Why startup founders need to understand the hedge fund industry

Startup founders should learn from the greatness of hedge funds.

As a startup founder you need to believe that your company will become the best.

Yes, there will be competition. Yes, it will be hard (sometimes impossibly so) and yes, it will be intensely stressful.

But with the right moves and the right focus, you can truly become the best.

What is your edge?

In a hedge fund, to be truly successful you need to do the same thing.

The more I learn about hedge funds and finance, the more I realise that as a startup founder, we need to learn from their greatness.

In a hedge fund, your edge or according to Google, the “quality or factor which gives superiority over rivals”, is the only thing that matters.

Why are you better? Why will you succeed when others fail?

In a hedge fund, some create an edge with focus, some by speed, some by capital amount, some by data and countless other ways.

Famously in the startup space SoftBank’s nearly $100B Vision Fund has through capital, transformed the investing landscape giving them an edge to get into any deal.  

All of these firms have an edge and understand what it is. Focus on your edge, craft your edge, perfect your edge.

As entrepreneur Paul Graham always mentioned: “better to make a few users love you, than a lot ambivalent” –  that is our startup edge.

Understand your limitations

If you are the best in the world in one country or in one sector, it might make sense to test out another, but that does not mean you will be successful.

A lot of great funds have tried to expand and failed, for example, Bill Ackman’s billion-dollar blunder shorting Herbalife.

If one dips their toes into many pies, one will become a jack of all trades and a master of none. When being truly the best is what matters, good but not great is a recipe for disaster.

Hire truly the best

People build companies.

The most successful firms in the world spend hundreds of thousands of dollars on each hire.

Many of the funds that I am familiar with in Singapore don’t stop their search for talent domestically.

They are looking wherever they can from academia, to the private sector or even one example of a professional poker player.  

Startups need the same. Look wherever it is you need to look, go wherever you need to go and hustle however you need to hustle, but truly just make sure you get the best.

When you have an amazing employee stand by them through thick and thin. Recently a Bridgewater employee was accused of allegations that many would consider fireable.

Rather then just let the employee go, Ray Dalio, Bridgewater’s founder fought back, protecting his employee. When you have a star on your team, fight to keep them.

Compensate fairly

Compensation and performance need to be directly tied.

In a hedge fund, you might get a per cent of your profits as a bonus. As you make more money for the company, the company in turn makes more money for you.

Startups do not have anywhere near the same cash position as a hedge fund, but they do have equity.

Share it. Share it aggressively. Everyone should feel that as they make more for the company they are truly making more for themselves.

Furthermore, in a fund, employees are encouraged to reinvest their income back into the fund.

Many of the best funds in the world for example Renaissance Technologies Medallion Fund have evolved to become entirely employee owned.

Imagine what that does to their employee retention?

Why can’t startups do the same by allowing their employees to buy additional equity as they say choose.  

The author is an ex-Googler and the CEO of A Better Florist Singapore.