MBA? 10 Reasons to Choose Wall Street and Avoid a Start Up.

There is a growing trend in the business school crowd where many people are taking higher risk start up positions with the hopes of making it big off of the equity portion of the compensation package. The problem? People don’t seem to be running the numbers.

Here lets outline why one should go ahead and turn to a front office Wall Street job instead of a Start up.

1) Job Security: Sure Wall Street is volatile and it is a cut throat business, however… What is worse? Adding no value to the company you are working for.

Yes we can go back and forth over what an MBA can add to a Start Up in terms of value, but at the end of the day the real driver to growth is engineering talent (see primary value add in the business model). If you’re in a sales position you may be more stable, but then again a sales role on Wall Street would likely have the same meritocracy.

The final push that solidifies the job security issue is simple, what is more likely to go belly up? JPMorgan or a Start Up. The answer of course is the Start Up and you’re first out the door because you add the least value by number crunching and sitting in on strategy meetings.

2) Debt: Here is the bigger issue, you’ve invested a lot of money in yourself. If you’re an MBA candidate who is flush witch cash, feel free to skip this, but if you have debt you’ve got to think about your personal finances. If you take the job with the $90K base salary and $50K in stock options out of the Start Up all of your leverage is entirely on the Equity side of the compensation package.

Look on the other side of the table, you can clear ~$200K in gross income over a full year. This is 2.22x your cash compensation in a Start Up… Last we checked debtors don’t take start up equity as payments.

3) Stock Diversification: Run the risk profile. If you’re still not sold after bullets one and two lets look at it assuming that you will survive in both positions for a full two years. That would be roughly $420K for a solid investment banker and $180K + $100K in higher risk stock for the Start Up job.

Here’s the catch, how much equity can you buy if you simply lived a minimalist lifestyle? If you can simply live off of $90K as an investment banker (yes this is harder than you think in major cities like NYC) then you can essentially save the rest of your cash.

$420 – $180 = $240K… Lets tax this at 35% and you’re left with $156K

This is a huge change. Why? You can now take a $50K position in three different start ups. If you turned down a job at Start up XYZ you can simply obtain trading approval to purchase shares on a secondary market (such as sharespost.com) and buy that $100K+ position if you truly believe in the story. In addition, to really push this diversification move you can take an Investment Banking/Wall Street job in a field unrelated to the start up you wanted to work for. You have even more diversification at this point.

4) Less Competition: With more and more people attempting to obtain the homerun position at a Start up there has been a meaningful decline in candidate quality (note our sample is small with a few writers) but overall Wall Street experience at the Associate level is a bit harder to find (also impacted by the 2009 recession – adding three years means not too many A to A promotes). Yes it is still extremely competitive.

But.

With more people trying to join the next hot company that means your resume is going to get a little bit more traction. Maybe your resume will stand out enough to jump from a middle market type candidate to a lower end bulge bracket type candidate.

5) Relationships: This is a largely overlooked piece of working on Wall Street. Be it on the buy-side or the sell-side, you’re going to meet more people as you age in the industry. You attend more meetings, conferences, events etc. where you can build out a much thicker rolodex. The chances of being taken to important meetings as a fresh MBA at a start up is much smaller compared to your chances of being quickly thrown into drafting sessions for an IPO.

Hint: you can meet other Wall Street employees and build a soft relationship at these meetings upon hello.

To make this clear, if you obtain a slot on the buyside the same principles apply. You will still interact with sell side clients and you will have more relationships (rolodex) over time. The interactions are likely to begin within a few short months of starting your career.

6) More Career Control: Hate to say this but if you’re good at politics in your office, you’re going to have more control of your future. Look at a large bank with many managing directors and directors. Anyone who has actual real life experience on Wall Street knows that if you don’t have political skills in the office, it does not matter if you are a high performer. If you the right people don’t like you, you’ll never get any traction in the future. A tough business indeed.

The positive flip side?

In a larger Wall Street setting you will have more opportunities to correctly position yourself under the *right* group. Again this means you’re competent at telling who matters in your group. With this set up, if things go bad you’re likely not losing your job and if the group continues to outperform you’re first in line for the head nod. At a Start Up? Not so much since the size is small and you’ll be tied much more heavily to the firm as a whole.

7) More Personal Financial Control: This was alluded to in point 2 and 3. If you have a higher cash flow (personal) you can swiftly make adjustments to your personal finances. With ~$90K per year it is tough to live an amazing life in any big city, this is why there is a saying on Wall Street

“Spend your salary on strippers and drugs if you like, but save your bonus”

If you go into your Wall Street position and *act as if* you can only live on a start up salary for a few short years, you’ll likely amass six figures. While you’re not Mark Zuckerberg you have multiple options including 1) a solid 401K program with a company match, 2) healthcare choices and 3) IRA choices off your first half year. All of these small personal finance adjustments add up if you can look at the long-term time horizon.

8) Big City Life: This is a personal one. Unless the Start Up is going to be in a major city it is tough to imagine a regular fun life in a major city. Sure, if you follow this minimalist plan for a couple years you won’t be driving around in an M3 but at least you will have a lot of interactions with people on your weekends. You can take advantage of easy transportation (no need for a car) and you can stick to the bar scene instead of spending all your money at LeBain, Catch, PHD and the other high end venues in NYC (think of it as inspiration for the future).

9) Easier Sell: We did a longer post on how to work with headhunters in the recruiting for a hedge fund post, but that is something that should be emphasized here. If you work in a finance position at a Start Up (operations or otherwise) you’re much more likely to gain traction with head hunters with a Wall Street resume. Say what you will about the cookie cutter ‘top gpa, top school, top GMAT, Bulge Bracket” resume, but it will make sure you get interviews if you can simply survive for a couple of years.

No reason to burn the headhunter out if you don’t need it.

10) Timing: Finally, the last reason that you should choose Wall Street?

Timing. Timing. Timing.

If you piece together this entire article you can see that you can 1) have more free cash/capital in your hands 2) have more access to jobs and 3) a slightly larger network. This means you can now time your exit as you please. Instead of worrying about debt payments, look at how much you have increased your ability to jump into a new opportunity. Companies will always pop up over the next 5 years (unless you think the world is ending) so you can simply pack your bags, close your outlook and jump on the option when your risk profile allows it.

***Miss anything? Or if you disagree feel free to leave comments.

As soon as everyone is rushing to the next hot things, it usually means… it’s probably a bad idea.

Comments

  1. Univ. Chicago says

    Have seen this happen so many times with my peers. I’m several years ahead now even though their start ups did fairly well.

    Cash is king.

  2. WSOuser says

    This appeared on WSO first. I’m ahead of you by roughly 10 hours.
    Good post. I would never work on a startup post-MBA unless I’m one of the founders.
    I may be going to B-School or may not (have not made a deposit yet).
    What are your thoughts on this?

    Based on the following facts:
    I) You want to become a PM
    II) You don’t have an audited track record, but you do have a “modest” AUM figure

    Should you emulate:
    a) Seth Klarman, Ray Dalio and Stephen Schwarzman
    OR
    b) Paul Tudor Jones, John Arnold and Bruce Kovner

    In other words; should I get my CFA*, start an LP and LLC, trade account –> get audited –> fund raise
    (*none of the above have a CFA)
    OR
    Go to B-School–> network and get to know rich people –> work at an HF –> get promoted to the point where you manage some money –> build track record –> start LP & LLC –> fund raise

    Again, I just want to get your thoughts on this.
    I will probably enroll in B-School to ‘de-risk’ my profile, although it will be very useless knowledge-wise.

    • Wall Street Playboys says

      Yes we are mixing the timing of multiple types of posts over various platforms.

      The first question is of course the following:

      What are you doing now and what are your current options?

      Without that it is hard to give any legitimate advice.

    • NYC_daygamer says

      Wall Street is usually very secretive with it’s customs. Why are you guys so open with the information and advice? Is it just an unjaded nurturing set of personality traits that couldn’t be crushed by years of 80+ hour weeks and political maneuvering or are you part of the happy go lucky millennial generation.

      This is a legit question, I am not trying to troll, but am just curious about why you desire to be so helpful. I have read your post on why helping others can return benefits to you, but it doesn’t feel like it explains your motivations entirely. Inquiring minds would like to know.

  3. Engineer says

    I work in Silicon Valley, I think the first point is important. The ones I know who do well with an MBA have an engineering background.

    • Wall Street Playboys says

      That makes sense, it is a managerial switch. However, if you have the choice between going to the Street or getting a start up position, you should choose the Street based on the math.

  4. Financial Samurai says

    I recently decided to dump $350K into a publicly traded company which is going to IPO one of its main subsidiaries. My normal position sizes are around $100-$150K, but I figured let’s double down. I feel like I’ve joined the company as an employee. Too bad the shares are sucking wind! haha.

  5. mike says

    My general observation is if you do an MBA and want to go into the startup world, emulate the following examples:

    1) The person also has considerable experience i.e 5-10 years of finance, marketing experience etc

    2) The person has another professional qualification i.e. Ali Rowghani, COO at Twitter (Accountant and Stanford MBA)

    3) The person is starting their OWN startup and taking on the risk on their own. Usually combined with point 1 or 2. Think Mark Suster who had 10 years of consulting experience plus an MBA before starting his first business.

  6. DTG_User says

    Timely article, highly applicable in my current situation. A few questons if you don’t mind, but first my background. I am considering enrolling and sitting the CFA exam L1. Motivation for this A) I am mid-thirties in age, have successful 10 year track record of sales in a non-finance industry (technology) but do not have an undergrad degree. B) my long term goal is to run my own HF or become PM at a large firm. C) my extra-curricular activities include active trading experience as a retail trader (equities and equity options), about to make executive presentation to a have a financial blog I’ve been running since Oct 2012.

    Question 1: Will S&T/Research/Analyst hiring managers discount the fact I have no-undergrad degree, given having passed CFA L1 and my deep industry experience in technology-space? My concern is the debt and opportunity cost of completing undergrad + MBA vs. info above.

    Question 2: my presentation to the start-up will include business & growth plan with 5 year projections and ideas for exit-strategy, a request 10%+ preferred equity share + compensation plan, in exchange for managing (or having voting power within) areas of the business related to strategy, finance, operations, sales, business development, marketing, technology applications, logistics. With that long introduction; I want the business experience of the start-up but I also want to sit the CFA L1 asap. I don’t think I could do both within a 6month period. Given my goal is to manage OPM or run my own Fund by my mid 40’s (in 10 years) would you A) get the start-up off the ground and build the team up for six months so you can sit CFA L1 next year = not miss the 10% equity share, or B) pursue CFA L1 right now? The start-up is a consumer based industry experiencing 100%+ year over year growth, addressable market expected to exceed $6-7B by end of 2014.

    Thank you for any and all feedback.

    • Wall Street Playboys says

      The truth is that you have far too many moving pieces.

      1) Age is an issue particularly with no wall street experience
      2) No undergraduate degree will raise even more questions

      On a glance it would be much smarter to pursue a start-up in your shoes, since your resume is not cookie cutter. If the start up succeeds and you make a great deal of money, you can start your own hedge fund.

      CFA level 1 is going to be meaningless at this point given your background.

  7. James says

    I am looking into those pre-ipo stocks and from what I’ve read, apparently you have to be an accredited investor (1 mil +net worth or annual income of 200k). I am about 400k net worth but I make about 150k/yr. Is there anyway to bypass the accreditation requirement and get some of those pre-ipo shares?

    Thanks.

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