TC&MN #23 - 5 Strategic Steps to Think Like an Investor with Your Time and Talent

Let’s Talk About Lacework

It was reported by multiple news sources last week that Lacework, a well-known and well-funded unicorn at a previous $8 Billion Valuation, announced last week that it is in talks to sell for $150 and $200 Million. It has $ 800 Million in cash reserves that will be given back to investors.

This sudden implosion is shocking to many employees and bystanders.

Most of the employees will walk away with nothing from their equity compensation. I know what people are going through having been through this several times myself. It is frustrating when your hard work does not payoff.

This is the reality of working for private companies whose shares are not liquid.  

However, this is just one of many stories of high flyers being brought low and traded for low values. Our job as investors of our time and talent is to look beyond the noise and remove the real news below the surface.

What does this say about equity compensation?

Like any investment, equity compensation has a risk profile that ranges from conservative to high risk. The earlier the start-up the higher the risk and the risk doesn’t decrease until the stock is liquid.

Your investment is conservative when the company you are working for is public and the stock value is floating on the market.

When you have an asset that you can turn into cash, you can diversify and de-risk. As investors, we need to align our investments with our goals. If we have short-term goals or are building the foundation of our financial fortress, then we need to stay conservative in our investments.

Equity compensation still offers a low-risk way to acquire equity. However, you need to have a disciplined process for doing so.

What does this say about the current market?

This current high-interest rate environment penalizes start-ups that are running massive losses and have a long ramp to profitability. The closer to profitability they are, the more funding they will get.

Lacework, while it was the most severe markdown it was not the only one.

Tech Crunch Reported: New York-based security service edge vendor Perimeter 81 went from a $1 billion valuation in June 2022 to being sold to Silicon Valley-based platform security vendor Check Point for $490 million in September 2023. Similarly, San Jose-based API protection startup Noname Security achieved a $1 billion valuation in December 2021 and is now expected to be sold to Akamai for just $500 million.

This is happening in other security companies that have the same financial situation, massive investment and a long road to revenue. In a market with a high cost of capital people don’t want to take this risk. As investors we should expect to see this.

Venture Capital investing is focused on finding the moonshot amongst failures. Don’t forget that.

How should you be thinking about this?

Always think like an investor. The investor would say, the market is choppy and things are moving conservative so I should too.

Is your company still private? Take a hard look at the finances, run rate and time to profitability. Don’t be afraid to make the first move if you see risk you don’t like.

Ultimately use these times to align your investments with your goals.

My best investment of time in Splunk came after an absolute failure. I sat and reviewed my lessons learned and did something differently to get a different result.

Go Deeper

• Lacework Article on Tech Crunch (LINK)

• Security Companies Losing Valuation (LINK)

5 Strategic Steps to Think Like an Investor with Your Time and Talent

Unlock Your Potential: Master the Art of Investing in Your Career

Why aren’t you treating your career decisions with the same strategic rigor as a seasoned investor who manages their portfolio? In the volatile landscape of tech startups, knowing how to invest your time and talent wisely is not just a skill—it's a necessity.

Today in light of the Lacework news creating uncertainty, this newsletter will answer a crucial question:

How can mid-career tech executives like you apply investment principles to career choices to maximize wealth and minimize risks?

— I will reveal the secrets to transforming your career trajectory by thinking like an investor.

The Tech Career Playing Field

Navigating the Boom and Bust of Startups

The tech industry is notorious for its high-stakes environment, where companies can skyrocket to billion-dollar valuations or plummet to losses overnight.

It is also a place where companies become entrenched in our lives (Amazon, Netflix, Google) and slowly become millionaires while others watch the highs and lows. 

As someone who has experienced this market's extremes, I've learned the hard way that every career decision can significantly impact one's financial future.

Imagine treating each potential job switch or startup offer like an investor scrutinizing potential stocks. It’s not just about the possible gains but also about understanding the risks and aligning them with your long-term goals.

Think Like an Investor

What This Means for Your Tech Career

Now, you’re probably thinking, "Is it really possible to apply investment strategies to career decisions?"

Here’s the thing about this answer: it requires a shift in mindset from being merely an employee to being the CEO of your own career.

Let’s talk about why this is important. Making strategic career moves with an investor’s mindset can produce substantial financial rewards, especially when dealing with equity compensation. I'm about to show you how to assess and act on opportunities with the precision of a seasoned investor.

Your 5-Step Investment Strategy

A Blueprint for Career Success

Here are the five strategic steps you need to start thinking like an investor with your time and talent:

1.) Develop an Investment Thesis: Identify what makes a tech company a worthy investment of your time. Look for visionary leadership, a robust business model, and a clear competitive advantage.

• Concept: Identify and understand the core businesses and leaders in which you want to invest your time.

• Action: Research the company’s market position, growth trajectory, and leadership team. Define clear reasons for choosing this specific investment of your time.

•  Example: Analyzing market trends and leadership effectiveness can predict potential success or failure, guiding where to invest your efforts.

2.) Understand Your Risk Tolerance: Not every high-risk opportunity is worth taking. Evaluate how much uncertainty you can handle in exchange for potential rewards. Going conservative is a valid strategy.

• Concept: Understand your personal risk tolerance in terms of equity compensation.

• Action: Evaluate whether you prefer stable but possibly lower returns (public companies) or potentially higher but riskier gains (startups).

• Example: If risk aversion is higher, seeking positions in established tech firms offering liquid equity compensation might be preferable.

3.) Conduct Thorough Due Diligence: Dive deep into the company’s track record, market position, and financial health. Utilize your network to gain insider insights and unpublicized truths about your potential employer.

• Concept: Thoroughly investigate the startup’s viability concerning its product, people, and financial health.

•  Action: Use backchannel sources and direct analysis to validate your investment thesis.

•  Example: Verifying the financial health through third-party audits and discussing with current and former employees can reveal insights into the company’s operational and cultural health.

4.) Know Your Equity Compensation Details: Fully understand the type of equity offered, vesting schedules, and exit scenarios to evaluate how this could benefit your financial future.

• Concept: Understand the nuances of your equity package, including vesting periods, the type of equity offered, and the tax implications.

•  Action: Consult financial advisors to understand how this equity fits your broader economic strategy.

•  Example: Knowing the difference between RSUs, ISOs & NSOs, and how they convert during public offerings can drastically affect the real value received.

5.) Remain Agile: Reassess your career strategy based on market changes and personal growth. Be ready to pivot when an opportunity no longer aligns with your goals.

• Concept: Always have a proactive exit plan should the startup environment no longer align with your career or financial goals.

• Action: Regularly reassess your position within the company and the market to decide if continuing the investment of your time is beneficial.

• Example: Setting predefined conditions under which you would leave, such as failing financial targets or shifts in company strategy, can safeguard your professional trajectory.

Beyond the Strategy

What These Steps Mean for You

By adopting these strategies, you protect yourself from potential downturns and position yourself to capitalize on the right opportunities.

This approach will transform how you view job offers, negotiations, and career advancements.

Key Takeaways for Tech Executives

• Career decisions should be made with the same care as financial investments.

• Understanding and managing risk is crucial to maximizing your career's financial potential.

• Strategic thinking can lead to significant wealth accumulation through smarter career moves.

Remember, you are the captain of your career destiny. Use these strategies to steer your professional journey toward the most promising horizons.

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial or career advice. Always consult with qualified professionals before making any decisions based on the information provided.