street arab." Just so you know: if you show up with a Porsche or Rolex, people will laff at you. Different culture, different customs. Mustn't be judgemental, Peachy.



[edit added: also assuming you are serious about starting a business -ask yourself why you want VC in the first place; what purpose does it serve to your business? will it help you sell more shyeah?]

[segv]

I have been working at early stage start-up companies in the Bay Area for the last 13 years.



IPO: 3

Acquisition: 2

Bankruptcy: 6



The bankruptcy figure includes all three public companies, one of the acquisitions, and two VC-funded companies. I joined all of these companies at less than 50 employees, and in some cases less than 25 employees. All three of the public companies were valued at more than $1B and one was in excess of $20B. Both of the acquisitions were in excess of $250M. My definition of "rich" includes being able to own a comfortable residence in San Francisco, and maintain my lifestyle without need to actively generate income. There are three people I know who meet that criteria from their work at start-up companies, and I am not one of them.



I work in start-ups because I can be very driven, very dedicated, and very productive when I am motivated. In order for me to be motivated, I need to feel like I am contributing directly, and that I am also getting my fair share. My experience is that large companies suffer from a great and intolerable inefficiency. These large companies seem to be full of an ever-growing number of people who like to have meetings, make a lot of plans, and execute a lot of processes. My experience is that trendy start-up incubators, and much of the world, is full of similar people who are supported by the productivity of a very few.



The purpose of Venture Capital Firms, Incubators, Angel Investors, and large Corporations is to capture enormous economic potential with very little risk. I think that this is possible because the creators of valuable ideas are often inexperienced. If you have a great idea for a company or a product, do everything in your power to protect that value. On the other hand, if you want to move to Silicon Valley to be "part of the start-up scene", YC and Google are waiting for you with baited breath. On the chance that you do come up with something, they will have a controlling interest in your valuable intellectual property. And on the chance that you have nothing to offer, they of course will benefit from your long working hours and low pay. There will be a lot of other people to say "I work at Google!" with you in the lunch line, and probably "Oh, I worked at Google..." with you later in the unemployment line too. One of the VC-funded companies I worked for was an "Internet incubator", a very trendy business just a few years ago. We provided early stage start-ups with small seed capital, and additionally office space and technology, in exchange for significant equity in the venture. Does that sound familiar?



Don't be a sucker.



There are a lot of unique and intelligent people living and working here, and there is no place in the United States that I would rather live.

[recursor]

[i][b]seqv:[/b]There are three people I know who meet that criteria from their work at start-up companies, and I am not one of them.[/i]



How is it that people are able to found IPO'd companies and not get rich? Do they take shitty deals and give away all their equity, or vest too late, or is it a more subtle mistake that they made?



[i]I work in start-ups because I can be very driven, very dedicated, and very productive when I am motivated. In order for me to be motivated, I need to feel like I am contributing directly, and that I am also getting my fair share.[/i]



How interesting is the work? How does it compare to what a person would be doing at the entry-level in a "good guy" company like Google where, presumably, talented people don't have to eat as much grunt work as they would in a traditional big-box corporation?



"My experience is that large companies suffer from a great and intolerable inefficiency. These large companies seem to be full of an ever-growing number of people who like to have meetings, make a lot of plans, and execute a lot of processes."



This is true. Of course, the startup world could be considered inefficient for different reasons -- namely, the level of noise being so high that many companies are crushed for entirely extrinsic reasons, and likewise that a talentless right-place/right-time kid like M. Zuckerberg can swing a billion-dollar valuation. Startups are extremely productive per person, but most of their contributions to the world disappear.



"My experience is that trendy start-up incubators, and much of the world, is full of similar people who are supported by the productivity of a very few."



What defines the productive "very few", and how does a person enter that set? Is it just about work ethic, or is there a lot more to it? (I suspect the latter.)



[i]I think that this is possible because the creators of valuable ideas are often inexperienced.[/i]



Also, they probably have no clue whether or not their idea is valuable. I have a few ideas I'd like to try out, but no way of measuring if they're anything more than dreams.



[i][b]svquant:[/b] Another misconception you have is that you do a start-up it is a success or failure then you can become a VC. This is so far from the truth of the VC business.[/i]



What do people do to get into VC, then? It seems like nothing would be better preparation than starting companies and learning from their successes and failures. Hiring traditional M&A/PE rainmaker types and turning away serious tech people would obviously be a recipe for disaster.

[svquant]

The best way to find out what qualifications VCs have before they go into the business is to look over their bios at the firms website. Many people have become VCs or have decided to call themselves VCs and you need to decide how high you want to set the bar. If you want to be a tier-one player then look at a firm like Sequoia and read each and every bio. If you ever get the pleasure of a full partner meeting and beating from a tier-one firm around a business plan you'll quickly understand the differences in quality.



In general you will find at a minimum one of the following to be true:



1) Stanford or Harvard MBA, if not that then other advanced degree.

2) Founder and/or Senior Executive (eg CEO) of at least one successful exit for VC firm. Note most deep technical people do not become VCs... they usually become serial entrepreneurs and perhaps take EIR positions between gigs. You need to have made a lot of money for your investors in the past - especially if you do not have the BSchool background.

3) Good connections both inside firms and to the wider technology community.



While it is true M&A/PE rainmaker types are not necessarily good VCs you must keep in mind most technology start-ups and ventures are not about technology in the end. Technology is not what makes them win or loose - this is a classic mistake most tech/engineers make when jumping into a start-up. It is about the market need, solving a business need, timing, & execution. Yes great technology or a killer algorithm is awesome to have but it just a tiny step on the road to success.

[Dave]

[b][u]jslade:[/u][/b] [i]Just so you know: if you show up with a Porsche or Rolex, people will laff at you.[/i]



uh-huh. sure.

[Nonius]

Isn't Silicon Valley so six months ago?  I thought smart, ambitious people wanted to run a half dozen hedge funds and then IPO the management company in order to PV around a 4% annuity of 15 billion today.