I think startups will soon be at a crossroads once the flaws in the equity compensation system become more widely exposed. People will be dis-incentivized from working at startups.
We knew all this in 2000 in the dotcom crash. But along comes a new generation of starry-eyed kids (who are "just smarter" and don't care about experience) and they are just more meat for the grinder.
I think the cool kids are running startups where all the data is on the table - i.e. no secrets, but rather all staff have access to all data about the company. This seems to be a trend with European startups, anyway ..
They've been saying that forever, just like they've been saying "Silicon Valley will suffer a brain drain because people will move away due to the high cost of living." In theory it makes sense, but it never happens in earnest.
Working in a startup is much, much more fun that working at a big corporation. I took a paycut several times to go work at startups just because working at a big company where you work on a single API of one of their products gets boring really fast, regardless of the pay.
Do your own thing on the side. Much better than a few stock options. But make sure to have your project excluded in your IP and non-compete contracts with your employer.
I get the draw of working at startups, but I didn't think it was worth it. The big companies here are offering 2-3x startup salaries (with real room for growth). Is the market here out of whack or is that really a trade people are making?
I know it's fun to say it that way, but it's wrong. If you work at a startup try going to your boss and saying "I'll give up all my equity for a $100/year raise." They will say yes (modulo a conversation with you about how that's a really bad idea for you).
It would be fair to say that a lot of people overestimate the value of equity a lot of the time. But that's not the same thing as what the author says.
> suggest to trade the equity portion of the offer for the cash value of the options (in addition to the advertised salary). Good luck.
I was explicitly given that choice (in three packages, high/med/low options count in exchange for offsetting increase in starting salary). Being "smart", I took the salary and low options and that was a poor choice in retrospect, given that we IPO'd 2.5 years later and my salary now would surely be the same regardless of the initial choice.
I don't know how common it is, but it's absolutely doable and done. (I suppose you could argue whether the company I joined was early-stage or not.)
You can get a $100/year raise just for the asking. In tech, salaries are just not negotiated at the $100/year granularity. Imagine saying "I'm also considering an offer from this company, can you offer more" and the HR department coming back with "Sure, we can give you $100/year more."
If you can get a $100/year raise just for the asking, and you can also get a $100/year raise in exchange for equity, then simple arithmetic indicates that the equity has zero value.
This still is refusing to consider the marginal case, which is what the OP was asking about. At some point, even if asked the first time, a boss might refuse a $100 raise. They would still take the $100 for equity deal.
The point was just a thought experiment to show that equity has more than 0 value.
"If you can get a $100/year raise just for the asking, and you can also get a $100/year raise in exchange for equity, then simple arithmetic indicates that the equity has zero value"
If I offer my Embarcadero penthouse in exchange for a $100/year raise, does that mean the apartment has 0 value?
The article clearly wanted you to ask for a raise at at least the granularity of real negotiations. Try getting a $10K raise in exchange for giving up equity.
> Try getting a $10K raise in exchange for giving up equity.
This will be possible (for people operating in the eng compensation band) at almost any startup you might want to work for. If you ask for this, and they don't at least discuss it with you, it's a pretty strong sign that you don't want to work there.
No. What I meant was if a company isn't willing to discuss giving you a higher salary but lower equity it probably means that they don't really value their own equity. And not valuing their own equity is a proxy for not valuing the future of the company.
You don't generally want to work somewhere the company leadership doesn't value the future of the company.
It could instead mean that they are being careful with burn rate, and capital is hard to get, and their calculations include employees being part-paid with equity - for everyone's benefit - because companies die by the current account!
Ya, that's true. It's hard to make a rule that is 100% applicable as there are always exceptions. I guess what I would really say is that they should be willing to discuss the situation with you and explain the status of the company and how that informs your compensation. The more in depth a company will go with you the better.
I had an issue with this as well. The author implies that startups "often" fire employees before they reach their 1 year cliff to avoid paying out equity. That's silly on so many levels.
The most infamous case of this was Zynga pre-IPO where certain employees were pulled into a room and given the "give up your unvested equity and keep your job, or lose both".
I'm not sure if it's common, but it's definitely not unheard of.
Anecdotally from conversations I've had with founders some are very, very keen on cycling options back into the pool as much as possible. More importantly I've heard some ideas on how to do this that made my skin crawl.
The most egregious and common one I hear is back-loading options vesting (e.g., vest 5% in 1st year, 10% next year, etc) - note that Amazon already does this, though standard is still linear. Dragging out the frequency of vesting is also common to try and create as many unvested options as possible when an employee chooses to leave the company.
One big takeaway I've had from these conversations is how many founders do not see equity as compensation earned, but as some sort of gift to be granted to the virtuous and loyal.
It's a little depressing that the frank answer to "why not vest quarterly" has been "because if they leave we don't get as many options back". It's interesting that we never think about cash compensation that way but do for equity compensation.
The point about only founders getting rich is one that is in stark difference to the way Silicon Valley was pre-bust.
The first company I worked for went IPO a year or two before I joined. The very first admin of that company got so rich from stock options that she bought a vineyard and retired in 1999. Lots of people bought houses with the money they made, including the first engineer who bought a house in prime PA.
I joined another startup just a few years ago, and they were extremely stingy with options. "Less-important" people (ie. anyone non-engineers, or non-management) were getting a few hundred or maybe a few thousand options, which I thought was a bummer. I think everyone contributes to the success of the company, and everyone should get a chance to do well if the company does well. But I've seen this case several times where the founders keep everything for themselves.
I'm not sure what changed, but it's probably reflective of how greedy and self-centered SV is getting. It feels like it's more like Wall Street and less about classic Silicon Valley, which is a shame. Go watch "Triumph of the Nerds", the classic tv special during the dotcom boom and see if you can reconcile the difference of those companies and the ones today.
I suspect the cause is the shift in how startups are viewed in Silicon Valley. Even though there've been startups here for a long time, they were always considered risky, marginal and low-status. So the supply of potential employees was low and the early payouts you're thinking of were paying people for taking a risk.
Today startups are considered to be glamorous. They have access to a lot more investment and potential employees. The whole country seems to be making a beeline to pony up for the high rents because the salaries more than compensate for it. There's no longer much risk of lost earnings. Is it any surprise that the equity has gone lower? Arguably the valley as a whole has taken the deal suggested in OP: more salary, less equity.
> The whole country seems to be making a beeline to pony up for the high rents because the salaries more than compensate for it.
Only if you're at the top of the income bracket (for engineers in SF specifically, not overall for the industry or area). The average SF developer would be better off with an average salary in an area with reasonable real estate prices and state income taxes.
I'd love to see the cap tables of some of those companies, to quantify where the differences are between then and now. Does anyone know of any publicly-available repositories of late-90s cap tables?
There's The Autodesk File, which has most of the early financial history of Autodesk.[1]
Autodesk was established with $60K put in by the founders. There was no additional funding prior to the IPO. There was only one class of stock. Autodesk sold AutoCAD for cash, and that generated enough money that they were able to grow based on real profits.
At one point VC funding was considered. That's an important story, and it's fully documented.[2] Here's part of why it was turned down: "In particular, our ability to grant stock options to new employees was severely constrained by limits on the number available, by forcing the option exercise price to above the price paid by the investor (who received much better terms on his preferred than the employee would on his common stock), by retiring from the pool any options granted to an employee who subsequently left the company, and by imposing a four-year vesting period on all options, which the founders of the company felt transformed the options from their original purpose of allowing employees to share in the company's success to a kind of twentieth century indentured servitude which compelled employees to stay with the company or face forfeiture of their financial gains."
That's what it was like before the era of hyped dot-coms, when companies built real products which people bought.
Not really. There was such a software vacuum back then. There were lots of obvious, needed products that nobody had written yet. All you had to do was write them. Now, all the obvious products have been done.
Its because startups have become much "cooler" now, compared to back then. Plus its hard to get good returns investing elsewhere. Plus the lowered-bar (i.e. cloud) to starting a large scale company
So this pushes more people to do it, more companies, more investors ... and so over time "stuff gets figured out" and optimized and here's where we end up.
For instance, pretend you have a water leak and call 5 plumbers...how many of them charge basically the same (high) price ...
I too had an experience like you ... company IPO'd in 2001 and many initial engineers got $5+M including someone who started as the admin ... turning $2m into $1BN with no addiitional funding or down-rounds will do that :)
>Plus the lowered-bar (i.e. cloud) to starting a large scale company
This, I think, is a good point. It's much easier to scale a startup these days, and scaling is one of your major headaches as a founder with a good product.
And.... When the dealin' is done, you start to see that unless you're a founder or a really close friend of the founder, you have no one to advocate for you when the chips are divvied up, and you pretty much get to take or leave the deal.
4 or 5 years, slaving away at a startup, weekends, nights. And at the end of the party, you basically have zero say. Congratulations, hope you're best friends with the CTO.
Number 1 rule of working at a startup: really trust the founders and everyone you work with. Look out for yourself, but at the end of the day, if you are working with someone scummy, they can change the rules at basically any time. So work with people committed to transparency and honest dealing.
Also, while it is nice to think of your particular startup succeeding, it probably won't. And even if it "does" it will likely not be worth >$1b.
One of my proudest moments was hearing from one of my early employees that even if the company tanked tomorrow that she would not regret it for a moment. I hope that for every person I work with, because while I cannot guarantee that the world won't collapse or something unforeseen to happen, I can work really hard to make sure that as we grow and succeed, our culture is one of making sure that everyone is learning and growing and going to excel in their careers and lives no matter what happens to this company. Side note: I am also committed to making sure that people here are compensated well when we succeed, if for some reason our initial compensation structure, which I think has been generous, has holes.
> One of my proudest moments was hearing from one of my early employees that even if the company tanked tomorrow that she would not regret it for a moment.
This as noble as you can get in business: truly something to be proud of.
> Also, while it is nice to think of your particular startup succeeding, it probably won't. And even if it "does" it will likely not be worth >$1b.
And even if it does succeed, and even if it does achieve a high valuation, you might not necessarily have a life-changing event.
I know it's buzzword-y to talk about liquidation preferences right now, but there are plenty of way investors and founders can benefit from an acquisition that don't trickle down to even early employees.
Rule of thumb from someone who has been through it (not me):
Employees 1-20: "never have to work again money"
20-200 (or so): "buy some nice stuff, live a great life, still have to work"
>200: nice payday, buy a house, car, something, get back to work
And this is at a, now public, company where the founder had and has tons of control so got good terms for employees.
Earlier this year I was was laid off from a startup that went bust. We failed to find a market that could support us, and the investors lost confidence and pulled the plug. It was the prototypical startup failure story.
Here's the thing: if the founders came to me tomorrow and said "I'm starting a new company and I need developers", I'd probably join them.
Why? Because throughout the whole thing they acted absolutely properly. They kept us in the loop about the company's situation as it deteriorated and did everything they could to salvage the company and pivot into something new. And we trusted them enough that almost the entire staff stayed on until the end even though we were almost certain for a few months that the company was probably not going to survive.
When the investors declined to reinvest, the founders shut the doors with enough money left in the bank to pay a modest severance and keep a skeleton staff on for a few months to wind down the company and service customers during their notice period.
Some colleagues have told me stories of places they've worked where they didn't find out the company was broke until their paycheques started bouncing, the landlord started stopping into the office asking for the executives, and those executives were nowhere to be found.
Can't agree more. One start-up which I worked for a few years went bust. It was an experience that brought up very complicated feelings of proud, pain, excitement, upset, comradeship, disappointment, etc. Although it was painful to accept the outcome, it was not surprising, considering the odds of success.
What I learned from the experience is: when you consider joining a startup, it doesn't matter what products they are building, what market they are pursuing, etc. What matters is the people you will work with. I learned a lot about how to read people during the up-and-down time, about what people you can trust, both their abilities and their personalities. If my ex-colleagues start new companies and ask me to join, I will jump in for some people as long as I can get enough cash to cover the living expenses of my family, and politely decline for some others.
I was lucky enough to once be employed by a company that didn't promise me any equity. They paid me a good salary and treated me well. The founder sold the company after I'd been there for about 10 months. I was called in to speak with him and given a nice check. (Still had my job too.) I'd much rather work for a guy like that.
I've said it before but it is worth repeating, this article is spot on, and the take away should be never ever ever join a startup because you want to "get rich."
There are only three solid reasons to join a startup:
1) You are passionate about the mission - nothing is more rewarding than engaging passionately in something you strongly believe in and endorse. Start ups have license to pursue ideas that established companies simply cannot.
2) It will improve your skill set - There is only so much you can learn at school or online, some skills have to be practiced to be learned. Start ups can give you a role you want, even if your resume isn't a match. Which will get you over the chicken and egg problem of you don't have experience in the job you want to do to be hired in the job you want to do. That can get you into a job elsewhere where the "entry level" position requires previous experience.
3) You will work with someone you respect - Start ups are small, visible, and stressful. Ask anyone to name 10 people they worked with a BigCo and 10 people they worked with at a startup, the latter is much easier. Stress, higher highs, lower lows, creates stronger bonds. Those friendships will follow you through out your life, they will help when you're looking for advice or a job, and support when you are trying to pull off something really hard to do.
If you choose to join a startup for one of those three reasons it will always deliver.
My thoughts on startups and equity is that you can't pay your current bills with equity. The only way equity would make a difference in whether I joined one startup or another would be if I received two offers with the same salary, benefits, and point or points you've mentioned above, I'd pick the one with more equity assuming it's preferred.
Hmm I had initially assumed it was but now that you mention it and after googling a bit more, it seems that's reserved for founders and early stage investors (my practical experience with evaluating equity is limited). I suppose I'd rephrase that to look for total preference to evaluate how much whatever share the share of common stock offered would be worth as well as total outstanding shares have been issued, and how many are expected to be issued upon being sold or going IPO so far among other things.
How come? No, in all seriousness, mission is secondary to growth for startups, isn't it? If you are passionate about the mission, shouldn't you join a non-profit?
I agree, the term "mission" has become a hackneyed startup cliche. A better way to put it might be, "you think the problem the startup is trying to solve is an interesting one and you are motivated to help solve it".
Great startups don't necessarily need an important problem to solve, such that solving it might be described as a mission.
> There are only three solid reasons to join a startup:
However, do start a startup if you already have rich people who you know you can convince to bankroll you.
Saw this happen. Someone who read too much HN, decided they wanted to move to the Valley, scared the management they'd quit unless they bankroll their new startup. They didn't have a good idea, they just wanted to run a startup. So they came up with an idea, but it was kind of a forced and awkward exercise, like if you'd assign someone in high school homework : by tomorrow, come up with a start up idea. Hmm, let's see Uber for dogs ...nope, cats as a service nope,... think... oh I got it!.
The crazy thing, it kind of worked!
So if you find fools with money, go for it, start a startup and get their money.
Reading the comments here, reading about "the good old days" before the dot-com bubble burst... do we see early signs of another bubble? I sincerely hope not.
It looks like a different sort of bubble this time.
If I recall, in 2000, not only had valuations gone ridiculous, but there were also a couple of big triggers for tech spending to drop -- phone networks globally (big spenders) had overbid on 3G licenses and wanted to keep their other capital spending down, and other businesses had just come through Y2K spending. And the public imagination had lost rationality (press talking about the new economy and price-to-earnings ratios not mattering, etc...)
This time around there's a cultural bubble among engineers (everyone wants to do a start-up), some irrational unicorn-hunting, and a window where governments are weak to VC demands for the sake of an innovation agenda, (eg, Uber's making more headway on taxi regulations than would normally be the case). But little sign that tech spending globally is likely to drop any time soon.
There is also a slightly sad split in that some of the biggest unicorns are technologically not very innovative (Uber, Slack) while innovation & high tech spinouts from research continue to be a less spectacular slog.
But that seems a less worrying bubble for engineers (the number of engineering jobs should still continue to rise, as more and more of companies business models are defined by the tech they use, and so if they want to differentiate their business they need to differentiate their tech)
> Overly cynical. The two times I worked for a startup more than 3 months
So how many have you actually worked for? "2 for 2 [out of the experiences I cherry-picked to rationalize my bias]" really doesn't support your claim that the author is overly cynical.
> The problem is not equity, the problem is picking the right startup.
If only we could predict the outcome of the lottery, we wouldn't even need startups.
If you are thoughtful and careful and quit quickly at a startup that isn't going anywhere / lead by jerks you can usually pick the right startup.
My point is that equity is great and it does everything it is supposed to do (align motivation / create a great team spirit / reward risk takers). The problem is people think that equity is magical and you don't have to worry about the people giving it to you. They are the weak link - not the equity itself.
Meta: Reading this thread is a refreshing change from the other ongoing thread about Good Inc which is full of bitter diatribes about how horrible startups are for everybody. I've been working in startups pretty much all my working life and now am a founder of one. Some were successful some were not. The successes added non-life changing but still non-trivial amount of cushion to my bank account that allowed me to leave my full time job and work on my own startup while taking minimal cash compensation from the company funds.
The fact is, the time I spent in a non-startup was nowhere near as exciting and fun as the years I spent in various startups, even the failed ones. And the successful ones were lucrative enough for me (none of which I was even in the first 50 employees) to affect some life decisions. Just one person's anecdata here but I started my engineering career 15 years ago and I read the overly cynical, bitter postings with a sense of amazement. My experience doesn't support any of it.
I think this article is missing a fundamental truth about life, and its conclusions are distorted because of that:
You have to respect risk. And ideally research it, quantify it, and manage it. The one thing you cannot do is ignore it.
Joining a startup is risky. Founding a startup is even more risky. Taking stock options instead of salary shifts more of that risk onto you, as an employee. You need to be aware of this risk, and in that regard, all of these articles about employee equity are performing a very valuable service.
But you also have to view them in the context of the whole other portfolio of risks you are taking in your life. The article, for example, says that the chance of rain on the 1st and 15th is 100%. This is flatly untrue, as any former employee of DEC, Sun, IBM, HP, Yahoo, Tandem, Stratus, Symbolics, or other formerly-highflying tech companies can attest. It is a guarantee that you will get screwed over sometime in your working life, and the best response to that is to learn from it and minimize the chance of it happening in the future, or at least maximize the returns from when you don't get screwed over to buffer your total returns.
You need to make sure that the founders are good people. Most of them are not.
I can relate to the one year cliff and the economic incentive behind terminating employees - Thankfully, the founders I worked for in my last startup were fundamentally good people. I wouldn't hesitate to work with them again.
As an employee, you are always at the mercy of the founders - So you'd better study them carefully. I think the best sign of a good founder is that they're usually easy to talk to - They're genuine people and they always talk to you on the same level as any two human beings would, not as a mere employee.
Also, good founders are humble; I had no idea that the CEO of my previous startup could read and write code until about 6 months in - He never said so. I knew the founders were smart when I joined, but I didn't appreciate the full extent until about one year later.
> Anything of value can be traded for or converted into something of equal value. Equity does not have this characteristic. You can’t spend it, you can’t liquidate it, you can’t even trade it.
I like that quote. It really illustrates the problem well.
Or the idea that you'd offer them to get the salary bump based on options value.
At the end of the day it is a gamble, a promise that _if_ the company gets big, you _might_ get a big payout. The hope and dreams account for so much. People will spend sleepless nights, working for 50% reduced salaries for some hope. That is a nice opportunity for the founders -- sell a dream.
Sell it to investors.
Sell it to customers.
Sell it to employees.
Sell it to themselves.
The last is key, you have to believe your own lies to start really be convincing to others.
I joined a startup very early (#12) 2.5 yrs ago that had previously successful and well-known founders. I took below market pay but ended up working out (now valued around $500m) and believe they will succeed long-term.
I've since left but of course early employee equity was one of my top considerations.
To join an early stage startup that you do not think will succeed and become "big" should rarely be worth your time.
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[ 2.8 ms ] story [ 136 ms ] threadStart-ups should lose its label as a cash cow - but it can still be:
- a well-paying job - high impact - more freedom - good career capital - a lottery ticket
Working in a startup is much, much more fun that working at a big corporation. I took a paycut several times to go work at startups just because working at a big company where you work on a single API of one of their products gets boring really fast, regardless of the pay.
Minor nitpick, please remove the number from the title.
I know it's fun to say it that way, but it's wrong. If you work at a startup try going to your boss and saying "I'll give up all my equity for a $100/year raise." They will say yes (modulo a conversation with you about how that's a really bad idea for you).
It would be fair to say that a lot of people overestimate the value of equity a lot of the time. But that's not the same thing as what the author says.
> suggest to trade the equity portion of the offer for the cash value of the options (in addition to the advertised salary). Good luck.
I was explicitly given that choice (in three packages, high/med/low options count in exchange for offsetting increase in starting salary). Being "smart", I took the salary and low options and that was a poor choice in retrospect, given that we IPO'd 2.5 years later and my salary now would surely be the same regardless of the initial choice.
I don't know how common it is, but it's absolutely doable and done. (I suppose you could argue whether the company I joined was early-stage or not.)
I wouldn't be so sure unless you've never gotten a percentage-based raise.
If you can get a $100/year raise just for the asking, and you can also get a $100/year raise in exchange for equity, then simple arithmetic indicates that the equity has zero value.
At that point, you could say "I'll give up all my equity for another $100", at which point the boss would jump to agree.
Not because $100 is too much, but because you've annoyed her by asking too many times. $100 is still trivial in value to the business.
The point was just a thought experiment to show that equity has more than 0 value.
OK, equity is worth five cents an hour. I admit it! Let's all negotiate with that in mind.
It's quite something that you apparently couldn't tell the difference between those two things.
If I offer my Embarcadero penthouse in exchange for a $100/year raise, does that mean the apartment has 0 value?
The article clearly wanted you to ask for a raise at at least the granularity of real negotiations. Try getting a $10K raise in exchange for giving up equity.
This will be possible (for people operating in the eng compensation band) at almost any startup you might want to work for. If you ask for this, and they don't at least discuss it with you, it's a pretty strong sign that you don't want to work there.
You don't generally want to work somewhere the company leadership doesn't value the future of the company.
Wait, what?
I'm not sure if it's common, but it's definitely not unheard of.
Anecdotally from conversations I've had with founders some are very, very keen on cycling options back into the pool as much as possible. More importantly I've heard some ideas on how to do this that made my skin crawl.
I would be interested in hearing these, as I'm sure many others would be as well.
One big takeaway I've had from these conversations is how many founders do not see equity as compensation earned, but as some sort of gift to be granted to the virtuous and loyal.
It's a little depressing that the frank answer to "why not vest quarterly" has been "because if they leave we don't get as many options back". It's interesting that we never think about cash compensation that way but do for equity compensation.
The first company I worked for went IPO a year or two before I joined. The very first admin of that company got so rich from stock options that she bought a vineyard and retired in 1999. Lots of people bought houses with the money they made, including the first engineer who bought a house in prime PA.
I joined another startup just a few years ago, and they were extremely stingy with options. "Less-important" people (ie. anyone non-engineers, or non-management) were getting a few hundred or maybe a few thousand options, which I thought was a bummer. I think everyone contributes to the success of the company, and everyone should get a chance to do well if the company does well. But I've seen this case several times where the founders keep everything for themselves.
I'm not sure what changed, but it's probably reflective of how greedy and self-centered SV is getting. It feels like it's more like Wall Street and less about classic Silicon Valley, which is a shame. Go watch "Triumph of the Nerds", the classic tv special during the dotcom boom and see if you can reconcile the difference of those companies and the ones today.
Today startups are considered to be glamorous. They have access to a lot more investment and potential employees. The whole country seems to be making a beeline to pony up for the high rents because the salaries more than compensate for it. There's no longer much risk of lost earnings. Is it any surprise that the equity has gone lower? Arguably the valley as a whole has taken the deal suggested in OP: more salary, less equity.
Only if you're at the top of the income bracket (for engineers in SF specifically, not overall for the industry or area). The average SF developer would be better off with an average salary in an area with reasonable real estate prices and state income taxes.
Autodesk was established with $60K put in by the founders. There was no additional funding prior to the IPO. There was only one class of stock. Autodesk sold AutoCAD for cash, and that generated enough money that they were able to grow based on real profits.
At one point VC funding was considered. That's an important story, and it's fully documented.[2] Here's part of why it was turned down: "In particular, our ability to grant stock options to new employees was severely constrained by limits on the number available, by forcing the option exercise price to above the price paid by the investor (who received much better terms on his preferred than the employee would on his common stock), by retiring from the pool any options granted to an employee who subsequently left the company, and by imposing a four-year vesting period on all options, which the founders of the company felt transformed the options from their original purpose of allowing employees to share in the company's success to a kind of twentieth century indentured servitude which compelled employees to stay with the company or face forfeiture of their financial gains."
That's what it was like before the era of hyped dot-coms, when companies built real products which people bought.
[1] https://www.fourmilab.ch/autofile/www/autofile.html [2] https://www.fourmilab.ch/autofile/www/chapter2_32.html
The more things change, the more they stay the same :-)
So this pushes more people to do it, more companies, more investors ... and so over time "stuff gets figured out" and optimized and here's where we end up.
For instance, pretend you have a water leak and call 5 plumbers...how many of them charge basically the same (high) price ...
I too had an experience like you ... company IPO'd in 2001 and many initial engineers got $5+M including someone who started as the admin ... turning $2m into $1BN with no addiitional funding or down-rounds will do that :)
This, I think, is a good point. It's much easier to scale a startup these days, and scaling is one of your major headaches as a founder with a good product.
4 or 5 years, slaving away at a startup, weekends, nights. And at the end of the party, you basically have zero say. Congratulations, hope you're best friends with the CTO.
Also, while it is nice to think of your particular startup succeeding, it probably won't. And even if it "does" it will likely not be worth >$1b.
One of my proudest moments was hearing from one of my early employees that even if the company tanked tomorrow that she would not regret it for a moment. I hope that for every person I work with, because while I cannot guarantee that the world won't collapse or something unforeseen to happen, I can work really hard to make sure that as we grow and succeed, our culture is one of making sure that everyone is learning and growing and going to excel in their careers and lives no matter what happens to this company. Side note: I am also committed to making sure that people here are compensated well when we succeed, if for some reason our initial compensation structure, which I think has been generous, has holes.
I didn't start working for a startup because of equity.
I started working for one, because it lets me work remote and I learn new things.
Even if the company goes down, I still have >1 year remote work experience...
This as noble as you can get in business: truly something to be proud of.
And even if it does succeed, and even if it does achieve a high valuation, you might not necessarily have a life-changing event.
I know it's buzzword-y to talk about liquidation preferences right now, but there are plenty of way investors and founders can benefit from an acquisition that don't trickle down to even early employees.
Employees 1-20: "never have to work again money" 20-200 (or so): "buy some nice stuff, live a great life, still have to work" >200: nice payday, buy a house, car, something, get back to work
And this is at a, now public, company where the founder had and has tons of control so got good terms for employees.
Here's the thing: if the founders came to me tomorrow and said "I'm starting a new company and I need developers", I'd probably join them.
Why? Because throughout the whole thing they acted absolutely properly. They kept us in the loop about the company's situation as it deteriorated and did everything they could to salvage the company and pivot into something new. And we trusted them enough that almost the entire staff stayed on until the end even though we were almost certain for a few months that the company was probably not going to survive.
When the investors declined to reinvest, the founders shut the doors with enough money left in the bank to pay a modest severance and keep a skeleton staff on for a few months to wind down the company and service customers during their notice period.
Some colleagues have told me stories of places they've worked where they didn't find out the company was broke until their paycheques started bouncing, the landlord started stopping into the office asking for the executives, and those executives were nowhere to be found.
What I learned from the experience is: when you consider joining a startup, it doesn't matter what products they are building, what market they are pursuing, etc. What matters is the people you will work with. I learned a lot about how to read people during the up-and-down time, about what people you can trust, both their abilities and their personalities. If my ex-colleagues start new companies and ask me to join, I will jump in for some people as long as I can get enough cash to cover the living expenses of my family, and politely decline for some others.
There are only three solid reasons to join a startup:
1) You are passionate about the mission - nothing is more rewarding than engaging passionately in something you strongly believe in and endorse. Start ups have license to pursue ideas that established companies simply cannot.
2) It will improve your skill set - There is only so much you can learn at school or online, some skills have to be practiced to be learned. Start ups can give you a role you want, even if your resume isn't a match. Which will get you over the chicken and egg problem of you don't have experience in the job you want to do to be hired in the job you want to do. That can get you into a job elsewhere where the "entry level" position requires previous experience.
3) You will work with someone you respect - Start ups are small, visible, and stressful. Ask anyone to name 10 people they worked with a BigCo and 10 people they worked with at a startup, the latter is much easier. Stress, higher highs, lower lows, creates stronger bonds. Those friendships will follow you through out your life, they will help when you're looking for advice or a job, and support when you are trying to pull off something really hard to do.
If you choose to join a startup for one of those three reasons it will always deliver.
How come? No, in all seriousness, mission is secondary to growth for startups, isn't it? If you are passionate about the mission, shouldn't you join a non-profit?
Great startups don't necessarily need an important problem to solve, such that solving it might be described as a mission.
However, do start a startup if you already have rich people who you know you can convince to bankroll you.
Saw this happen. Someone who read too much HN, decided they wanted to move to the Valley, scared the management they'd quit unless they bankroll their new startup. They didn't have a good idea, they just wanted to run a startup. So they came up with an idea, but it was kind of a forced and awkward exercise, like if you'd assign someone in high school homework : by tomorrow, come up with a start up idea. Hmm, let's see Uber for dogs ...nope, cats as a service nope,... think... oh I got it!.
The crazy thing, it kind of worked!
So if you find fools with money, go for it, start a startup and get their money.
If I recall, in 2000, not only had valuations gone ridiculous, but there were also a couple of big triggers for tech spending to drop -- phone networks globally (big spenders) had overbid on 3G licenses and wanted to keep their other capital spending down, and other businesses had just come through Y2K spending. And the public imagination had lost rationality (press talking about the new economy and price-to-earnings ratios not mattering, etc...)
This time around there's a cultural bubble among engineers (everyone wants to do a start-up), some irrational unicorn-hunting, and a window where governments are weak to VC demands for the sake of an innovation agenda, (eg, Uber's making more headway on taxi regulations than would normally be the case). But little sign that tech spending globally is likely to drop any time soon.
There is also a slightly sad split in that some of the biggest unicorns are technologically not very innovative (Uber, Slack) while innovation & high tech spinouts from research continue to be a less spectacular slog.
But that seems a less worrying bubble for engineers (the number of engineering jobs should still continue to rise, as more and more of companies business models are defined by the tech they use, and so if they want to differentiate their business they need to differentiate their tech)
The problem is not equity, the problem is picking the right startup.
Everyone I know that has got rich has done so via equity.
So how many have you actually worked for? "2 for 2 [out of the experiences I cherry-picked to rationalize my bias]" really doesn't support your claim that the author is overly cynical.
> The problem is not equity, the problem is picking the right startup.
If only we could predict the outcome of the lottery, we wouldn't even need startups.
My point is that equity is great and it does everything it is supposed to do (align motivation / create a great team spirit / reward risk takers). The problem is people think that equity is magical and you don't have to worry about the people giving it to you. They are the weak link - not the equity itself.
The fact is, the time I spent in a non-startup was nowhere near as exciting and fun as the years I spent in various startups, even the failed ones. And the successful ones were lucrative enough for me (none of which I was even in the first 50 employees) to affect some life decisions. Just one person's anecdata here but I started my engineering career 15 years ago and I read the overly cynical, bitter postings with a sense of amazement. My experience doesn't support any of it.
You have to respect risk. And ideally research it, quantify it, and manage it. The one thing you cannot do is ignore it.
Joining a startup is risky. Founding a startup is even more risky. Taking stock options instead of salary shifts more of that risk onto you, as an employee. You need to be aware of this risk, and in that regard, all of these articles about employee equity are performing a very valuable service.
But you also have to view them in the context of the whole other portfolio of risks you are taking in your life. The article, for example, says that the chance of rain on the 1st and 15th is 100%. This is flatly untrue, as any former employee of DEC, Sun, IBM, HP, Yahoo, Tandem, Stratus, Symbolics, or other formerly-highflying tech companies can attest. It is a guarantee that you will get screwed over sometime in your working life, and the best response to that is to learn from it and minimize the chance of it happening in the future, or at least maximize the returns from when you don't get screwed over to buffer your total returns.
I can relate to the one year cliff and the economic incentive behind terminating employees - Thankfully, the founders I worked for in my last startup were fundamentally good people. I wouldn't hesitate to work with them again.
As an employee, you are always at the mercy of the founders - So you'd better study them carefully. I think the best sign of a good founder is that they're usually easy to talk to - They're genuine people and they always talk to you on the same level as any two human beings would, not as a mere employee.
Also, good founders are humble; I had no idea that the CEO of my previous startup could read and write code until about 6 months in - He never said so. I knew the founders were smart when I joined, but I didn't appreciate the full extent until about one year later.
I like that quote. It really illustrates the problem well.
Or the idea that you'd offer them to get the salary bump based on options value.
At the end of the day it is a gamble, a promise that _if_ the company gets big, you _might_ get a big payout. The hope and dreams account for so much. People will spend sleepless nights, working for 50% reduced salaries for some hope. That is a nice opportunity for the founders -- sell a dream.
Sell it to investors.
Sell it to customers.
Sell it to employees.
Sell it to themselves.
The last is key, you have to believe your own lies to start really be convincing to others.
I've since left but of course early employee equity was one of my top considerations.
To join an early stage startup that you do not think will succeed and become "big" should rarely be worth your time.