010: How to Use Risk for Wealth to Build Wealth with Tech Equity

Christopher Nelson (00:00:00) - Trading your time and talent for tech equity requires that you look at risk if you want to unlock the wealth behind it. If you don't have a view on risk in what you're taking in the company that you're trading it for, then you're either hoping that something's going to happen or you're just straight up gambling. Welcome to Tech Careers and Money Talk. I'm your host, Christopher Nelson. I've been in the technology industry for 20 plus years, and after climbing my way to the C-suite, working for three companies that have been through IPO and investing my way to financial independence, I'm here to share with you everything that I've learned. Introduce you to people, ideas, and strategies that can help you along your journey as well. So today is going to be a solo episode where I am breaking down risk. If you don't manage your risk, you're not going to be able to meet your financial goals when you're trading your time and talent for equity. And we get a lot of noise around this. We do. There's a lot of noise about how you should manage your risk and what you should do out there in the media.

Christopher Nelson (00:01:04) - But we need to understand what is the truth. So I'm going to be breaking down how you manage your risk around your career capital when you invest that for tech equity. And if you don't understand what career capital is, go check out episode number six, where I break down that key concept that you really want to understand. And we're also going to be breaking down your risk around what company that you invested in. These are all really critical concepts that if you don't understand them, you're not going to be able to again, get to the financial result that you really want. So this is going to be a very intense, deep episode. I'm excited to share it with you. Let's get into it right now. If you want to go to work for tech equity as a wealth building strategy, then you have to utilize risk. You have to utilize risk. You have to understand what your risk is when you're trading your time and talent for equity. It's simple. So let's break it down. What is risk? Risk is the probability of something bad happening.

Christopher Nelson (00:02:04) - And investors always look at the risk and the reward. When they're analyzing investments and understand which investment is the right one for them to reach their financial goals. Let that sink in. You need to have financial goals when you are. Working, trading your time and talent for tech equity. You do. You need to have some financial goals and say, ‘What do I want to take off the table?’ You want to be laser focused on that and you need to be looking at risk because risk is going to tell you how much. Do you want to take in those particular investments? So again, a simple example. If you are saving money and you want to make a down payment on a house primary, resident investment property doesn't matter, but you're saving money to make a down payment. You want a low risk, low reward investment. So that's going to look like a high yield savings account. Today. You can get, you know, 5% interest, 5.2, 5% interest. You could potentially go to a six month certificate of deposit or CD, maybe get a couple more beeps.

Christopher Nelson (00:03:20) - But you probably wouldn't want to go and put it into a single stock or the stock market for six months in this environment and feel confident that you're going to get your principal out, that you want to go invest in that home. You wouldn't do that because the risk doesn't line up with your financial goals and you need to look at trading your time and talent for tech equity the same way. If you want to build wealth and be intentional about it, you have to be laser focused on the risk. And there's a lot of hype around this. It is like we are here, we're programmed. There's a lot of media that says if you want to make any money in tech equity, you have to go work for the earliest stage startup possible. Well, if you're an investor and you're looking through a lens of risk and you're seeing, okay, there's something untried that we don't really know whether it's a product fit or not. Is that really true? Or would it actually be better to go to work for an Amazon, a Google Facebook that's actually trading stock that has liquidity.

Christopher Nelson (00:04:33) - And, you know, we can understand where those companies are trending. And there's going to be a value to it. I mean, they make sure in these compensation packages that you will get a value to that either way. Which is less risk, which is more risk. So if you want to make it, you know. $300, 400, $500,000 in the next few years that you want to be able to go and invest in something else, which is the better investment for you? Or do you have a longer time horizon? These are the things in strategies that we need to be thinking of when we want to work for tech equity as a wealth building strategy. Risk is the key to building wealth in tech. Equity is leveraging that lens. And so today we're going to really focus on two key concepts, because if you go back to episode six of Tech Careers and Money Talk, I talked a little bit about career capital, which is your education, experience and results. That is your asset.

Christopher Nelson (00:05:35) - That's what you trade for technology equity. You have to manage the risk around it. You also need to manage the risk around the company that you invested in. So there's two dimensions here. So the questions that we're going to answer today is, number one is how do you think about and manage the risk of where you invest your career capital? And then also, how do you think and manage the risk around the company? That you actually invest that into or trade that to reach your financial goals. This is all going to be part of my book that's going to be coming out, uh, from Noto to IPO, a proven playbook for how to trade your time and talent for tech equity. And I really think that it's important that we break down this concept that we understand everything that has to do with risk, because ultimately it's the managing of that risk that's going to get us to meet our financial goals. So let's focus on the first question now. How do we manage risk around career capital? What is the greatest risk to your career capital? So let me refresh career capital.

Christopher Nelson (00:06:57) - Is your education your experience in results? This is the valuable asset that you trade for tech equity. But you also need to make sure that in every opportunity, in every job that you're working in, that you are increasing. This career capital. So let's take a step back when we all get out of college and we're priming for our first roles. We're very, very conscious about who we go to work for. Because the greatest risk to your career capital is not just the company, but we also are thinking about the manager. Who am I going to work for? Am I going to work for somebody who's a mentor? Is it somebody who is a mentor who's a coach who can really help me learn soft skills that can help me grow my career? Is it somebody Am I going to work for somebody that is an expert? Like they really know what they're doing, whether it's the process, whether they're a great sales person or whether it's truly a hard skill. Like they are great engineers.

Christopher Nelson (00:08:04) - They understand different pieces of technology very well, and I can get deeper skills around that. Maybe the manager that you're working for is a connector. Maybe there's somebody that can connect you and they have a great network, or maybe it's somebody who has a great professional brand. When we first come out, we're very focused on who we are working for, how do we skill up? I see that over time we're more interested in the job. We think about the role, but we don't pivot and look at the manager. And I know halfway through my career, when I went to work for my first startup company, I did not realize how good I had it. When I was working for Accenture, I was surrounded by a lot of mentors, people who are investing in me, my career, great connectors, experts. And then I was all of a sudden in an environment where I was really on my own and I didn't have somebody who I honestly wanted to be like in that situation. I realized very quickly that while the interview process went well, that when we're in our day to day work environment, they don't have a lot of characters and principles and qualities that I wanted to be like.

Christopher Nelson (00:09:23) - And that was probably what then, you know, allowed that period of time to just be for a year because I realized like my career capital was stagnating. I needed to go trade it somewhere else to be able to accelerate and move forward. And so for all of us in our careers, we need to make sure that to manage the risk around our career capital, we need to be. Looking at our potential manager that we're going to work for and we need to be doing a couple things to mitigate the risk. The first thing that I recommend a great tactic for you to do is create an avatar. Okay. You here, right? In digital marketing, people create avatars all the time because they want to find their ideal customer. They want to understand what are all of the attributes of the ideal customer so that they can attract them. Why wouldn't we do that for the ideal manager? Why wouldn't we have a list of criteria of somebody that we want to go to work for that can help us grow our career, wherever that may be? And that's part of where, you know, it depends on where you're looking to invest in your career capital and grow it so that ultimately you can go and trade it for more equity.

Christopher Nelson (00:10:50) - But are you in a scenario where you want more skills? Do you want to go to work for an expert? Because there's going to be trade offs. Sometimes you're going to work for an expert. Maybe they're more of an introvert, maybe they don't have some of those connector skills. They don't have a professional brand because they're great at what they do and you know them through. You've heard of them through your network, or you may have seen them at a conference or something, and you say, I want to go to work for that person because I know I can get skills out of it. Or do you want to go learn? You know, management and you see somebody who is a mentor and somebody who is known for creating other managers, and that's something you want to go work for, too. But it's important that you have an avatar of what you're looking for in a manager, that you write that down. Because. I remember I always tell this story that a couple of years ago I wanted to go buy a Toyota Tundra.

Christopher Nelson (00:11:47) - I ended up not doing it because it was right. I think in 2020, 2021, when all of a sudden the car prices started shooting up. But when I started talking to my family about a Toyota Tundra, I saw them everywhere. I like it. I'm driving down the road. Tundra, tundra to and arguably a lot of tundra is on the road. However, I would say that when you tune your lens and you say, I want to find a manager that's a great connector, has a great network because I want to expand my network through theirs. You're going to start finding it. You're going to start hearing it. You're going to start seeing it. So this is a powerful exercise that helps you mitigate your risk. By creating an avatar. The other thing that you want to do is, make sure that you have good interview questions when you're interviewing your manager. You want to be able to validate that they are somebody that meets this particular criteria. And part of this is the attributes like so when you think about it, the avatar is going to give you different attributes.

Christopher Nelson (00:12:53) - But then in the interview. To build career capital, you need to be able to get exposure to either core skill building that's going to allow you to contribute with developing excellent skills or exposure to projects that are going to get you, that are going to allow you to be visible, you know, some high exposure projects. And so making sure that your manager is aligned with your goals, that they are aligning up to how you see them as this avatar. Is really important. Because managers have the greatest influence on your career from a day to day basis. So make sure that you have clarity on who they are and you're actually proactively. This is part of. You know, the dimension of risk is once you have risk out there, you also very clearly know what you want because you've identified what's too much risk, what you don't want. You know, so let's think about that for a second. So if somebody has okay skills, they're an okay manager. They don't have a big network, they don't have a professional brand.

Christopher Nelson (00:14:10) - Is that something that you want to spend your time in, your precious time working for that person? Maybe. Maybe. On the flip side, you say, hey, the company risk is there's so much financial upside there, it's worth it to give a year or two years to this manager. But this is why you focus on the risk and this is why you focus on understanding having an avatar, knowing what you want from a manager, what are those key skills that you can build? And then being able to interview and ask questions around that. Asking a manager the question of do you go to professional networking events? Who do you network? How do you build skills in your area? How do you go and speak it at conferences? Is that something that you enjoy doing? Is that something that you want to do more of? Asking these kinds of questions is very, very important. And obviously level matters, right? If you're interviewing somebody who's newer in their career, maybe they haven't had that type of exposure.

Christopher Nelson (00:15:13) - You want to make sure that you're asking them questions of what they aspire to do. What are some of the things that they're working on, maybe not assuming that they've done that now managing the risk of your manager is. The first risk that you need to manage when you are trading your time and talent for tech equity. Because as I've said before, even if the company doesn't work out, you have leveled up your skill set so you can go trade it somewhere else for tech equity. And this was my story where, you know, I had left Accenture with a lot of tech equity, sorry, a lot of career capital. I went and traded for the first company when I wasn't thinking like an investor. Then all of a sudden I turn around and start thinking like an investor. I left that company. I went and did some more consulting for a little bit as I was working on this whole methodology, building it out. The next company I went to work for was Splunk. Which was, you know, an amazing IPO and amazing exit for myself and my family.

Christopher Nelson (00:16:22) - And so the turnaround can be very quick if you're focused on the career capital. So that's really important. What I want to do in the second half of this show, I'm going to take a real quick break and then we're going to come back. And in the second half of the show, I really want to focus on how you think about company risk, because this is where we get fed a lot of messages and this is where a lot of people get it wrong. And I want to be able to bring to you some really crisp framework and have you really thought like an investor when you're trading your time and talent for the right companies and looking at risk? We'll be right back. All right. We are back with the second half today of tech careers and money. Talk of talking about risk in how you manage your risk is going to determine how much money you make working for tech equity. It's so true. And I want to start off this half with a story because I think it's important that we understand that managing your risk can sometimes move you towards your goals faster than you think.

Christopher Nelson (00:17:30) - So I want to tell the story about Sarah. Sarah is somebody that I met at, of all places, a real estate conference. But as many people know, I'm into real estate as well. And so there we got to know each other while chit chatting, realized that we both worked in tech and soon enough where, you know, enjoying talking about real estate. But we also have this shared language of working in technology equity. ET cetera. And at some point I dropped the line and I said, everybody who all tech employees need to think like an investor with their time and talent. Sarah said to me, Hold on to that. Let's talk about that later. And so we ended up jumping on Zoom a few weeks later and having some conversations. Now, Sarah was a staff level engineer at an early stage startup company, and while she had a great salary, all this equity that she was working for was locked up and she had no understanding of when it was going to be available. And she had short term goals to get money off the table from equity to be able to invest in real estate.

Christopher Nelson (00:18:35) - So. I said, Well, let's go through this risk profile exercise. Totally open to it. And as we're going through it, she turns to me and she says, Christopher, if I understand what you're saying, according to your risk profile, I'm low risk, low reward. So I should be going to work for a public technology company where everybody knows that if you want to make money in tech, you have to go to work for an early stage startup company. Right. And this is really the mindset that I'm trying to bring some different data to. So I said, Sara, go and get some interviews. And, you know, let's let's see. Let's see what you can get on the table. So she went out and she brought back three offers from three different public technology companies. And the one that she chose gave her a 20% increase in salary, that salary with equity. And she had liquidity in the first month of that RSU plan, restricted stock units.

Christopher Nelson (00:19:44) - And if for some reason it went below that level, she would actually then get the opportunity to have that matched at the end of the year. So they would make sure that she would meet that dollar amount. Those were real dollars. So she was excited about the role. She was excited about the opportunities. She had a great manager, so she went and took the position. Now, it got really interesting. The company that she was working for, she got those shares at $21 a share. And it was a few months later that because of economic conditions, it shot up to $61 a share. Staggering, right? I mean, literally tripled in value. So over the roughly 18 months that she was there, she was able to take, you know, low seven figures off the table that then she moved into some short term rentals, some long term rentals and some real estate investments. And then she had an exit plan. She transitioned out of working full time on her real estate portfolio.

Christopher Nelson (00:20:49) - And then she consults back into technology now. There was a lot of hard work involved. I'm not trying to say that this is a get rich get rich scheme. It's not. What this is, is it's adjusting your. Lynch She, like many people, Sarah had been working for an early stage startup company and then just hoping something would happen. But when she took a step back, she looked at her financial goals. She applied some risks to it. She made an adjustment. And then she was able to get the results that she wanted. So I tell this story because when we talk now. What is the risk of the company that you work for? We have to fight through a lot of noise. There's a lot of noise. Just like Sarah. You have to go to the earliest stage startup company. Do you want to make money? But when we look at how investors in other asset classes look at risk, they look at things like. Let's take stock investing, right? If you have a microcap stock, you know, something that's 100 to $200 million in revenue just went public.

Christopher Nelson (00:22:04) - They're going to be labeling that a high risk, high reward, you know, even if it has a great, phenomenal product because it's brand new, not tried and tested, that's going to be labeled a high risk, high reward versus a. Apple or Amazon, right? Some of those Faang stocks that have been on the stock market for a while are just continuing to go up and to the right. Or you think of other companies, the Dow Jones Industrial Average of AT&T. You know, Coca-Cola has been a great stock for many years for many people. Blue chip stock. Low risk, low reward. Then you have high risk, high reward. These micro-cap stocks you have sort of in the middle of these value stocks where, you know, people are seeing them under appreciated with value. Right. But there's a methodology where they label high risk, high reward, low risk, low reward. Then if you look at real estate, real estate has something that's called core. If you're buying a core asset, you're buying something that's maybe five years old that's already cash flowing.

Christopher Nelson (00:23:08) - So it's already going to be de-risked because it's already, you know, kicking off some good cash flow. It's an operating business well established. You don't have a lot of risk of, you know, things breaking because it's a roughly new building. Then you have a value add in the middle where you're buying buildings that are, say, 10 to 15 years old. You're doing upgrades on them and you're trying to then move it to a brand new business plan, sort of medium risk, medium reward. Then you have high risk. High reward. Opportunistic. What is that? It's dirt. You buy dirt and then you have to go get permits. Permits can take a long time. You know, your capital is sitting there. You're not getting any income from it. Right. The business isn't functioning. You literally are building it from scratch. So then how do we think about investing our time and talent? Right. There's enough. If you look and you zoom in on pre-IPO companies, oh, there's seed around B round unicorn, and there's these public companies, but there's not a way for us as investors of time and talent to think about this.

Christopher Nelson (00:24:21) - So this is what I want to give you today is anything that is a non-public company. That doesn't give you access to liquidity is going to be a high risk, high reward proposition. Now, in that spectrum, there are some things that move a little bit closer. Things that may be 18 to 24 months. Very mature, but still there's a lot of risk in that area versus. Low risk. Low reward is going to work for a fang company that gives you stock compensation as part of its. Uh, as part of its compensation program that you're going to get a salary, possibly bonus. And equity is part of that. That's a low risk, low reward proposition. Then I would say somewhere in the middle is you go to work for a company that just went public, right? Some something that, you know, now you're able to get liquidity and I call sort of in the middle is they do have in. If you think about it. Companies that are unicorns, you can find liquidity on secondary markets.

Christopher Nelson (00:25:26) - I know, for example, Stripe, there's a lot of companies that trade, you know, Stripe on the secondary market so that employees can get liquidity there. But this is where I really look at this lens of medium risk, medium reward or some of these companies that aren't completely public. There could be upside value in them, you know, versus companies that have just gone public that sort of right down the middle for me. Anything on the other side, high risk, high reward. If it's private and you can't trade it, you're trading taking risk. But this is the lens that I want to give you when you're thinking about an investor with your time and talent. If you have short term goals and you want to be able to get that equity in and leverage that to build your financial fortress, whatever that may be, is stock portfolio, alternative investment portfolio, commercial real estate, residential real estate, whatever it is, If you want to be taking money off the table, you need to be looking at low risk, low reward or maybe medium risk, medium reward where there is that real liquidity there.

Christopher Nelson (00:26:32) - That's a new lens. That's a new way to think about it that people are talking about. And this is why tech careers and money talk is here. So those things that have been happening in the backrooms and I know friends of mine have been and I have been strategizing about concepts like this for years. If you're interested in somebody who does it very well, you can get Episode three. Brian Weiss, who you know is very focused. He has taken DocuSign, public, Snowflake public, GitLab Public, and now he's on to his fourth company. The guy's three for three. When he really got a lens and figured out how to manage his risk well. But before that, he worked for a public company for 8 or 9 years and took steady money, steady equity off the table to really build out a portfolio. You know, if you listen to Rindy Miller, same thing. She worked for a large hardware supplier for many years, and was able to take some steady equity off the table. And her choices, she goes to work for just public companies where she's then able to get liquidity out of the equity all the time, playing a little bit more conservative, a GTC and who was on the previous episode here where he is a great negotiator for equity.

Christopher Nelson (00:27:47) - He worked for VMware and Splunk. When Splunk was public, VMware was public, taking equity off the table. Then he went and took Zora public and sumo public. I'm telling you this because this isn't I'm not trying to brag about what they're doing, but I'm trying to give you a lens that these people that I know that are working for equity is wealth building strategy moved from low risk, low reward to higher risk, high reward because they'd already built out something. These aren't people that just went and they're working for high risk, high reward companies. That's not working out for them. And they're saying investing in technology is gambling. These frameworks are so important. It's critical that you're able to look at this like an investor would and say. What's the best for me? So I want to make sure that when you're taking a step back and you're thinking of your career in how you analyze risk when working for those companies, you want to be looking at liquidity. And so. Obviously those companies that are traded on public markets, it's really easy to see their stock prices.

Christopher Nelson (00:29:09) - You can look on and I will put some resources in here, you can look on team Blind and understand what type of equity compensation package you're getting. There's levels as well, and I'll put the URL in the show notes. There's also for secondary markets you can go to forge global, you can go to equities in and you can look at, you know, many of them are going to require you to sign up and get an account. It's just the email, but you can have the opportunity to look and say, okay, what of these companies are trading? They're in the secondary market, where they have some level of liquidity. And so when I started this podcast, one of the things that I wanted to do that was core to the mission of this podcast to educate technology employees was to say. We get a lot of noise and there's been this lens of you have to go to work for this early stage startup company to make any money. And I just want you to know that's not true.

Christopher Nelson (00:30:14) - It's not. There's a whole range of companies, and the people that I'm interviewing have worked for different types of them to make sure that they can get equity that is aligned with the risk profile. And as you start spending time here and building a career, you may go from lower risk, lower reward to higher risk. High reward because. You've already taken some dollars off the table. You've already been able to build a portfolio and diversify it. Ultimately, managing risk is a tool to meet your financial goals. And it's so important that you come into this and you have real financial goals of what you want to take off the table for your time that you're spending at the company, because this is the value in the opportunity of trading your time and talent for tech equity. So let me just wrap it up. So today we really learned about risk and you really have to manage a risk to make money to take it off the table when trading your time and talent for tech equity. First and foremost, you want to look at the risk of your manager.

Christopher Nelson (00:31:31) - Who are you working for? Are they somebody that is going to help you meet your career goals in this role? That's critical because if you don't and you also aren't able to get any liquidity off the table, then you can end out you know, it could really be a scratch. It could be something where you're not getting any value for your career moving forward. So you want to make sure you take care of that career capital first. And then number two, you want to be looking at what your financial goals are and what you want to get from the equity. What do you want to get? Do you want to get an additional $100,000 a year? Do you want to get $200,000 a year? Do you want to get half $1 million a year? Well, you need to factor that in your financial goals of what you want. And then you need to look at the companies and their liquidity, their value, their comp packages to say what can get you there. I really hope you enjoyed this episode.

Christopher Nelson (00:32:31) - I do want to let you know that if you have any questions about this, you can actually email us at Ask Ask at Tech Careers and Money Talk. We take your questions. We are compiling some of them. I think we may end up having a, you know, frequently asked questions or key questions episode. We are a young podcast. We need your support. So please listen to us on Apple, Spotify, Google, Amazon, the big channels and others as well. And if you really like us and love us, please support us with a five star review. Let us know what you enjoy about the podcast. And please, please tell somebody else. We want people to know that when you are now working for technology equity, you're trying to figure out how career and money works together. We're here for you. So thank you very much. My name is Christopher Nelson. We'll see you next time.