Welcome. 👋

Every two weeks, I share my writing on investing, career transitions, meaningful work, parenting, living intentionally, and other topics that engage me.

In my fifties, I'm still trying to figure stuff out.

I have a professional update to share. I left my role at Circa on 4/30 as part of the company's exit to another mission driven property technology company. I'm proud of my contribution to this successful outcome and I wish the combined team the best of luck. I'll post a LinkedIn update with more details today at 1 pm (May 21st).

I'm currently exploring several new paths including a strategy to preserve affordable housing while also targeting attractive returns to investors.

Please reply if you'd like to schedule a time to hear what I'm considering, discuss other ideas, or just catch up.

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The Worst Financial Decision I Ever Made

I recently left my role as COO of Circa, a seed-funded startup, after two years. We're in the process of finalizing a sale to a larger private company. This exit marks an excellent outcome for the business and its investors.

However, despite this fantastic outcome, let's be clear: Working at a startup must have been one of the worst financial decisions I ever made.

Below, I'll tell you why.

And then I'll tell you why I'd do it again.

First, let's talk about income.

Anyone joining an early-stage company must understand cash burn is a primary concern. The less cash the business spends, the more time you have to grow without raising more money and selling more of the company.

Since payroll is often the most significant expense, cash compensation is minimized. I'll give you a sense of what that meant.

In the first year, I brought home less than 25% of what I made as an institutional equities salesperson the year before.

In the second year, I received a sizeable bump in pay. I was one of the highest-paid employees at our company, yet I still made less than half of what I made in my prior role.

You might be wondering, what about equity?

That's point 2.

Like most startup employees, I received an equity grant that vested over time in exchange for lower cash compensation. Of course, when deciding to join a company, estimating how much that equity might be worth isn't easy.

Any venture capitalist will tell you it's tough to value early-stage companies, especially those yet to generate revenue. They know 80-90% of companies will fail at this stage, so they rely on a few massive winners to generate successful returns. Early-stage investing is a classic power law distribution, which requires broad diversification for success.

Circa was squarely in the early stage when I joined in early 2022: a talented team with promising ideas that raised a seed round and very little revenue.

Given the uncertainty and sober odds of success, no rational investor would ever bet on a single company. Yet, that's exactly what I did, at least implicitly, by choosing to work for an early-stage company.

I wasn't completely delusional. We had a credible chance of success, albeit unlikely. At a minimum, I needed to believe the business could be worth enough if we beat the odds, so I gave that a shot.

The idea that anyone can accurately value a business at that stage is absurd. There's far too much uncertainty. Instead, I worked through a simplified valuation exercise.

Based on my conversations with the co-founders, the existing backlog, and what I knew then, $20M in Annual Recurring Revenue (ARR) seemed like a reasonable target for five years out. Remember, in early 2022, software and payments businesses like ours were selling for well north of 10x ARR. So, a $200M valuation seemed possible.

My back-of-the-envelope process continued.

I calculated what my share of the business might be worth. Then, I considered dilution, which many early-stage employees may underestimate. To reach $20M in ARR, I assumed we'd need to raise more money to support growth along the way, so I reduced my stake by ownership share by half, and then by half again.

Finally, conscious of our long odds, I probability-adjusted that value. I assumed we only had a 10% chance of success, which was probably generous given our starting point.

Of course, I believed we'd be different. I thought our team was good enough, and the product was compelling enough. I believed we would beat the odds.

That's what every startup employee has to believe. Otherwise, you wouldn't sign on.

Getting back to my calculation, I multiplied my optimistic equity value post-dilution, still a large number, by 10% to estimate the value of my equity.

If the business was wildly successful, I had a chance for a significant windfall. It probably wouldn't be life-changing, but our family would enjoy greater financial security even after taxes.

Remember, I estimated that scenario as 10% likely, which reflected plenty of bias and optimism.

The more likely outcome, with a >90% probability, was that my equity would be worthless. I understood the power law distribution and accepted the irrational concentration risk of betting big on one early-stage startup.

So, despite a massive hit to my cash earnings and facing a likely prospect of zero equity value, I signed my contract to join Circa.

Let's face it, from a purely financial perspective, and regardless of the outcome, that was a terrible decision.

And with hindsight, if given the same choice, I'd do it all over again.

Why? That's easy. I'll give you just a few reasons:

• I had a meaningful leadership role, my first in the C-Suite, in a fast-growing organization.
• I learned new skills
• I developed greater resilience and learned how to solve problems with limited resources.
• I built many new relationships with fantastic colleagues, customers, and partners.
• Our mission-driven business helped lots of people struggling with housing affordability.
• My demanding but flexible role allowed me to spend valuable time with my family while my kids were in high school.

Financial considerations are necessary but only some of the factors in our career choices.

I'd always wanted to work at an entrepreneurial startup where I could contribute significantly to a meaningful business. I'm grateful for the experience and the resources to take the risk. It's not lost on me that I evaluated this decision from a privileged vantage point. Not everyone has that financial freedom.

As I consider my next role, I do so with greater confidence in my capabilities and how I might impact organizations.

For the record, the sale was a stock transaction. Since I now have illiquid shares in a private company, I still don't know what my equity is worth. Only time will tell.

The outcome would remain the same as how I view that career decision. Whether my shares are ultimately worth $1 billion or zero, my choice to work at a startup in 2021 was a terrible decision from a purely financial perspective.

Still, while my income certainly took a hit over the past two years, I can confidently say I have no regrets.

Other Stuff

The Rental Affordability Curve: A Distribution of Affordability Looking at average rent and income across a large population doesn't tell you as much as you'd like. To understand affordability at a more granular level, Kevin Burke at Freddie Mac has developed a more insightful approach that calculates how much of the rental stock in a market is affordability at each income percentile. Burke explains his methodology in this podcast interview and shares some key insights. In the chart below, the largest gaps between the organge and blue bars highlight the price points of most acute affordability housing shortages. The full report can be found here, which includes data for select metros.

​Listen to the podcast (30 mins)

Luddite Alert The Chenmark team discusses the importance of using AI tools like ChatGPT selectively and with intention, rather than relying on them as shortcuts for everything. There's often great value in doing the work, even if it takes longer. The short essay emphasizes the value of critical thinking and putting in effort to truly understand and create meaningful outcomes.

​Read the essay (2 mins)

Delegating Gets Easier When You Get Better at Explaining Your Ideas Another insightful post by Wes Kao, reminding us that delegating becomes easier when you improve how you explain tasks to your team. Providing context upfront helps save time, reduce miscommunication, and boost team confidence. Obvious? Maybe. But, it's often poorly executed.

​Read the essay (10 mins)

And a Farewell Photo...