Ive fielded four calls in two days from friends in their mid-30s to mid-40s who have good and

relatively easy corporate jobs at quality companies likeBrocade, Cisco, HP, Juniper, etc being
recruited by OpenFlow, software-defined networking or network virtualization start-ups. Each person
asked a variant of: what are the economics of joining an SDN company? which leads to Should I join
an SDN startup? and if so, Which start-up should I join?
Preface: These are complicated questions to answer theres not one right answer. Like
everything in life whats right for one person may not be right for another and whats right for you at
one stage of your career is likely different than what is right for a different stage of your career
mileage may vary.
In conversations about career advice I ask three questions:
1. Whats important to you?
2. What stage are you in your life and career?
3. Can you live with the likely economics?
Most people attempt to solve #3 first though before you can have a productive conversation about
#3 you need to know the answers to #s 1 and 2.
Whats important to you? and What is your passion?
This is really about your life and where you invest your limited time on earth. Is significant family
time important to you? Do you have a favorite hobby? Are you passionate for some cause or activity?
The reason this is important is to do the start-up thing well you have to subtract time away from
one or more of these activities. Startups that tell you otherwise are either delusional or lying.
What stage are you in your life and career?
This is about the economic realities most of us deal with which given how and where we spend our
time what are the economics we need to maintain our lifestyle. This manifests itself things like how
do we soak away enough cash to pay off the mortgage, raise kids, pay for college, save for retirement,
take care of parents, make annual trips back to India, take kick-ass vacations, follow the Rolling
Stones on Tour, etc. its the funding of all the obligations and passions we have basically the $s
needed to cover your Maslows hierarchy of needs.
This is also about where you are in your career. Are you 6 months away from that elusive VP or
Director title? Did you just receive the title and need to stick around a while to demonstrate that you
are committed to those who promoted you? Are you close to that big RSU vesting event or Bonus or
Commission? Will failure or limited success at the startup impact your ability to obtain a replacement
job if the company stumbles.
The two questions I ask people are: 1) can you afford an effective pay cut at this stage or your life?
Meaning is the loss or reduction in bonus, RSUs, or public stock option meaningful to your day-to-day
life or retirement savings? Can you afford higher daycare, baby sitter, or dog sitter expense to make
up for extra work or travel? and 2) if the market takes longer to mature, start-up hits a rough patch, or
market never matures are you at a point in your career where you can take the risk and financially
recover (i.e find an equal or greater job to the one you have now) if things do not go as planned at the
startup?
In my experience, this is the hardest question to answer when come to deciding to join a startup.
Can you live with the economics?
Assuming you get past the first two questions you have to want to do the startup because you are
internally driven to do it for as being a startup employee, your odds for making life changing money
are pretty low. Lets take an example:
Assume a) base pay will roughly be the same; and b) your bonus will be between zero and half of what
you made before. In a worse case scenario especially if the company has been shipping for less
than 1-year and / or has less that $5M in revenue assume that there is limited cash to pay a bonus
so model what your cash situation looks like if do not receive a cash bonus.
As for equity, say you have an offer to join a SDN software company with three co-founders with the
following parameters:
Raised $10M in financing at a pre-money vacation of $10M. This values the company at $20M
and investors own ~50% of the company. But as part of that deal the company is required to
reserve 20% of equity to hire employees. This leaves each of the three founders with ~10%
equity stake each.
The company will need more money (they always do). For easy math, lets assume a raise of
$20M Series B with 20% Dilution and a $20M Series C with 10% dilution on top of that. This
assumes the company has only up rounds, that sales are ramping and everything goes right.
Thats still $50M in venture raised.
Lets say you are offered 1% of the company stock that vest over four years. In that scenario, you
end up with 0.72% ownership stake (1% .2% Series B dilution .08% Series C dilution) over four
years in a company theoretically worth $200M. Assuming an exit in four years for $200M on paper
you get $1.4M pre tax. Lets subtract investor capital and preferences (typical today is 2x) this
means the investors get their $50M back first; then another $50M, before $100M is split across all
shareholders and you end up around $720k pre tax or ~$400k post tax over 4 years.
This exit assumes everything goes right and that there is a buyer for your start up at $200M.
Remember that there really are NOT that many companies who can buy an SDN company for $200M.
My point is even if you quibble with some numbers or run different scenarios there are relatively
few scenarios where you, as an employee, have a high probability of make life changing money via an
SDN startup. This means you need to do the startup because you have a passion for it.
Conclusion
Lifes decisions are not solely made on money and if you have a passion that an SDN startup will fulfill
and not phased by the risk / reward profile, by all means do it. For mid-career individuals who have
financial constraints, obligations, or other passions the risk-reward profile for joining that startup to
day maybe too high to justify.
Personally, at this stage of my life, I fail out at question #2 unless Im part of the founding team or an
SDN startup has $50M+ in annual revenue (e.g. Arista). The corporate spin-in is another option Id
consider spin-ins can offer the best of startups with the best of risk-adjusted return (e.g. Insieme)
short of having at least $50M+ in revenue.
Let me know your experience Id love to hear your circumstances and what lead you to make the
decision to stay with what you are doing or join an SDN startup.