Think about this before your start a company
Want to drop your dayjob, start a high-tech company and make loads of money ? Well consider this equation before you start:
Y = yearly salary in your dayjob. If you are a skilled professional (which I am sure you are since you're reading this) your salary might be 100.000$
T = The number of years from you start your company till you cash out. 8 years is not a bad bet.
L = The percentual chance that your company makes it big, venture companies estimate that this number is 5%
M = The amount of money you make when you cash out.
Now:
Y*T = the amount of money you would have made in your dayjob in the time it takes from you start your company till you cash out. If you start a company and make it you will make M. If you start a company and don't make it you will make nothing. Since you only have L chance of succeeding you have to factor this into the equation, so the money you statistically will make is M*L.
So:
If Y*T is not greater than M*L it will be a bad investment to start your high tech company. Try and do the math and figure out how much your company should be worth after 10 years for it to be a good investment. In the example above you need to cash out with more than 16 million$, a surprisingly high number.
So think twice...
Y = yearly salary in your dayjob. If you are a skilled professional (which I am sure you are since you're reading this) your salary might be 100.000$
T = The number of years from you start your company till you cash out. 8 years is not a bad bet.
L = The percentual chance that your company makes it big, venture companies estimate that this number is 5%
M = The amount of money you make when you cash out.
Now:
Y*T = the amount of money you would have made in your dayjob in the time it takes from you start your company till you cash out. If you start a company and make it you will make M. If you start a company and don't make it you will make nothing. Since you only have L chance of succeeding you have to factor this into the equation, so the money you statistically will make is M*L.
So:
If Y*T is not greater than M*L it will be a bad investment to start your high tech company. Try and do the math and figure out how much your company should be worth after 10 years for it to be a good investment. In the example above you need to cash out with more than 16 million$, a surprisingly high number.
So think twice...
posted by Max at 19:00
1 Comments:
I m aware that this is simplified version of a real world situation, and doesn't take into account the salary that you are (hopefully) being paid in the lifetime of the company, the money you invest in the company, the fact that your probability of succes rises if you set your goals lower and a number of ofhter factors.
But if all factors are taken into account I think they might cancel each other out..
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