Wharton Simulation Game

From negotiating a valuation with an investor without a product (or MVP) to joining a startup as the first employee, the Wharton Game Simulation was a 50 minute crash course into startup chaos.  My character was a pharmaceutical executive who managed a major product line, and interested in joining a startup in the early-stages.  Of course few people can go from being hired to helping the company raise four million in 50 minutes.  But the simulation “built the muscle” by forcing us to navigate a world without perfect information. Here are a few things I experienced and what I learned from the exercise.  

1. Skills, Background, and Domain are Relative: I shopped around by speaking to four co-founders who needed to hire employees.  I met a team that was creating a SaaS product for DNA and genome discovery, and the two co-founders needed a first employee with key experience in marketing. Though I was not an expert marketing professional, both of us realized that deep expertise in one domain (unless it’s a technical skill like front-end web development) is not necessary at such early stages.  Instead, the team needed strategy chops, a passion for the field, and ability to get things done.  I was able to offer that to her from my employee profile and experience.

2. Equity Trumps Salary in the Early Stage: I had the luxury of joining the startup with some cash in my own personal bank account.  I was in it for the journey.  But we had to negotiate (and use precious time) on salary versus equity terms.  This obviously will be person and industry specific, based on risk preference, skills level, and lifestyle flexibility.  But as Carl said about the reality of joining a new startup, salary matters less in the early stages because if the company folds, you don't receive the money anyways.  On the other hand, negotiating more equity gives you more upside if the startup matures.  And afterall, why would you join a startup that you don’t think will succeed?

3. Negotiating with Investors is like Dating: This was the most invigorating piece of the puzzle.  We needed to raise four million dollars to ship product in six months.  After having brief pitches to four different investors, we realized that their interest, background, and risk profile could change the deal terms immediately.  But once we had three solid offers (valuing the company at $10m post...come on, without even a MVP?!), we thought we made the mistake of allowing each of these investors to discuss among each other about their interest and goals.  They came back to us with a more aggressive offer taking more equity share, and we had to settle in the interest of raising cash.  But that's the reality of living in the 21st century.  Information is not perfect, but companies like Angelist, Crunchbase, and Mattermark are getting us closer.  So I have yet to decide if it's unrealistic to think that a co-founder can expect that the investors will not pool cash and potentially collude (in the words of Carl)? Or are there major rates for this collusion process?  

So as you can see, the simulation provided a snapshot of startup chaos. But I’m cautious of the fact that the journey is almost never a cinderella story.  From my personal experience in Kenya, I also know that time, passion, and luck play a significant part of the hiring and investing game.  Even more, a simulation can never help us experience the blood, sweat, and tears of moments that you hit a wall.  It could be failing to raise money, failing to sell the product, or failing to attend a family wedding because of work.  Sure, these are normal balances and roadblocks in the working world, but it's often a lonely journey with you and your co-founders.  More to come on this topic!