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An engineer who wants to start a business using investment capital needs to understand the expectations of investors. The market for the business needs to be huge. The team needs to have a differentiated understanding of the market, or a differentiated product. The CEO needs to have the determination to continue operating the company even when it gets very difficult. And the price needs to be right for the investor.
Even if you are just working at a startup, or considering joining a startup, you must understand how the investment market works. From a raw financial standpoint, it only makes sense to spend your time at a startup that has equity with a high expected value. Your equity will only have high expected value if the company continues to exist long enough to have an exit–the company must either go public or get acquired.
In order to make it down the long and winding road to an exit, a technology company often needs to raise money on multiple occasions. That money is used to pay employees like you! If the company can’t earn enough revenues or raise money, you are going to get fired. Then, you may not have the spare cash to execute your stock options, and you might lose the rights to the equity that you worked so hard for.
The best way to avoid this is to learn to think like an investor–because as an engineer working for equity, you are an investor.
Semil Shah is an early stage seed investor with Haystack, a fund that he started. He also works with GGV Capital, a venture firm investing out of the United States and China. Semil has been blogging about technology for many years, and eventually evolved from a commentator to an investor. In this episode, we explore the dynamics between investors and founders of early-stage technology companies. We also explore the strange market of podcasting. Semil worked at a company called Concept.io, which was acquired by Apple for $30M.
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