Want to Build an Internet Company? Go Work in Finance.
Ok – so now that I have your attention with that title, it is a bit disingenuous. Obviously, finance / investment banking / private equity / hedge funds are not the ideal place to learn how to build an Internet company. However, I am going to make the case that it is also not the worst training ground in the world either, and that finance does actually have a few redeeming qualities. Also, I want to talk about some of the dangers of finance as an entrepreneurial training ground.
First, some background: I used to be a finance douche bag. I know, sad. In my defense, at the time when I was in college and discovered the (what seemed at the time to be) prestigious, selective, and elite world of high finance it seemed like a perfect way out of the small town future that lay ahead. However, since I did not attend a Top 20 school (not even close), it was incredibly difficult to break in. I spent about 2 years pounding the pavement – heading to NYC on my own dime to beg the few random contacts I had to just give me an interview. That is a big sunk cost of time. So when I got into a top investment banking program, I convinced myself that it was going to be my career. I had finally clawed my way out of the lower-middle class and I wasn’t leaving. Unfortunately, that all changed when I realized (along with my Associates, VP, and Managing Director) that I absolutely hated finance. The work is soul-sucking, every review I ever had said “Melanie has a problem listening or following directions,” and my work ethic suffered as a result. When I finished the 2-year program I was not extended an offer to continue. Huge blow to my ego and I was sort of a lost soul for a number of years. Then, I managed to move to New York, get involved in the tech scene, start a company, and get selected as basically one of the top new start-ups in NYC this year by the prestigious incubator program, TechStars. As I reflect back on the skill sets that I gained in finance that are now helpful to me as an entrepreneur a few points come to mind:
Building Financial Models Is Not All That Different From Writing Code.
You Learn How to Work Incredibly Hard for a Long Number of Hours With Very Little Sleep.
People say they work “long hours” all of the time, but, I’m sorry, If you have never worked in investment banking / hedge funds / PE / big law firm – you do not know the definition of long hours. By long hours, I mean: your day starts at 9am and ends at 9pm two days later. Sleeping under your desk, not seeing sunlight for days on end, going months without ever having a meal outside of the office: welcome to banking. While this lifestyle is obviously not sustainable for more than a couple of years, developing the ability to churn out models on no sleep comes in incredibly handy when you are trying to meet a release deadline or prepare for a pitch meeting on 2 hours of sleep.
You Have a Better Understanding of Investing and the Technical Aspects of Fundraising.
Granted, VC’s and PE/HF guys do look at different stages of investment and do not necessarily focus on the same thing (i.e. team is much less important in a later-stage company) but, really, who are we kidding? Institutional investors are all basically the same. They all want to know how much money you are going to make them. Period. End Stop. Learning some of those basics in finance, how to: evaluate an investment, model returns, write an information memorandum (basically, a business plan for later-stage companies), and value a company, all come in pretty handy – especially when a VC thinks they can offer you a higher valuation than a competitor to win the deal but then increases the option pool by 10%…
You Can Do Your Own Books!
Yay! You get a sticker. You have just figured out your only truly transferable skill in your new start-up.
Don’t Get Drunk off the Kool-Aid.
I think this is the most dangerous possible side effect of working in finance. I distinctly remember having a conversation with two of my Associates and another Analyst one day shortly after we closed a deal where the Founder / CEO cashed out for a nice $10mm. Everyone was basically saying “must be nice” to be her…but then immediately backtracked, “well, starting a company is way too risky” and “at least in banking you know you will get rich if you just work hard for a certain number of years” and the like. Within banks, hedge funds, and private equity – the people who work there – especially the people who have spent years at these places – this is the way they think at a very fundamental level. Fundamentally, finance attracts the risk-averse. And as a young, impressionable Analyst, you look up to your Associates, VP’s, MD’s, etc. (well, at least the ones that are not complete assholes), and generally tend to adopt their worldview. The ability to “think outside the box” in finance is rare, and it is very easy to get sucked in.
The Golden Handcuffs
While drinking too much Kool-Aid affects the way you think about the world and your career, the Golden Handcuffs are what physically keep you there. You keep telling yourself “just one more year, just one more bonus cycle, just another $200k – and then I’m out” but, unfortunately, that very rarely happens (excluding the period from 2008 – 2009 when everyone got laid off) and generally, if the choice is left up to the Analyst / Associate, the status quo is the path most taken…
You Have No Idea How to Think Like an Entrepreneur, Your Worldview is Fucked.
If you do manage to leave banking and start your own company, your first instinct is to: get everyone to sign NDAs before you tell them about your idea, patent the amazing new business model you just came up with, build out a really fancy market analysis, or come up the most awesome list of potential acquirers ever. None of these things involves building a product. You may even think that you can just delegate building your product out to an agency or freelancer. In fact, I get emails like this all the time from former finance schmoes wanting to know “how much does it costs to build a website?” It goes without saying, but, this worldview is fucked. Please, do not think like this.
Obviously, I am biased by my experience. And I would never recommend finance for a kid coming out of college that knows that he / she wants to be an entrepreneur. But this post is really for those already trapped in it, and trying to get out. Have some confidence, you may be more prepared to be an entrepreneur than you think.