I think there's a confusion between the related events. Filing the 83(b) form with the IRS is between you and the IRS. Company isn't involved so not something they can restrict.
However, filing that 83(b) only makes any sense if you are allowed to early exercise and that is indeed entirely up to the company. So if they don't let you early exercise you also won't be filing the 83(b).
Pro tip: Never join a startup that does not let you early exercise!!
Yes i assumed parent was referring to early exercise but maybe i misread. Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs especially if long exercise window is offered so probably why it’s not offered - to avoid a ton of drama later on
> Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs
I strongly disagree, early exercise is always optimal if the cost makes sense to you.
The primary reason it is so valuable is so that you don't lose everything if you have to change jobs for whatever reason before a liquidity event. If you join a startup and don't early exercise, now you are going to have to work there for however long it takes for liquidity, which could be many many years. Maybe your life changes and you have to change jobs, but you're trapped, or lose everything you worked for.
Always early exercise! If the startup doesn't allow it, find a different startup.
Edit: I should add that by not early exercising you can still lose a lot even if there is a liquidity event while you're still there! I lost a staggering amount of money on my first startup due to not early exercising even though it went through an IPO while I was there. But later I left (lured to another startup) so I had to excercise (same day sell) all the option in the typical 90 day window after quitting. Had I early exercised years before when I joined, I could've held those shares for 15x returns.
See my point about long exercise window - 5-10y is not uncommon now. I’d rather have that even though it converts to PSOs than gamble ~50k + amt on early exercise. Unless you’re super early ofc which changes the math
I'd be curious on survey data on that if something is available.
Personally I've never encountered a startup that had anything other than the standard 90 day after you quit exercise window. I know these long exercise windows exist but as far as I knew they are pretty rare.
> gamble ~50k
That's a huge number though, I'd never gamble that much either.
I'm talking about very early in the startup. If the strike price is above a few pennies, it's too late (although of course depends on the number of options and your personal budget).
Anecdotally, i've received more offers in the last ~5 years with extended window. I think it's just natural evolution due to increased competition for talent with high-paying public companies. Here's an incomplete list btw[0]. There are usually some strings attached - e.g additional cliff to qualify (like 2-3 years with the company) and you need to sign a separation agreement when leaving, etc
> That's a huge number though, I'd never gamble that much either.
I've been offered early exercise of 25k options with a $2 strike price. Series B startup. So yeah...
No idea how complete that is, but it lists roughly ~160 companies. Which is nice, but according to [1] there are about 71K startups in the US. (Of course both of these counts might be wrong but let's go with these numbers.)
So about 0.2% of startups have extended exercise windows. Not a lot ;-(
What would this even look like? An 83b election is something I file with the IRS. Are you suggesting a company might have me sign a contract committing me to not file an 83b election?
How would they ever find out if I did file, and why would they care?
It's been a possibility in my options contracts. However, the company must agree to it, cash your exercise check, and send the necessary paperwork to the IRS. If they choose not to cooperate, you're out of luck.
My understanding is that 83b applies to stock, not options, so you have to first exercise the options and hold unvested stock. That requires early exercise.
Not a restriction of the 83b election but a restriction of when you can exercise. Without early exercise you are stuck exercising as you vest so there’s more likely to be a taxable spread between your option strike price and the value of the stock. With early exercise you are exercising and making the 83b election when there’s no taxable spread.
Sorry, separate concepts executed at separate times.
Early exercise (yep, 83b in the US) when options are issued then allowing employees to sell shares down the road, outside of fundraising events (Forge, EquityZen, sales to angel SPVs, etc.).
Early exercise is purchasing shares before your options vest, making you a shareholder sooner and solving a bunch of tax issues. The company retains the right (basically the obligation) to repurchase any unvested shares should you leave the company before fully vesting.
We allow early-exercise too but I (possibly, incorrectly) assumed that this was the standard for newly incorporated startups - at least within the last 2-3 years it has become significantly more common.
"secondary sales restricted only by a short right-of-first-refusal period"
I really like this as well, I've always found it confusing when private companies are anti-secondary for former employees especially. I'll look into adding something like this to our stock plan, ROFR protects against any hostile take over weirdness and I'm confident we could add something like this to make it relatively easy to sell on secondary under a certain % threshold.
Having only worked for larger companies (RSU stage), I'm curious what the typical breakdown of founder to early employee to investor to later employee equity looks like. I'm sure it differs pretty wildly, but I'd love to know what a 'typical' case for mid-to-late-stage start up looks like.
This always seems like a huge scam to me. Employee 1 gets 1%? It seems unfair from multiple perspectives.
One is just a straight up naive sense of fairness. If I'm going to be in the trenches with you, I had better be able to see my ownership % in a pie chart with my glasses off. If we're out here both making chairs and when we sell a chair for $100, you get $85 (assuming someone took one of the standard-ish seed rounds that are usually 10-20%?) and I get $1? No thanks.
The other sense is aware that the founder is taking various risks and blah blah blah. Ok whatever. Let's pretend somehow 1% is a fair number and just look at it from a payoff perspective. 1% of stripe? Yeah I'll take that. 1% of the other 1000 startups who had mediocre exits or just muddle along to finally do some kind of tender? I'm barely breaking even. 1% of the other 10000 startups that just folded? At least I can mop the sweat off my brow with the paper I signed.
It seems like the only reasonable way to look at this is you either join a company for a competitive wage and get WLB, or you join a rocket ship in the hopes of becoming genuinely wealthy while pouring your blood, sweat and tears into it. So taking 1% and a shitty salary and having terrible WLB sounds like a huge suckers game.
It's not even remotely fair, but it does follow the golden rule: he who has the gold makes the rules. The founders were the ones who investors were willing to trust their money with. Employee #1 was not.
If you don’t believe a startup can be the next Stripe, then you definitely shouldn’t take 1% and work as one of the first employees.
Also, the risk profile and expectations are vastly different between founders and first employees. E.g. founders are expected to not quit unless the company collapses completely, first employees can quit whenever they wish. Also, if the runway is short, founders work for free and can even go into debt, whereas employees have a stable salary.
Outside US but I never regret getting equity/options and usually it went hand in hand with the higher paying jobs (paltry compared to US standards!) rather than being a salary/equity tradeoff. Atlassian is a great example though I have not worked for them.
I think companies here tend to have less fuck you over terms in employment share schemes but OTOH are less likely to get rich but one company made several employees rich (does 8 figures count?) here.
This isn't a terrible take, but there doesn't seem to be a shortage of people for whom this doesn't feel like a scam.
I'm not particularly fond of the founder hype train, and the typical line is indeed "various risks and blah blah blah" but what's often left out is that employee #1 at a post-funding startup is a pretty different job/profile than co-founder.
Most employee #1's don't have relationships with investors, might not be as employable outside the startup world, and they don't sit on the board, don't have the same formal responsibilities, and rarely are able to raise money to found their own startup -- in fact, this is the often the key reason they're even interested in being employee #1.
It's a market, and as a market I'm not sure it's that skewed.
Want 25%+ of the company? Start it. There's no cabal preventing you from doing that. Have better options than 1% of a likely-dead startup, that pay more and have better WLB? Take them.
After all, few industries give any employees equity. First employee at an ice cream parlor? 0%. First employee of a hedge fund? 0%. First employee of a medical practice? 0%.
Equity grants can be motivating and aligning, and frankly more industries should probably consider them. But not that many people are in a position to found a startup that can raise money (larger equity grants are much more common for pre-external-funding employees) and this differential reflects that.
Btw, "1% of the other 10000 startups that folded" is worth about the same as a founder's 40%: $0. The issue is the middle ground, but there the equity grant is often not worth the paper it's written on: typically the acquirers dictate who gets the money. 1% or 5%, unless the acquirer is trying to retain you, chances are you'll see nothing even if the nominal payout is large.
Anyway, the upshot is what people have been saying for decades: don't do a startup for the money. Do it because you want to be part of that kind of thing, and treat any exit money as a bonus.
Unicorn or bust is the name of the game. Once you understand that it’s not so bad.
It’s also possible to level-up pretty well from an acquisition, where maybe the equity was not life changing but you’re now in a bigco at a higher level than you’d otherwise be. The trap there is that many startup folks are not cut out for bigco life.
But yeah if you were dreaming of sailing off into the sunset you need to be a founder (or remarkably lucky). That’s one reason why there’s so many startups.
Are you talking about 1% and no pay or 1% and a pay?
If I'm getting no pay, I'm definitely a co-founder, but I'm getting a pretty good salary from day 0, I don't think that's too bad.
Say you get offered $200k/y +1%, if things go well, in 4 years you got $800k in cash and your 1%. If things go south, you still got $800k, a cool title, worked on a hopefully interesting product with a nice team. Doesn't sound awful to me. No?
Glad to see someone else say this. I feel like I'm crazy reading these replies about being ripped off. I've been working startups my whole career, earning salaries, working with good people and having fun at times. Sometimes the equity even pays out, but that's not my only financial "egg".
Only after they managed to raise any money, which is not as common as many people assume. And whatever you pay yourself as a founder initially eats into your runway, so that's always a tradeoff.
Love the movement and glad there are founders out there pushing the envelope for their team.
(aside: 51 points but only 1 comment? It's a front-page worthy article, but sort of feels like there's some vote gaming happening. I've never seen 50 points w/ 1 comment.)
That's actually a lot more common than people assume it is, and comments like "I can't believe there are X points but only Y comments" are more common than you'd think they'd be as well!
My theory is that it's a sign of a good article, because more energy is going into reading it than into posting quick comments (which are usually less valuable comments). But I don't have the data.
Edit: well... we have the data (to test this), but it would be enough of a pain to do the analysis that other things will probably take precedence forever.
I'm one of those people who upvoted without commenting. I think it's just a way of saying, "I found this article interesting / I agree with the content, but I don't have anything of value to add".
I wonder if that's something the algorithm can detect?
Measure the time between when someone clicks a link to the article and when they upvote it, compare that to one of the "estimated reading time" metrics of the linked page...
(Which, of course won't work, because at least some people (ie me) open a bunch of tabs for everything that looks interesting on the homepage, then spend a few minutes at a time over the entire morning choosing a tab and reading/voting...)
I had no intention of posting this to HN (someone I don't know posted it!) and also didn't expect more than the 10 people I shared it with to actually read it - no vote bait intended! I'm happy to take your feedback on a better title that is less baity and more apt.
The usual problem of late on HN is people commenting without upvoting, even if they like the article.
On this post, I started reading, then paused to hurry back and upvote on HN, to do my part to keep it from falling off the front page, before I returned to finish reading.
Hmm, I’ll be controversial. Twinned secondaries, i.e. secondaries tied to a primary, are almost always a give away to senior management and the buyer. (They’re frequently syndicated at double-digit spreads.)
If the company sucks, senior management gets cash back first while the investor gets top-of-stack liquidation preferences. If the company is doing great, the investor gets to buy stock at a price almost always lower than market.
They’re common in Silicon Valley, because they’re good for founders and the Board members. But they’re rare in public markets. The closest thing I can come up with is the current clusterfuck with Shari Redstone.
Fund buys stock at X and simultaneously solicits LPs at 1.2X (whether by straight mark-up or, more commonly, by adding management fees, research fees, expense reserves and carry.)
It’s why tenders have a few weeks between end of sellers submitting requests, confirmation of quantities and finally funding.
Interesting, thanks! Not to get too far off on this tangent, but how is that different from the way VCs / investment funds work in general (taking fees from the LPs in exchange for their services)?
> how is that different from the way VCs / investment funds work in general (taking fees from the LPs in exchange for their services)?
VCs usually raise a fund, i.e. a basket of commitments from LPs, before finding the investments. That means they negotiate the investment terms from a position of strength, commitments in hand.
With tenders, the investor starts by commiting to the issuer and then finds LPs. To the degree they have leverage, it's in their access to the issuer.
For the former, the fees are in exchange for risk. For the latter, they're for access.
The best startups have a concept which is summed up thusly:
“We all go to the pay window at the same time.”
It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird.
I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all ride, and sometimes that works out, but for most people, having a little bit of financial security while you’re trying to change the world is necessary.
The best startups figure out how to manage liquidity through financing in a way that aligns incentives, keeps the goalposts at the mission, while allowing their teams to thrive.
It’s about alignment. If everyone is pulling in the same direction you’re going to execute the vision. Whether you win in the startup lottery is up to the threads of fate, but alignment is the straightest path towards a result.
I have seen a lot of companies, a lot of rounds. I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees). I love the idea of your universe, though.
If you have 200 million "of your own money" to spare, you are no longer just a person for the purposes of this conversation, you're a walking VC fund, and you're not really risking a substantial change to your quality of life going from 250M to 50M net worth. Your living expenses are already generously compensated for by the large salary that you, the VC fund pays you, the person, out of your personal bank account, and they will be paying you those expenses until the end of your natural life. This isn't "risk" in the same sense as somebody who jumps to supplement their $150k salary with $450k of founder liquidity because it dramatically changes the material security of their life.
It depends on the kind of lifestyle you want to live, I guess. If you want to live in a $30M mansion estate with 24/7 domestic staff and have several vacation homes around the world, $50M might not cut it, while $250M should cover it just fine.
If you have a philanthropic bent and want to be able to fund various charities to the tune of $5M or $10M per year (in addition to a reasonably luxurious lifestyle, though considerably less than the above hypothetical), $50M might not be enough to sustain that over time, but $250M probably will.
I think it's fair to say that there's not much difference between net worths of $25M and $50M, or between $50M and $75M. But jumping an order of magnitude from $50M to $250M will let you live a very different kind of life, if you so choose.
Musk & Griffin had a relationship around establishing a Mars colony even before SpaceX foundation. Musk even tried to recruit Griffin when assembling SpaceX founding team.
Did this guy just literally ask an AI chatbot for insight on SpaceX's classified military plans?
> "It is unlikely that these gaps can be closed until the end of the decade."
I actually worked out my own BFR plan over the couple years of teasers we had leading up to the 2016 IAC presentation. It was based on a 3-part vehicle a bit like Soyuz (separate hab and capsule) of 15m diameter for the launcher and 12m diameter for the upper stage, payload, and capsule, which seemed to offer more options than a 2-part vehicle.
Musk makes some very optimistic plans, some of them clearly without doing the math, and each numerically extraordinary aspect renders the other numerically extraordinary aspects more difficult to believe. Even if you can class 80 or 90% of his ideas as "Audacious but feasible", there are frequent areas where he gets ahead of himself and projects unlikely extremes that become numerical impossibilities in conjunction with each other.
What is clear is that you can launch a colony on Mars based around Starship-like vehicles, but the number of launches per human Mars resident to sustain and switch them out is large ("100 colonists per launch vehicle" is wildly overshooting; Keeping 100 colonists alive for a return mission will require hundreds of Starship-sized launches, some of them years in advance), the risks are large, and that the missions are at minimum conjunction-class (a 3 year round trip) rather than opposition class. A colony that attempts to grow until it approaches self sufficiency demands lots and lots of automation, an expansive ISRU, mining, and agricultural industry, and a population of maybe ~10^4 people; Getting there is going to demand literally 10^5 to 10^6 launches, decades of work, and 10^4 to 10^5 reusable launch vehicles in play for decades.
But it's got to start somewhere; Hyper-timid incrementalist bullshit like "Flags and footprints" and "We can save some cost by using a once-in-a-decade Venus orbital assist" and "We can fit a manned Mars program into a 20 billion dollar NASA budget in theory" does not colonize other planets at all.
> If you have 200 million "of your own money" to spare, you are no longer just a person for the purposes of this conversation, you're a walking VC fund, and you're not really risking a substantial change to your quality of life going from 250M to 50M net worth.
Is that what happened? I thought he had $200m, and put in $200m.
It's true that that's what I thought, which is my statement. And it's better caveated than the previous one, which implied uncaveated that he still had $50m, but hasn't attracted the eye of any budding skeptics.
Also, that may have kept tesla and spacex 'afloat' but what really saved both companies was billions upon billions of dollars in government contracts, subsidies, preferential loans, and tax breaks. Nevada alone gave nearly two billion dollars to Tesla.
The government is not monolithic and politicians might except other things than what their constituents want. It's a bad test of the value of an investment.
For sure, and it may well have been a terrible investment with terrible returns, but selling to the government and responding to government incentives is an entirely legitimate thing to do, rather than some kind of inherent weakness in a company’s model. A company being “saved” by a government contract is a company being saved by making sales to its largest customer.
VCs will go along with or sometimes even encourage founders to take a little bit out, but employees rarely don’t have the same level of bargaining power.
A: I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out.
B: I have known zero founders who have turned down an option to take money off the table [...] I love the idea of your universe, though.
Fortunately, our universe is massive with varied different views. Even OP implied that they have experienced both sides firsthand.
> I have known zero founders who have turned down an option to take money off the table (and zero A raises that offered that to employees).
Have seen companies offer this to employee's
And companies that let employee's take money off the table at series A are also likely to be generous with meaningless titles; that is they will let early employee's call themselves founders.
I have witnessed small liquidity events at Series A and Series B that allowed for some small percentage of all total equity vested (around 3-5% ish, depending on the terms of your specific options grant) to be cashed out at some multiple of the FMV price. AFAIK the founders held themselves to the same restrictions (5% total, I believe?) to keep it relatively "fair".
Pre-Seed, Seed, and some really really early Series A employees got to cash out fairly significant chunks of equity. Not as much as a founders' 1-2 million, enough for downpayments on homes or slick new cars all cash. The founders apparently were incredibly generous to Seed stage employees.
Still doesn't compare to a Founders' equity, as this article implies.
Why is it insane? Some founders take zero salary since the start, and part of the reason for raising funds is that they have to eat too. Anyone who is an "early employee" usually get lower salary than market, and some stock. It's only fair they get to cash out a little early on, or hold on if they're liquid and think it's worth a lot more.
It also works well for everyone involved if they're selling their shares to the investors for Series A - investors get shares for cheaper, founders get paid based around the value of those shares, more cash & runway in the bank.
In my industry the series A occurs in the first year of operation, and before the company has really achieved anything. A founder taking money off the table then is ludicrous.
Founders who have no need for money in the first year or two are fortunate people who are either already wealthy or have a spouse or family supporting them. Surely those aren't the only types of people worth backing.
I see. Here, the first stage is seed, which is around the level of YC and then Series A, which is around the level of getting money from YC's Demo Day investors.
We also see pre-seed, where the goal is to get into an accelerator. It's like $2000 for 3%. Enough for a domain name, a laptop, a babysitter, something that gives you the space to do a proof of concept, but not a full MVP.
Here where VC funding is dry, we also have some stage between seed and Series A, where the startup raises from friends, angels, crowdfunding. It's not really given a name because it's a signal that the company has already burned through seed and yet hasn't done enough to raise Series A from proper "professionals".
But here, by the time you've raised Series A, you're expected to be #1 in a market - best language app, best tax app, etc. And Series A is just to prove it works in other markets. Worst case I've seen was a guy raising US$500k seed (not Series A), but they had to prove they could be #1 in five countries.
US is a market of 300M people and even top companies like Amazon don't have to go far, but many countries have both low population and low spending, and investment is still US-centric.
In SV-style tech companies it's common for the first round of funding to be considered a "seed" round; it usually comes from angel investors and/or friends and family, though it's not unheard of for larger institutions to get involved at this point.
By the time they're ready for a series A (VCs/larger institutional investors, though sometimes angel investors from the seed round participate as well) they'll very often have something to show for it, and may even have paying customers. The A round can come during the first year of operation, or later.
Given this, it's not uncommon for founders to be able to have some liquidity during their series A. Granted, it's usually not going to be a ton of money, but it can be a nice bonus that allows the founders to pay off debt they might have accrued during the first stages of the company, or perhaps move out of their 1BR apartment and put a down payment on a larger house, etc.
I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.
I more recently interviewed with a pre-series A company and they said that they'd include me in a liquidity event when I brought up compensation.
How would you negotiate that in practice? Would it be reasonable to ask for it to be in your contract? How would you suggest wording it roughly? Sorry I'm inexperienced with this kind of thing and have no idea how I would go about negotiating for it.
I think for the most part you can't negotiate for this sort of thing, because most companies are not going to work up a one-off, custom equity comp agreement. Not just for you, someone they've just finished interviewing, seem to have some enthusiasm about, but ultimately they have only a vague idea of how you're going to perform or how long you're going to stick around. Either the company offers it, or they don't.
I think more companies offering it is maybe driven by feedback loops around recruiting (prospective employees asking for more and varied opportunities for compensation, and rejecting offers that don't include them). And also perhaps by employees just simply becoming educated about and talking about this stuff, with the sometimes-tacit understanding that they're going to be looking elsewhere for other employment opportunities if their employers don't give them more than just salary bumps and occasional equity grant refreshes.
Great, thanks for the response. That seems like a realistic perspective on what is achievable in most cases. I guess it's good to have it in mind as something to raise on the offchance it might be something a particular company is willing to be flexible on.
Doing this by tenure seems like a fairer way to distribute the liquidity. The founders still get preferential access to it, but because they really have taken more risk (bigger stake for a longer time period), not just because they have a better individual negotiating position.
Tenure/cliffs/etc should already take care of that by gating access to shares/options/etc in the first place. No need to add an extra tenure complication to liquidity as well.
> The founders still get preferential access to it, but because they really have taken more risk
It's not related to risk, at least not directly. It's related to the supply of entrepreneurship as a factor of production. Entrepreneurship is scarce, so founders have leverage in any bargaining situation against early employees, who are more numerous and therefore less valuable and less powerful. If 10x the number of people tried to become founders, then founders would hold less leverage and the equity terms would become more "fair" because they'd have no choice but to give generous terms if they wished to hire people.
Your comment is somewhat buried downthread, but I think this is a super valuable insight. Ultimately it's not about fairness, it's about who has negotiating power, and about what contract terms founders and investors can get away with and still have a pool of employee talent competent enough for their needs.
But this isn't a static situation. For example, the article author points out that his startup doesn't reduce the options-expiration clock to 90 days after leaving the company, and I've read of similar cases in the past 5 years or so. I wouldn't say this practice is common now, but I feel like this was unheard of around, say, 2010.
After the company I worked at went public in 2016, they did another public offering 2 or 3 months later, before the 6-month lockup period ended. Nonetheless, they allowed employees to participate and sell up to 10% of their shares in this offering. I feel like this sort of thing is more common these days, and absolutely wasn't 20 years ago.
Established still-private companies like Stripe, and even newer ones like OpenAI, have given employees the opportunity to sell some of their equity to new investors during funding rounds, giving them some pre-IPO/pre-exit liquidity. There are certainly other examples of this in recent years. That surely was rare in the past.
I'm not sure what's driving these changes. Employees have been gaining more negotiating power somehow. Maybe that's a function of labor supply. Maybe that's a function of employees being better educated now about corporate finance and the things that are possible but historically not offered. Not sure.
> I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.f
Oh wow, how many companies have a series A after 3 years? How did your company survive without any raises for 3 years and what made your company finally decide to raise money after going 3 year without doing so?
That policy was actually one of the major reasons I liked that company and stuck with them for so long. Their goal early on was to avoid raising money if at all possible, and they managed that for a long time by mostly being cash-flow positive/profitable. The trade off is slower, but sustainable growth.
We hit an inflection point in the early pandemic where money was cheap and we had a ton of new customers coming in, so we were able to secure very favorable terms for the Series A and used that money to expand the business. Things continued to go in the right direction for the next ~2 years and we ended up doing a Series B round, and that in retrospect was a mistake. We over-hired in 2022 and couldn't back that up with increased business. And because we had given up so much control to investors in the previous rounds, we were unable to return to the sustainable-growth strategy that had worked for us in the past, and had to adopt faster growth strategies, none of which panned out and ultimately hurt the company and led to many rounds of lay-offs.
As someone inside the tech industry, I absolutely agree.
The problem is that new startups often don't have options here. Unless you're in a market where VCs are shy about funding new companies, if you don't take the VC cash and go into high-growth mode, someone else will, and they'll end up out-competing you, at least in the short term. (Long enough that you won't be able to remain solvent, at least.) So you either fail, or take the money and often get into a situation of doing not-particularly-sustainable things.
This assumes that the founders are aware of, or offered, the option. If anything this is an argument for why founders should be represented by a banker or lawyer at the closing of every investment round. Let the founders do the negotiating, but once it comes time to sign the papers, bring in the sharks.
Honestly if a founder isn't pulling in finance or legal experts prior to signing a funding round they really have no business being in position to begin with. They have to know VCs are leaning on their own financial experts and lawyers, why would you not have your own to protect your own interests?
All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.
I'd tweak this slightly: "It's exceedingly foolish to be an employee at an early startup for the money."
I think there are a lot of us who struggle to fit the larger corporate mold who pretty much only thrive in the startup world. I can't speak for all of them, but I've been very willing to take the balance of lower cash compensation and a fistful of lottery tickets and not having 12 layers of middle management breathing down my neck over more liquidity.
I guess I'm also blessed with inexpensive tastes, which helps, but I'm still able to live somewhere I love and do all the things I care to do, so it works out.
Why does everyone thinks startups don’t pay well? I have worked for various startups all my life, most of them well funded, and competing for talent with faangs. Yes, I could probably make more at Google but I don’t feel like I’m underpaid. At the last 3 startups my base salary was above 250k. I work remotely and I rarely work more than 30 hours a week.
I’d say you’re uncommon. I’ve never seen anyone who is a typical engineer making $250k/yr at a startup that’s below $1B valuation. Same for the amount of work you’re doing and that it’s remote with that compensation.
It’s possible you’d be making $700k+/yr if you were at google. About triple what you are now.
I think one component of their point is that the marginal utility of money beyond $200k/year cash comp is quite small, especially if you (1) came to tech early in life (2) plan on staying in it for most of your working life.
With that perspective, $200k/year and $700k/year both reduce to "well-paid".
Also, a Staff title at a Seed or Series A startup can definitely ask for $250k/year, although they'd likely be trading off against equity grants.
I would revisit that calculation assuming you are drained at 45 instead of 60, including taxes and the opportunity cost of 500K x a few years at 3% rate for the next 15 years.
That's pretty much exactly the calculation I'm positing. But actually with an even earlier terminus (late 30s or 40 at most).
Assume an "effective" average pay (i.e. "net" pay + retirement and other deductions, inflation-adjusted to today's dollars and averaged over the course of your career) of $120k/year.
From age 22 to 40, you've earned $2.16mm in inflation-adjusted-to-today dollars as a single earner. With a not-unreasonable average savings rate of 30%, not accounting for tax-advantaged growth or any growth at all, you'll come out with $650k of inflation-adjusted-to-today capital in savings.
Realistically, this should end up invested in some kind of equity (housing, stocks, bonds, whatever). If you finance the purchase of a house at 30, you're only 10 years into a traditional 30-year mortgage at this point, for reference. So you're roughly 1/3rd of your way to owning all the equity in your home. That's fairly comfortably a $1mm home (home equity being 30% of your assets at 40).
Of course, if you're DCA-ing into something that yields a modest average of 5%/year in inflation-adjusted returns, that $650k is closer to $1mm inflation-adjusted-to-today capital. And you still have 25 years at that point for your retirement savings to compound. And you can work part-time in something more fulfilling until retirement to supplement your income.
YMMV, but the marginal utility of money beyond $1mm in equity at 40 and $6k/month in expendable (on rental housing, food, travel, social events) income during your 20s and 30s is pretty small for most people. If you add a partner with any kind of income to the mix, it makes the marginal stress of earning more money even less appealing.
Edit: the main thing you ought to avoid like the plague is lifestyle creep. Spending money on things with zero or vanishingly-small happiness ROI. Read this story every year or two, or whenever you get a raise at work. https://www.marxists.org/archive/tolstoy/1886/how-much-land-...
Whoa, that doesn't even pass the smell test, let alone any kind of deeper analysis.
Certainly this depends on where you're going to live, but if you're in a place where startups are common (even considering the current remote work situation), $200k/yr will either be a stretch for you to meet your living expenses, or will require that you live fairly modestly, especially if you have dependents. If you are able to put any of that into savings/investments, it will be a fairly small amount.
With $700k/yr, you can live quite comfortably, while putting quite a bit away for retirement.
And I don't think your (1) & (2) points really make sense here. Investments compound over time; starting off in your early 20s putting $50k in your investment/retirement accounts every year vs $10k will give you a very different outcome once you reach retirement age. Hell, you'll reach a very different outcome in your 40s. (But honestly, if you decided to live a $200k/yr lifestyle at $700k/yr, you'll be saving so much money that you could easily retire in your 30s.)
It will also mean getting to put a down payment on that house much earlier, and/or being able to afford more of a house. And in the meantime, it will mean being able to dine at fancier restaurants, take more luxurious vacations, buy more expensive toys, etc., if that's the sort of thing you value. And I wouldn't even consider all this to be lifestyle creep (as you genuinely wisely advise against downthread of a sibling comment); this kind of lifestyle would be perfectly sustainable at $700k/yr, but not at $200k/yr.
(But really, though, who the hell is making $700k/yr in their early 20s? Very few, very exceptional people, that's who.)
I will happily die on the hill that the marginal utility at $200k vs $700k is a pure function of your lifestyle, even in high cost-of-living areas (I live in one of the highest!). Your choice of adjectives "modestly", "fairly small", "quite comfortably", and "quite a bit" that are ways for smuggling lifestyle choices into the equation, which might apply to you but are by no means universal.
This boils down to "if you have more money, you can spend more money and maybe retire early". This is not a line of reasoning I'm trying to refute.
Dependents are an interesting wrinkle that is worth discussing separately. But let's stay on the straight and narrow, we can talk about in another comment if you wish.
> And I don't think your (1) & (2) points really make sense here. Investments compound over time
The reason I invoked these points was not to compare "could you save $50k at age 22 or $10k at age 22?", it was to compare "could you save $10k at age 22 or $50k at age 32?"
If you're beginning a high-income career later in life, the time-value of money is different because you have less time.
If you start early, you actually need to earn less to hit the same comparatively "fixed" long-term savings goals, because you have more time to compound.
Again, be careful to avoid falling back on "if you have more money, you'll have more money, which is obviously good".
> And I wouldn't even consider all this to be lifestyle creep
Regularly dining at fancy restaurants (anything in the Michelin orbit), taking luxurious vacations (I'd define as anything north of $300/day), and purchasing expensive toys (I don't think this needs any qualification...) is indeed the definition of lifestyle creep, and it's A-OK that they aren't sustainable at $200k/yr.
You can live extremely comfortably without these things. Whether you perceive them as acceptable or not is a you thing, not an objective thing. We actually do get to choose our values and our hobbies!
What many people don’t seem to realize is there are a lot of early stage but already well funded (10M+) startups who are desperately looking for top quality people. Once I was approached by a founder who offered 500k base salary (wasn’t a good fit for my area of expertise).
Well, in my experience, these are quite uncommon. Especially for being fully remote.
If someone's offering $500k/yr to an engineer plus stock, they're definitely trying to attain someone with very niche skills. Which begs the question: Just how applicable is this scenario for everyone else?
I haven't found many startup roles going past $200k for a fully remote engineer, almost regardless of level. I don't think they even try to get someone who would be Staff+ at FAANG because it's basically pointless.
Top quality in your scenario might mean niche skills like you've done specific computer vision work, have a PhD, and are going to a self-driving startup... Cool but not really applicable to most of us, is it?
Whereas compare as to how common it is to be a typical full stack or backend engineer with a decade of experience... join FAANG at Staff and make $600k+.
Eh, not quite your $250k number, but I was making (inflation adjusted) $200k/yr at a startup with ~$100M valuation back in 2010 (senior SWE level). Not sure if I'm typical, though.
> It’s possible you’d be making $700k+/yr if you were at google.
Possible, sure, but not likely. For a mid-tier SWE joining Google (or another FAANG) today, even $350k/yr salary+equity is probably above the median.
Also that feels like a specious comparison: most people (including those who would be otherwise joining a startup) are not joining a FAANG, and will not be getting paid as well.
It's a difficult trade off I've found. Large tech companies are boring and slow and you deal with a lot of red tape and BS, and you feel utterly powerless in the security of your own job as economic tidal waves direct the momentum of layoffs and not your personal contribution.
At a startup you have more autonomy and power over your personal position. I wrote 90% of the code that is generating company growth, released 2 months after a layoff. If I had taken longer to release that code or if my code didn't work the company would be in a worse financial position.
But that also means a lot of personal stress. There aren't 4 layers of middle management to catch flak for you. If you fuck something up, you are directly responsible and depending on the environment that can result in some heated conversations. I also work way harder at a startup than I ever did for a big company
Those are the factors that make the tradeoff easy for me. I would vastly prefer direct accountability for my own fuckups, because that means I have the agency to do something to fix it.
What makes me want to put my head through a wall is when I fuck up, and four layers of people above me are the only ones allowed to fix the thing, but they don't, so I keep catching flak for my fuckup without any way to stop it and fix the thing. I have many more heated conversations with those managers, which typically leads to the door.
When I fuck something up, rarely is anyone more upset about that than I am. Nobody's dumping more heat on me than I am on myself, so bring on the heat-- as long as I have the agency to fix the problem.
> All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup.
As a rule, it is and always has been. For every unicorn piñata stuffed with winning lottery tickets, there are hundreds/thousands? of others whose employees walk away with nothing or less (debt, strained relationships, mental health issues, etc.) at worst or a job at AcquiHireCo at best.
There was always very high risk, so it was only ever for certain people. But in earlier iterations of SV it was possible to become generationally rich as an early employee. The VCs and founders have fixed the glitch.
To put it another way: early employee equity was always a lotto but now the payout is like some lame scratch off instead of the powerball jackpot.
The startups where employees get really rich still exist. I'm pretty sure the early employees of OpenAI are generationally rich for example.
It's just that these companies very often are the darlings since their inception, get constantly talked about. Everyone wants to to invest in them and everyone wants to join them. So they have the ability to pick out the best talent, in other words, it's unlikely you'll be able to join that specific startup.
But even 20 years ago, try getting into early Google. From what I heard they had extremely high bars for hiring as well and only lowered them once they got so large that the pool was exhausted.
I'd argue that the total comp at the established companies for engineers has increased precisely because of competition from startups: to make the startup not be the better option.
Does that mean that VCs are not taking a bigger slice than they used to? Absolutely not, but I wouldn't put the blame solely on them.
We’ll see when it happens. If I had to name a company most likely to have massive landmines buried in front of common stock cashing out, it would be at the top of the list.
> All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup.
As long as naive 22 year olds think have that one friend that stuck around long enough to cash out on an IPO, then yes. On a risk-adjusted basis, this has basically always been the case - you're better off working at FAANG.
I hear this a lot, but most people -- even otherwise-startup people, even if they interview -- don't get to work at a FAANG.
And I think starting now at a FAANG is a lot less lucrative than people seem to think for the average (or even above-average) employee. Certainly nowhere near as lucrative as it was 7-10 years ago or more.
If you only care about money, sure. I have plenty of friends working in FAANG. For some mysterious reason any time I ask them about work, they say something along the lines "ehh... it's fiiiine. Paycheck is pretty good though". Okay, not all, but perhaps 95%. And half of them work massive overtime on regular basis. I can get behind working weekends when you hope to change the world. They often say things like: "yeah, I have to work 60-70h per week because I don't want my boss to yell at me". Those who work normal hours say: "there is not much work to do really, we literally have meetings about meetings to fill the day. I wish I had some real work to do". I truly hope that higher TC compensates for that.
The Bay Area housing market is too competitive for this. If you’re renting a room in your early 20s then sure just have fun, any tech job should cover it. If you want to own a place to raise a family in by your 30s, and you don’t have some exogenous source of wealth, you’re going to need every dollar of liquid compensation you can possibly get.
> All you’re saying is that in the contemporary context it’s exceedingly foolish to be an employee at an early startup. The VCs and founders have optimized away all the incentive. Eventually the message will reach even naive 22 year olds.
My startup idea is a firm that uses generative AI to flood the internet with pro-startup, pro-VC, pro-founder propaganda, so that message will never reach the naive 22 year olds. Personally, I think it's like saving the environment, since naive 22 year olds are precious resource we cannot allow to be destroyed.
I wouldn't even say "contemporary"; people have been saying this (and I believe it's been true) for decades.
But overall that statement is making a lot of assumptions.
It's assuming money is the main priority for everyone. Sometimes the priority is to have a ton of autonomy and influence on product direction, not have to deal with 8 layers of management, and have an actual, large, often-measurable impact on the company's success.
It's assuming that the alternative is that anyone can work at a FAANG, and be in the higher tiers of salary they offer for their quite-above-average employees (hired today, not 10 or 20 years ago). Most competent, talented people won't pass an interview at a FAANG. Of those that do, many of them will not immediately be making $500k/yr. These points are especially true for 22 year olds, naive or otherwise.
I was going to make a comment about working your ass off at a startup vs. working 9-5 at a more established company, but I know plenty of people at FAANGs who work 50- or 60-hour weeks, every week, and often put in time on weekends. Granted, I would agree that pretty much everyone at a small/early startup is going to be working long hours, while a large number of people at a FAANG are going to enjoy a nice, relaxing life outside of work, so they're not at all equivalent in that regard.
That's not quite how it works. Certain people are required (or strongly encouraged) to sell on a 10b5-1 plan. These plans can trade outside of open trading windows, but they have a meaningful cooldown period before they go into effect and can only be entered into during open trading windows. So it's not necessarily "better."
That’s really about not falling foul of insider trading laws. Regular employees are free to set up limit orders within their trading windows (eg sell if stock hits $200) if they want. Can’t subsequently cancel it though! It makes way more sense to just sell on the day of vesting and then trade shares that you’re not restricted from trading. No tax or other reason not to do this.
We couldn't at Twitter, which is the only company I've worked at that had a blanket trading blackout policy. The closest we could do was elect to sell all RSUs as soon as they vested (even if outside an open window).
It's not in the interest of the VC that the founders have financial security. Well at least the type of VC's that have come up in since the dot com boom where it was not about building viable businesses but getting sold to the highest bidder when the founder is under financial pressure to sell they can strong arm him into easily compared to a founder that is financially secure and interested in building and running a business
It’s not binary. Enough financial security that they don’t care what their investors think, no. Enough that they’re thinking of how to grow the company rather than how they’re going to pay their mortgage, yes.
> It's not in the interest of the VC that the founders have financial security.
It's also not in the interest of the VC that the founders are worried about making their rent or mortgage payments, or paying off the credit cards they maxed out paying their AWS bills in the early stages of their company.
The VCs want their founders to be hungry for more, and see their company's growth as a vehicle for that. But they don't want founders to be stressing over basic human needs, either.
Any VC that would refuse to let you take some liquidity in these situations is not a VC you want to make a deal with. And if you can only find VCs like that, your company is probably doing poorly enough that you might want to rethink what you're doing.
I’m sorry, I think the era of “change the world” motivation in tech was eclipsed by “make 42 tons of money” about a decade ago.
Along that line, I would be very surprised that there are founders who don’t seek an opportunity to set aside their nest egg to “de-risk”.
You say you have seen such guileless dedication to the founding first hand, can you share what industry or type of company? Perhaps I’m just exposed to the wrong crowd.
>>It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird.
Yeah, if the founders don't do this I wouldn't want to work for them (not that I'm the target demographic anyway).
Assymetry makes a certain amount of sense. Employees don’t take $0 for a long time and generally aren’t having as large a pay cut as founders afterwards. Most of the founders I’ve worked with have had the seniority to justify the top salary in the company and have typically had pay at or near the bottom. Someone operating at that extreme getting to trade equity doesn’t necessarily mean that everyone should get to.
Asymmetry is common in startups, though. Consider one of the complaints from the article, and discussed here: founders get to keep several tens of percent ownership of their companies (at least initially), while early employees get a small fraction of a percent. Founders are generally not taking two orders of magnitude more risk, or doing two orders of magnitude more work.
I think giving founders liquidity but not employees is maybe ok for series A: the founders may have been working for $0 for a couple years at that point, and may have taken out a second mortgage or ran up a bunch of credit card debt to keep things going. An early employee is not going to do any of that once they join, even if they're getting paid a below market rate salary. That is definitely an asymmetry! Getting some liquidity at the series A allows the founders to pay down debt and replenish their savings, financial issues that are probably directly related to their time working on their company.
But after the series A, founders should be able to pay themselves a livable salary. The founders and employees should be on much more equal (or at least comparable) footing when it comes to their regular income. By the time the series B comes along, if the founders are going to get some (more) liquidity, the employees should get some too. That only seems fair.
Only a small percentage of tech companies raise a series A or beyond.
To me, this just seems like a capital-efficient alternative to the founder increasing their salary that could be negotiated. I had no such perception that this was some “secret” thing, I assumed it happened since you can do whatever you want if the investors and founders agree that it makes sense.
This whole thread is leaving me very confused. Series A is the first priced round. You're saying only a small percentage of tech companies raise a priced round?
Are we talking about just YC-style internet/app startups? Two of my startups have been deep tech where you can't do shit without a Series A, and the third was crypto in the start of that boom where VCs were begging to lead your Series A. So maybe I just work in a vastly different field.
Yeah deep-tech (which I am also in) plays on a different scale when it comes to funding rounds, simply because of how expensive hardware is and how big the headcount gets to just make MVPs.
My friends in software startups balk at the sheer burn rate and funding rounds at mine. $100mm for a Series A is unheard of in software.
Thank you Thiel for setting the bar so high (the famous, "you need $1billion in total capital to successfully pull off hardware startups" quote).
But for software, and my impression is that it is even more like this in most other industries, a huge amount of tech ventures never receive any funding. Many of these are never even properly incorporated and may not be included in datasets. Then, for the ones that do raise seed money, usually with SAFEs, 50-60% of them would fail before raising a significant priced round (series A).
The overall point being, there’s a lot of risk between starting a company and raising a sizeable priced round for most people.
The title of the article is mostly clickbait. Anyone who's lived in SV for a decade or so knows this well. Startups are a scam unless you are a founder. They are a meat grinder that runs on naive young new college grads who buy into the bullshit that their options are worth anything.
Even founders get shafted in later rounds where they are diluted out of their voting rights because they can't raise the capital to maintain their share. The only people not getting scammed regularly are the VC.
Founders have control of how things go, and have many ways to make money along the way (one such way documented by this article). How often do the first 2-5 engineers get any such chances?
> The only people not getting scammed regularly are the VC.
Not to want to sound like I'm standing up for Vulture Capital, but while it's not "getting scammed" as such - I suspect most VCs lose money on most startups they invest in. And not all VCs land enough 100x exits to make up for all those losses. (The "successful" VCs are the ones who make all the losses end up in pension fund balance sheets, while ensuring most of the profits land in their friends and their own pockets.)
Founders cashing out early may be more of an "open secret" but it warrants more discussion. I don't find the title overly clickbait-y.
And a counterpoint to your perspective, I joined a startup a couple years out of college, had the most fun of my career, and the options were very much worth something. Working for a well-funded start-up is something I'd especially recommend early in your career when you can take more risk even if the equity doesn't always work out.
If anything, I'd discourage becoming a founder as a new grad more than SV typically discusses. I really appreciated taking time to build up my savings and get experience before taking a shot at that.
You get Founder Liquidity because you managed to convince people who do just as much work that they couldn’t do just as much work without you. LOL
I am so cynical.
To be fair, there is a skill in getting people to believe your vision and to take the risk to work for you. They also need to convince VC's of that vision to get the money to pay you in the first place.
Generally they make more decisions that directly effect the odds of the company existing 6 months or a year down the line than the average employee does (with some exceptions obviously).
You can still be cynical, I think all employees should be given the ability to get liquidity early, but it's not like it's totally unjustifiable.
Making less money isn't really the risky part about founding a startup. The risky part is missing out on years of other life experiences, stressing (or losing) your closest personal relationships, failing and feeling personally responsible for disappointing everyone you convinced to believe in you, and developing an anxiety disorder (or worse) from chronic long-term stress.
Author's suggestion that they could have taken a "similar level of risk" as an early employee by taking secondaries as a founder is way off, IME.
> I have been an early or first engineer at five different companies and have had three liquidity events in a 9-year career.
A "big" success is a 10+ year journey. For an early employee, it is perfectly acceptable to give a few weeks' notice and move on to the next lotto ticket. This doesn't work for a key founder-exec -- they're likely going to commit to a decade working on one big problem, and investors want to incentivize them to shoot for the moon & stick with it for the long haul.
It's definitively not the same for an early employee.
Having been employee #10 a couple times now, there is a lot of that even when you aren't a founder. It would be nice if the 'de-risk your life' stuff this article describes for founders was also available for early employees.
Work a high salary job and buy lottery tickets or 0DTE options instead. Half joking. Look at the success rate of outlier comp through liquidity as an early startup employee. If professional stock pickers can’t pick better than index funds, what makes you think you can do better picking startups, spending non renewable time, working for years vesting common shares that you might get liquidity for eventually, assuming they have any positive value.
If you want to get wealthy, there are more efficient, less effort ways. If you want to suffer with low chances of success based on all available data, well, help yourself to the firehose of startup jobs.
You're not just "picking a startup". That early, you're also a big factor in whether it succeeds. Betting on yourself is different than buying a lottery ticket. (Maybe just as irrational for a lot of people, but still.)
You (not “you”, but the persona for this discussion) are not special and will likely fail, based on startup failure rates. Certainly, you will put effort forth, but that is only tangential to odds of success. If you enjoy the experience and don’t need monetary resources, sure, knock yourself out. Just recognize the opportunity cost, that the odds are stacked against you, and if you succeed, you were as lucky as you were skilled.
I’ll take the lottery ticket over me any day, not because I suck, but because I am human. Even exceptional humans fail. I don’t drink the exceptionalism koolaid.
People, especially sw devs, love this narative but it's just not true. It's not all luck like the lottery but the combination of things outside your control might as well make it so for early employees at a startup. But hey, you did get that vp of whatever title...
Advanced sports stats have the notion of "contribution above replacement value", the idea being it isn't just what you do, it's what you do relative to whoever they could (relatively easily) replace you with.
The startup failure/success rate already have some level of "smart, motivated staff" baked in. So you're really making a bet on how much better you are than the average early stage startup employee.
When you work for a startup you have a ton of insider information not available to outsiders, even investors. If you think your startup won’t be successful then obviously just find a different job.
Having been a key early employee at a failed startup, horseshit.
The employees bear the burden too, if they're working their asses off at an early stage startup they believe in the cause just as much. Viewing founders as somehow magically special is a symptom of the broader misguided hero worship the US has right now.
I'm sorry this isn't true. Your name wasn't on the line when you took the investment, and the OP pointed out with his "5 startups in 10 years" line, it's very easy for early employees to walk away. That isn't as available to founders.
There is much more burden (reputational, financial, emotional) on the founders.
I've been a founder, and I've been a key early employee. It is very different.
We are talking SV here, and that's very different from my European experience. I've known of founders in Scandinavia who walked out from startups that weren't doing so bad and that could have gone for another round of investment because they were earning as much as a bus driver, had zero savings, and were experiencing burn out after almost a decade of work. Maybe that bit of SV culture that lets founders be on par with a highly paid engineer at a big company is up to something. Maybe if it were more of a thing in other parts of the world, we would be more competitive.
Having cofounded both bootstrapped and funded startups, I can say that in each case there was a deadline associated with success: for bootstrapped, we set hard targets in terms of maximum spending and time in order to test our hypothesis. This allowed us to fail fast in our own way and go back to a better paying day job.
For funded startups - at least with a healthy seed round, the investors expected us to burn fast and hard in order to prove our hypothesis or fail trying as quickly as possible, but they also expected us to not pay ourselves very much. As we found product-market fit and raised Series rounds, it was understood that we would pay ourselves competitive salaries.
Being stuck at the seed stage for 10 years is not healthy - neither in Europe, nor in Silicon Valley.
This assumes how much of the founders' shares they sell and the size of the raise. The $400k figure is just arbitrary here. I imagine when companies are raising Series B or later, founders are walking away with millions.
$1-$2M after 6 years of working at $100k isn’t really much either in the Bay. (Which is the only place you’d get that.)
Even that averages to a senior Eng salary for the very very few founders who get there.
This has to be tempered by other realities
- no social life
- working 80 hours a week easily
- risking personal finances
- health problems
- good chance of divorce
/ no deep relationships
That may be true, but it is also true of early employees who stick it out for similar amounts of time and get nothing. $1-2 million may be the total amount they would get after a billion dollar exit.
Getting out of the SV bubble this is an insane amount of money. I boostrap my business and I make 40k a year. Most senior SWE around here make less than 100k.
Obviously everything is local. 40k is about $20/hr, which where I live is just a tad above what new fast food workers make. Fresh CS grads make more than $100k (or at least they did, obviously the past year and a half has been brutal). This is not in SV.
In most of the world (even just considering developed nations) fresh CS grads do not make more than $100k. Senior software engineers don't even make that much anywhere in Europe or most of Canada.
Why the disparity? Especially with Canada - no language barrier and no time zone differences. Why doesn’t the free market equalize Canadian dev wages with American ones?
The better question is why doesn't the free market lower Silicon Valley pay to be comparable to the rest of the world. SV is the outlier. Even other forms of engineering don't pay compensation anywhere near what SV software devs get.
In my experience the best Canadian devs came to the US specifically because they could make so much more. Not sure if that's changed much over the past 5 years given the explosion of remote work.
I am convinced that the WFH movement is responsible for the recent offshoring trend.
Before 2020, it was fairly uncommon to work remotely and most employees were expected to physically come to the office. You would relocate if you got a job in another state, and employers had to go through a painful visa process to access foreign workers or set up expensive international satellite offices.
The great WFH experiment kicked off by the pandemic concluded that no productivity was lost, so many employers realized that they did not actually need to hire domestically at all. Everyone can be remote and work from wherever. LCOL in the US is still extravagant compared to many other regions, so a top engineer can now be hired for pennies on the dollar. I think there's a very good chance that tech salaries in the US have begun to and will continue to equalize with the rest of the world as a result.
I definitely agree with this. In addition to WFH, consumer-grade Zoom/Meet/etc. got good enough right around the pandemic (just before really) where it made off shoring really feasible. I've especially seen an explosion of offshoring to Latin American and Eastern Europe. The time zones make things much more workable than, say, India or China.
Yep. My previous company almost exclusively hires in Latin and South America now. The interesting thing to me is that it hasn't affected the executives themselves yet. If employees from one region work just as well as employees from another for other roles (or at least cost to performance is favorable), then it seems hypocritical and counterproductive for them to insist on US-based execs. The vindictive part of me hopes that it catches up with them next.
That will change once legislation gets passed requiring remote workers who are not located in the same country to need to go through the work visa process. The outsourcers are shooting themselves in the foot. Once the law drops and they cannot bring over the cheap remote labor due to visa limits, they will end up with skeleton crew teams that cannot maintain the spaghetti systems that are being built.
Legislation could easily be crafted to block even contractor firms from circumventing the requirement. Either way, someone remoting in from abroad would have to get a visa. This will solve the problem. It's definitely coming, because to work domestically they'd need a visa...so doing the work remotely is not an exemption to that.
This is not speculation, it is what multiple Canadians I've tried to poach have told me: they don't want to move to a country where one medical emergency can put them in 6 figures of debt
Not that our health care system is going that well these days but true.
Also being called a freaking non-resident "alien" is so demeaning, sorry I am human.
None of those reasons make any sense to me. The US health care system is truly fucked, but nearly all the companies paying well for SWEs also provide good health care plans. It sucks that things are so complicated (deductibles, copays, coinsurance, in-network, out-of-network, etc.), but people with good health insurance aren't getting bankrupted by health care costs. And I've seen plenty of colleagues with super-expensive conditions in my lifetime ("million-dollar babies", cancer, losing limbs in car accidents, etc.)
And bitching about bureaucratic terms like non-resident alien? All countries have silly bureaucratic language and words can have multiple meanings. Nobody thinks "alien" in this context means you're a little green man from Mars.
Sure until you lose your job, I think having your health insurance tied to employment is really scary for a lot of people (me included). Not everybody has the same tolerance to risk. Our safety net isn't what they have in europe, but it is still better than the US.
No offense but it is spoken like a true American. I have dealt with European immigration and it was pleasant/painless for the most part. In the US they make you feel unwelcome and they drown you in paperwork. Not that Canada is much better these days, but I am a citizen so don't need to deal with it.
> Sure until you lose your job, I think having your health insurance tied to employment is really scary for a lot of people (me included)... Our safety net isn't what they have in europe, but it is still better than the US.
100% agree, but we weren't talking about which system is better, we were talking about why Canadians may be reluctant to relocate to the US. It's not like Canadians who come to work in the US give up their citizenship. Worse comes to worst and you lose your job and health care and have a major medical issue, the Canadian safety net is still there for you.
Yes and no, you lose access to it 6 months after you leave and to have access to it again to need to wait another 6 months while being in the Province. But I get your point, when you are a fresh grad it makes sense to spend a few years in the US. Though less relevant now with remote work, you can get a US salary here its just a bit harder.
Senior software developers definitely can make that much in parts of Europe, and not just at banks or the big 5. But also 100k USD isn't what it was 5 years ago.
It's fairly arbitrary, but there is at least one constraint on how much you can liquidate: You cannot liquidate much more than 10%, because you're taking money from the company and investors would not appreciate that.
I think founders generally have 20 to 50x what the first employee has, in my experience. Employees rarely have more than 1%. Founders tend to start out with about 20-40% depending on number of cofounders.
> Ask most venture-backed founders why they get 10x more equity than employee #1
Employee #1 typically gets 1%. Sometimes could be up to 2%, but 1% is standard. So then the founder gets 10%? No way.
I posit that very, very few early non-founding employees in SV startups have a true notion of how cheap they're working compared to the founders. Founders do founder-y stuff, the early engineers build and launch the full product, and if all goes well, the founders fly private the rest of their lives while early engineers make good progress towards a down payment.
If startup goes to zero, then everyone goes home with nothing. The founders typically don't lose any money of their own -- that cost is shouldered by angel and series-A investors.
Often though, the startup has a "soft landing" where it's acquihired by a larger company, and then the founders typically get executive or very senior roles (with large bonuses, etc) meanwhile the non-founders get standard employee packages.
Yes, I'm glad I'm not the only one who thinks the economics of it are a little bit broken. I will never join another start up as employee #1. I'd much rather come into a larger start up with a high cash comp + equity, than very low cash comp, worked to the bone.
The other thing no one talks about is founders tend not to dilute themselves, but often early employees are diluted heavily.
I was being generous - if there are 3 cofounders and you let one of your early employees get in the 2-3% range - it might be closer to 10x - but you're right that the majority of the time it's between 20x and 50x, sometimes even more dramatic than that for solo founder scenarios
I think most employees are mostly well aware that founders take a money off the table in every round, and I think that it absolutely does negatively affect morale.
"Silicon Valley's [worst] kept secret: [Loyalty will not be rewarded]"
The fact remains that sweat-equity deals rarely work out in a founding employees favor.
i. IP selloff to umbrella firm for $10
ii. contract restructuring or share dilution
iii. jettisoned from a company months before an IPO
Most techs have seen all of these events unfold... if you are around long enough.
People always have their own strategic truths once significant money is on the table. Even moderate success can destroy peoples memory, and anything not legally watertight is just hot air.
This is another reason why American companies beat out Canadian and many other companies by so much.
In Canada even at Series A Canadian VCs will not offer you liquidity while at the same time allotting pennies in the first place. Absolutely conservative poor people.
If things are working, derisking the founder so that they can focus all in on the problem is the best thing you can do as a VC.
My guess would be that it has to do with the amounts involved. In a typical series A/B only the founders have enough equity (they have larger share, plus they've been at the company the longest so they've vested the most) to be worth the transaction cost of a secondary sale.
> Why is it a secret that founders get liquidity in many venture rounds? Because it undermines the narrative of the founder who is "all-in." The story of the founder who mortgaged their house and lived on ramen noodles for years is compelling.
A lot of startup compensation seems to rely on people not having transparency and honesty. The founders, investors, etc. all have very different risk and reward situations compared to typical employees and even non-founder executives. But for most it seems like a raw deal compared to working at a big tech company, unless you’re lucky and strike gold at a place like OpenAI or whatever.
Another area where there is a lot of obscure but important detail is in the cap table, stock plan documents, and so forth. If company financials and cap tables were transparent, and if it was clear the various ways in which a company could screw over employees through various clauses deep in their documents, no one would take those jobs.
I must be an idiot, I've been a cofounder or first hire in 6 startups (2 successful) over the last 25 years and have literally never been offered secondary during a Seed or Series A or B.
100%. The one thing you get at a bigco is bigness -- you can release a product to potentially millions of customers on day 1. When you call on a possible customer or partner, they return your call immediately because BigCo is on the line.
On the other hand, I can't stand how corporate politics corrupt a product's vision. Even low-level politics like "strategy taxes" are infuriating.
It depends a lot on the startup. I have similar number of startup experiences, and only one had early stage secondary sales ( but those were even for non founders ). Mainly money comes from IPO or other exit.
You don’t necessarily get offered it, you demand it as a term. If it’s a “hot startup” you pick and choose your investors so if some don’t like it they can walk.
Secondary at Series A is very rare. Part of the reason more early employees don't get included in secondary sales is because of the Securities Exchange Act of 1934 14e-2. If you have more than 10 sellers involved, the transaction can be considered a tender offer, which triggers additional regulatory requirements and disclosures.
> As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR in two years) to become a founder and that is when it clicked - I expected to feel stressed, pressured, and the weight of all of the risk I was taking.
Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!
The bigger secret is that stock sold in secondary sales by founders and employees is usually common stock, and the purchasers will often get the right to convert this to preferred stock. This means that the company is instantly encumbered with a greater liquidation preference, without the increase in balance sheet to offset it.
How is that legal and not considered self-dealing and unjust enrichment? If I was a minority common stock owner in a business I assume I would have standing to sue for damages if a majority owner or officer made my position materially worse while enriching themselves in such a manner? Are you sure such a right is typically granted? I mean even the gap between 409A valuations and preferred valuations, as well as a huge amount of precedent, give a different material value to preferred and common stock. Giving that right out of thin air in a sale by an insider is effectively theft from common holders and I have trouble believing what you’re saying as I’m not sure how that could be kosher, if perhaps infrequently litigated. But is it really standard like you make it sound? That would be a very dirty secret and I expect would and should lead to litigation.
Flip it around - it becomes a condition of the deal happening imposed by investors, who themselves are motivated to present the best deal to founders, and to have founders less economically stressed. No secondaries - no deal, and that doesn’t help anyone.
Who has the cause of action? The majority shareholders. Who authorized the stock sale? The majority shareholders. Are they really likely to sue the founder for something that the shareholders authorized?
Only in some states would minority shareholders have a cause of action. So there are some states in which the courts agree with you. As you might imagine, startups do not typically incorporate in those states.
It is very common and usually a condition of closing. Investors know that preferred is way better than common. They are buying highly speculative assets and want strong downside protection.
Not never. E.g. all the capital we as founders put in the business before we raised our seed round was converted into Series Seed Preferred shares at the same rights as angels / seed VC. Small portion of total equity but still.
Founder Preferred is a special class of stock that can convert into Preferred when sold. It’s different from Common as it doesn’t affect the 409A. IANAL.
I often hear about these SEC rules that explain why individual contributors get fucked, as if that's a good excuse. Either the requirements and disclosures should be fulfilled and more than 10 sellers allowed, or the rules should change, or both.
I didn’t comment on whether it was a good reason or not. My comment was just highlighting some of the complexities in what the blog author was hoping to achieve.
Where would the stress come from? You get a paycheck and there is no personal downside except opportunity cost (and perhaps reputation). You don’t lose any money if your startup fails.
A lot of people (esp people that performed extremely well in school and in corporate environment) find "failing" and "losing reputation" very stressful.
Landlords and supermarkets dgaf. There is no real risk, and if they stress over it, that’s more a founder’s own psychological failing than anything else.
If you care what other people think that much, you probably don’t have sufficient quantities of the oft-cited “grit” that founders supposedly require.
Thank God someone said this. Of course it is stressfull, there is no free lunch. If you can't take the heat just dont enter into a such top-heavy game.
I am sure enough that I would crumble under that specific kind of pressure that I don't put myself in situations where I would experience that specific kind of pressure. Works great!
Starting a company myself, I took 6 months with no salary. After we raised, my salary was massively cut from where it was (30-40% of what I made the year prior). Then you have the fact I gave up guaranteed raises & promotions (to the tune of hundreds of thousands in RSUs).
There’s a pretty large risk to family security. By year two of the startup I have made 15-20% the cash I could have made elsewhere. I have stock that I trust will be worth more in the future (so imo worth it). However, I can see liquidity events being useful if you’re tight on cash after that run
Investors do it so that the founder can better focus on increasing the value of the company. Having financial stress on top of everything else reduces the probability of liquidity events.
My primary motivation as an employee of a startup is fear of personal financial ruin. That the company won't be able to make payroll and I won't be able to pay my rent, that I'll be evicted eventually or that if the company goes under I won't be able to find a new job. There is no mission or any other soft carrot that I care about. I also don't have any faith in stock options.
I can't imagine caring about reputational damage with rich people unless that reputation is in service of not starving in the streets.
Perhaps you shouldn’t be working in a startup because your lifestyle is unaffordable, or your company is paying you peanuts.
I have worked in startups in Silicon Valley and have had many friends working for them. Most startups pay a base salary of around 200k$ I reckon (for new grads, perhaps 150k). This might come down to 9-10k after taxes per month. A good 2 bedroom house to rent in a location like San Jose would be 3k$ per month, which leaves you 6k for other expenses. Assuming 1k for car, you should still have 5k in savings per month, in a year of working you will have saved up 20 months of rent, maybe 12 months of living without a job. I find it hard to believe anyone in SV startups, is in risk of “personal financial ruin”, or “starving in the streets” just because they lost a few months of paychecks while searching for another job. That may be true in another country, in another market, but all tech workers in the Bay Area are living well above subsistence and acting like they are living paycheck to paycheck is a fantasy. There is a cost to working in startups, and it is an opportunity cost of not working in a big tech company and cashing out your 200k+ RSU over 4 years and instead receiving paper money stock options that can be worth 0.
I don't live in California, the startup I work for is remote. I don't fear financial ruin because I don't have money, I fear it because I catastrophize everything. There's no evidence to suggest I would be homeless if I lost my job, but that's just where my brain goes.
But I'd like to point out that in your math, you calculated the cost of a car and a rent, but no other living expenses. Also in what universe does a car cost $1000/month??
This is not a real risk you're talking about, but small inconveniences. A risk is losing your house for example, or losing the ability to rent.
Inconveniences are part of life anyway. Being the first engineer means you get all these inconveniences (tell your wife and your kids) plus real risks as above (taking a loan to buy the options and losing it)
“Letting people go” is taking on the risk of all of those people being let go losing the ability to rent or pay their mortgages. That seems like more than an inconvenience to me if you take one of the responsibilities of being an employer at all seriously.
If you are working a tech job and know how to program computers and have no savings slash the loss of a job costs you your house, you have deep and fundamental problems far beyond the loss of one job and it isn’t your former employer’s fault that your life is mismanaged.
No employee should join a startup with the expectation that the company will be around forever.
Compare startups to restaurants- their failure rate is absolutely massive. Working for a new company is simply always a risk for everyone involved, there's no getting around that.
This isn't the founder's risk. It's the employee's risk. And it has the added bonus of, if there is a liquidity event, the employee's don't get the upside.
I was like engineer #3 at a company that eventually was acquired for ~$250MM. My payout was $60,000, after 5 years of employment there. I could have made more by going and contracting at megacorp for a single year. There was never any upside for me.
That was because you negotiated and accepted a shitty deal. Unless someone scammed you into believing something that isnt' true, which I doubt. Founders can be overly optimistic, but it isn't same as scamming.
Startups are a difficult game. Everyone gotta watch for themselves. Don't blame on others if you accepted a suckers deal.
I tend to have large stress in startups, more than in established companies. I won't get into some of the occasional toxic-element sources that can happen anywhere, but some reasons that happen more in startups:
1. Caring about the mission -- the real-world positive impact -- and potentially able to make or break that. Not just taking a shot at making money, for some opportunity cost that I could evaluate quantitatively on a napkin, and walk away from as soon as an option with a higher expected dollars number came along.
2. Livelihoods and investments of time&effort by colleagues hinge to a large degree on decisions I make, ideas I have, and things I have to pull off, and not wanting to let them down. (A bit similar with money investors, but I care more about personal connections, and involvements where it's not just someone buying lots of lottery tickets.)
3. Low "paychecks" for my HCOLA, at that startup and earlier, so personally needing a big win financial exit, and the startup is what I decided to invest my time&energy into. If that fails, it's starting over, and a lot of wading through various startup ickiness to get another good opportunity (or doing FAANG interview BS, and then their promotion-chasing BS).
Hiring, firing, layoffs, making the wrong decisions with limited information and not finding out they were wrong until years later, huge shifts in the tech market around you undermining your business, competitor actions wrecking your business, pressure from investors, pressure from your family to earn more money, uncertainty about whether the business will ever succeed, and an endless list of other things.
> You don’t lose any money if your startup fails.
Except all the money you lost by not having a proper job along the way. Also it’s not uncommon for founders to float the company at early stage until investment is raised, and they don’t always get a refund for this.
Exactly. I quit Google in 2017 to work on a promising start-up idea (generative AI chatbot for coding, a tad early on that one) and ended up raising barely any money, running up massive CC debt to finance cost of living and GPUs, and taking a huge compounding opportunity cost to not continue growing as a FAANG SWE (not to mention missing out on the stock market run with the extra money I didn't have). I spent the last several years paying off that debt instead of buying a house or investing, etc. I'm massively behind in earnings and net worth compared to my colleagues who talk about their future startup idea but never struck out on their own.
But I'm finally debt free and ready to risk my future yet again on another startup.
I mean if you don't care about the company mission (if it's mission based), you don't compare about your employees, your word, you don't care about your time or care that you sold people that you were going to take their money to build something... then yes there might be no "personal" downside.
Though if you don't care about anything in the first place what are you doing trying to build a company?
> Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!
Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs.
If you start a real business you can expect to take on debt, and you'll be personally guaranteeing it because nobody cares about equity in your boutique ice cream parlour. Plus a 5-year lease (which you will also personally guarantee).
Running with VC funds? Oh god, that would be cakewalk compared to even just figuring out how to ensure there's food if you spend money on some necessities for prototype...
The most common endgame for a startup is slowly running into the ground until the money runs out and you eventually shut the doors. Failing your way into a happy acquisition isn’t really something to expect as a contingency, I don’t think.
The contingency isn't golden handcuffs its using one of the hundreds of C-level connections you made as a Founder doing sales and networking (and accelerator programs) to get you a cushy gig as a Product Lead, Operations Lead, or similar title with a strong paycheck and immediate authority.
> Honestly VC-funded startups seem like a cake walk compared to actually starting a small business.
Make this about any brick/mortar businesses and the stresses multiply by another factor. If they're in a federally regulated biz (compliance) or an insurance dominated state (rates, inspections), then multiply again.
Sure, if you magic up a startup with VC funds you suddenly have it easier than a small, bootstrapped business.
Startups almost never start with a round of VC though. There are almost always months or years of the same experience as a bootstrapped business (ie: extreme uncertainty, no money to pay yourself, etc).
Most startups don't manage to raise VC, and most startups that raise VC fail with no acquihire.
I don't know why you are trying to make this a me vs them situation. Both situations are difficult in different ways and they are all real businesses.
"Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque." - Sounds like you are trolling or alternatively incredibly naive.
"If you start a real business you can expect to take on debt". ... Real business? Come on.
No one in this thread is saying starting a business is easy - ice cream business is debt funded because you have a very definitive range of outcomes. Venture funding is completely different animal - failing to see that limits the value of your comment significantly.
> I don't know why you are trying to make this a me vs them situation.
In terms of economic disparity it _is_ very much an us vs them situation.
Consider the optics over the last 20+ years. The middle class and their small businesses have been decimated while former VC funded companies hoover up their futures on Wall Street.
The level of risk involved starting an average small business is much closer to home compared with a startup seeking VC funding. The former can literally lose his shirt, the latter has to settle for a high six figure salary somewhere else.
Failing to see that limits the value of your comment significantly.
This isn't a me vs them. Who is hoovering up the ice cream futures? Different business model, different businesses. Both are difficult. Being a founder of a VC based company is difficult and being a builder of a retail brick and mortar is difficult. It isn't zero sum and both can exist in the same economy trying to make this a Me Vs Them narrative is totally BS.
Making a wedge where there isn't one is disingenuous.
Especially 5 years down the road when you own ~30% of a $100M company - but you know there's a decent chance you'll walk away with very little, if not nothing - while your peers are all making ~$1M per year working 6 hour days at FAANG with a life partner, maybe kids, and a sizable net worth that isn't going away.
Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really want. You might have foregone your shot at a partner to build a company to mostly profit someone else who did nothing but write you a check. If you do have kids, you'll be old as hell raising them. All you'll have is extra stuff hardly anyone cares about - except maybe you - if you're the type of person chasing down a decimillion net worth.
I hope these people truly enjoy their boats and their third homes in Aspen! It sure is a lot of work to get them.
Nobody is forced to become a founder. A lot of people are naive to the sheer level of stress involved, and think it’s going to be easier than it actually is. You don’t find out just how stressful it is until you’re already super committed, have raised money, have employees, and there’s no easy way out without screwing a whole bunch of people over.
Founders tend to only talk about the good things happening at their companies, and tech press tends to focus on the successes. These things contribute to more people starting companies.
On the flip side, though, any regular HN reader has likely seen dozens of accounts written by startup founders whose companies have failed. And there's quite a bit of overlap between the set of HN readers and the set of past, current, and likely-future startup founders.
Yes and optimism bias leads people to believe they won’t experience those negative events. Everyone must believe they are going to do better than the median outcome when they start a company.
Or, based on examples I've witnessed, 5 years down the road you own 20% of a $1M company because your forecasts were off by an order of magnitude. You've gone through a couple down rounds, where investors took at least 20% each time. You feel obligated to your investors and employees, while there is almost zero chance of walking away with anything.
That very much depends on the stage of the company and how much control has been given up at different points. Do you think the management team of a public company could just decide to shut it down? As you raise consecutive rounds, your control is eroded.
One of the greatest quotes I've ever heard from a founder buddy was when his startup was going through a particularly dark moment and struggling: One of the investors said to him "Maybe you should seriously think about shutting down and giving us our money back", to which he replied:
Yeah, then the investors call a board meeting and bring in a new CEO to provide adult supervision after a 2/3rds vote. The give that guy more equity than you to keep the ship afloat. "It's not your company anymore."
Not realistic to maintain control past A unless you built a real rocketship. The board doesn’t usually want to run your company - they have enough other companies, some evidently better than yours as they don’t require this intervention.
It can get much worse. Companies can have multiple “seed” rounds. It may not be doing well enough for a real “A” round. The naming of the rounds doesn’t matter. Valuation at each round does. If your valuation goes lower from one round to the next (“down round”) you’ll give up more equity, diluting everyone else faster.
Each round carves out 10+% for employee options, on top of 10-30+% to investors (Seed can be anywhere from 10-30%, Series A is typically 20% to just the lead, Series B 10%+).
Equity ownership and voting control are also different things. After the B you commonly have 2 investors and an independent director on the board, alongside 1-2 founders.
Can never happen, the guy who says that this ain't ur money no more has made sure that investors know their place on board, they r afterall just passive investors who r spreading risks around, even wework a company that has fucked up financials had to give their founder close to a billion dollars just for stepping down, as long as the founder is a majority stakeholder, he will always remain in control
If you, the founder, only own 20% of the company, the investors absolutely do control it (absent super-voting shares, anyway). You can propose shutting down the company, but the investors can fire you and bring in a CEO who will keep it going.
Not necessarily true. Most control is exerted at the board level through board director seats. You can have a low % and a majority of board director seats, depending on the leverage you had in each round raised.
That's how risk works. The FAANG employee friends have exactly a 0% chance at a 9-figure outcome. They'll easily be at top decile if they pull a nominal $10M+ post-tax in 20 years.
Except the "$200K" is purely paper, and has an expected value of closer to zero. Remember, common shareholders are the last ones to get paid. Investors have preferences and get paid back first (often with interest.)
Also realize you were probably forced to take a pay cut and have a below average salary due to cost-cutting measures from the board. We'll ignore the non-financial problems, like tons of stress, complaining employees demanding more equity because you couldn't give them raises...
The average SUCCESSFUL founder is in their earlier 30s. At that point - you should be at least L4 (probably L5) at FAANG. Salaries are about ~$450k at that level and age.
In 5 years, if you work even a fraction of as hard as you need to be a successful founder, you should be L7 - salaries are usually >$800k at that point.
No, it is not like any average slacker straight out of college in 5 years can get to a $1M salary at FAANG. But if you're the type of person that could successfully grow a company to a multi hundred million valuation in 5 years - you can make $1M at FAANG.
Those aren't entirely overlapping skills. There are plenty of founders whose attitudes and generalist skill sets make them unhireable in the management ranks of FAANG.
2. Going from L5-L7 is _not_ trivial. It requires a somewhat miraculous combination of being on a productive team with a good boss, a lot of opportunities for showy work and your own gamesmanship around corporate politics.
Is it possible? Sure. But in my short stint at Amazon, I met a lot of people who should have been higher level and were simply not due to missing one of these factors.
Not saying I disagree with your conclusion, but if the question is about which is more likely from the perspective of an individual considering going either route, there’s also an implicit “given that an attempt was made”. You’re only comparing the absolute occurrence of each type of event rather than the occurrence relative to the number of attempts made.
A lot of the FAANG companies (all?) have promotion processes that are basically a combination of both peers and managers strongly pulling for your promotion. It often takes a few years just to end up on people’s radars, and that’s a few years of delivering lots of high visibility work and doing lots of tech talks and other sort of corpo-social tasks to get your name out. In a lot of ways, it’s like you’re constantly applying for a new job.
I meant say more about the gaming the politics part, not so much the showmanship and self-promotion part. Say there are several people who meet the criteria to get promoted, which ones tend to get it and which not, based on which political behavior?
Allies, not friends. In that sort of environment, what sort of things get you allies? other than what you mentioned. For example when you say gaming the process, how to approach reviews?
Allies/friends -- doesn't really matter what you call it. It's people in your corner. There's no gaming that I'm aware of. You just have to hope that you are able to get on peoples' good sides. Usually that works alright in the normal course of being a friendly and contributive coworker, but god forbid you have someone who has a chip on their shoulder about you.
Yes, people are mixing salaries and total comp in this discussion which is unfortunately both common and misleading. It also depends very heavily on the total economic outlook, if you happened to join Google in the fall 2021 cohort your equity was basically going down for the next 3 years and only recovered just now. To claim the average SWE is getting to $1M with that kind of deal is either engagement farming or pure delusion; it has absolutely nothing to do with the reality of most people.
The distribution of the ladder is logarithmic. Most never make L6. L5 is often terminal level IC without any “up or out” obligations. Lots of people spend a long time at L5 and retire.
You don't start there, but you can get there as you level up. A lot of that would be because the stock on your RSU grants goes up while you work there though. I don't think many SWE have 7 figure targeted comp (highest levels, yes). But plenty get there with refreshers and stock appreciation.
Many people top out at a lower level because they don't play corporate politics games or because the L7s aren't moving on, so there's no real room for promotion among the L5s and 6s.
Microsoft in the Ballmer years (early/mid 2000s) had this problem. Promising L65/L66/L67 (probably equiv to L5/6 at AMZN) would leave because the next step was full. All the "partners" were hanging around and not making room for the next gen of leaders.
See levels.fyi. The pay levels for FAANG companies are fairly accurate. But you'd have to be something like L7/E7 level at a Meta/Google to break $1M.
Also note that some comp numbers get heavily inflated by people incorporating stock value increasing between the equity was first issued and the stock actually vested.
> Also note that some comp numbers get heavily inflated by people incorporating stock value increasing between the equity was first issued and the stock actually vested.
Yeah ever since COVID this has really muddied the water, partially both up and down. Depending on the year combined with the type of company (large cap vs growth SaaS vs finance) you can massively swing the same exact "offer comp" into many communicated effective comps.
While the median is much much lower, there are a couple of thousand individual contributor SWEs (non-managers) between Google, Meta and a few other big-ish tech companies who make >$1 million/year (steady state, does not depend upon recent run ups in stock prices), with a couple of hundred of those above $4 million/year even. The risk/reward for joining a startup is very skewed in terms of risk in these cases.
Yeah I feel like successful founders natural ambition and optimism is sort of weaponized against them by the VC industry here. From a VC perspective it's worth playing the odds for moonshots. As a founder though, if you can create a $100M company that you own 30% of, you can probably create a $20M company you own 70% of with a much more realistic and sustainable growth targets.
I can't help but feel this would be better for the founders, the employees and the customers of the company. It just doesn't make as much sense for the investors.
You are completely detached from the real world. Even in super rich countries like the US there are a lot of people without savings, living paycheck to paycheck. Most/all software engineers outside the US can only dream of ever earning that much money. And yet here you are, worrying that you'll end up only slightly richer than people earning ~$1M per year.
>And yet here you are, worrying that you'll end up only slightly richer than people earning ~$1M per year.
onlyrealcuzzo is comparing 2 things:
* Being a founder and working mega hours and having no life (e.g. no spouse or kids) and having a decent chance of losing most of your money as the company fails.
* Working at FAANG and making a lot of money while not having to work too much.
onlyrealcuzzo is saying the second option is better.
I was under the impression we were talking about ICs here -- your link shows that an upper-middle IC that you'd expect to be choosing between early startup or FAANG will see something around 450 a year, which tracks much closer to what I'd expect.
I know a red badge director (10-15 years) at Amazon who dipped well below 500k due to the last 4 years of stock prices. Though this recent climb has been great for their morale.
>while your peers are all making ~$1M per year working 6 hour days at FAANG
I highly doubt ALL your peers are making that much. And I think the people making $1M per year at FAANG tend to work much more than 6 hour days. You have to be very productive to get $1M per year.
Sir if you live in USA and do not take a dip into the VC money swimming pool, you are stupid, because crazy people with stupid ideas routinely get to $100 Million valuations, like no other place on earth.
Its like going to Disney Land and saying "Oh i'll just sit at the coffee shop". Some people are here for the ride. Some people like the 9 to 5. Like you, obviously. Why dont you go start corporate-drone-news.org, this board is for hackers and founders.
You’re obviously overstating the FAANG SWE lifestyle.
But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.
The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.
As an aside, when people think SWEs don’t need unions/ professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.
Let's not forget that FAANG companies were all startups at one point. Early employees at those companies experienced significant upside. Startups can be very high risk, and in rare cases, extreme upside.
This is the “startup myth” that lets the scam perpetuate.
The world has changed. Google IPOed just a few years after it founded. Now Stripe, objectively one of the most successful startups ever, still hasn’t IPOed after 15 years.
Liquidity preference
Dilution
Even the F in FAANG had a major movie made about early employees getting shafted by dilution!
FAANG is 5 companies founded a long time ago. Since then VCs have completely rewritten the rules of the game. But they’ll still point to extreme outliers in the old rules. The fairy tale of the Google masseuse has probably cost tens of thousands of engineers millions in compensation.
You need to get things in writing and do the math and startups make it as difficult as possible to do that and then the math never adds up. So they resort to fairy tales.
Many huge private companies, like Stripe, have found ways to provide liquidity to their employees without going public, e.g., through tender offers. Some more recent examples of companies where early employees did very well would be AirBnB, Coinbase and DoorDash.
Early executives at those companies did very well. Early employees did well, but risk-adjusted , not really. I know people who were fairly early at those companies and they own nice SFH in the Bay Area but they're still working as Directors or whatever.
Consider that if you could make 400k (including liquid stock) in compensation at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company. Except unlike any other company you bet 220k on, you won't get a board seat, you won't get access to key metrics, your influence will be dominated by "real" investor's influence.
If your NW is less than 10M, which presumably it is, anyone who's heard even heard of the words "Kelly Criterion" would tell you your nuts for betting 220k a year on one startup. And yet, you get treated like "an employee" and not like "an investor" for taking that insane risk.
So YC has invested in 5000 companies, and you can name 3 that had top-notch outcomes, thats 0.06% success - and you had to work like a dog to realize it! And that money was locked up. Those same early employees could have taken that $220k/ year, put it on Bitcoin or Apple stock, and retired off that. And Bitcoin and Apple were much easier "picks" than an given startup.
The math simply does not add up and the whole system runs off mystique and naivety. And I've worked at startups that gave me a hard time about asking about outstanding shares, about asking about the cap table, about asking about liquidation preference. This is _critical_ information before you invest a significant portion of your life and net worth on a company and that they're guarded about and it should raise the ultimate alarm bells that they don't fall over themselves to explain every part of it.
There's a bunch of propaganda out there "Explaining ISOs, written by a16z" that's a smoke screen of the truth. The math does not add up.
The dream startup employee is really really good at Transformer architectures and really really bad at personal finance. Fortunately for startups, a shocking amount of these people exist. But it doesn't change that if sharp financiers looked at employee equity packages at startups objectively, every single one would agree it's a scam deal.
First of all, we're on the same page about the risk profile of working for larger companies being better for employees. But the reality is there aren't enough of those jobs for every single startup employee out there to get one. Some people also like the startup environment - move fast and break things, etc.
Your denominator (5000) is _all_ investments that YC has made. You need to look at investments of a certain vintage, e.g., 10 years or more. You also need to include all the other companies of that vintage where employees did well (way more companies in that cohort have sold or gone public). The result is 0.06% is a gross understimation of the success rate (where success is defined as successful enough for early employees to make a lot of money).
> Consider that if you could make 400k (including liquid stock) in compensation at FAANG
I'm very skeptical of the idea that this is common for new hires at FAANGs today. Certainly some people can command that level of comp, but I find it hard to believe the median employee can.
The median employee also isn't the guy who's going to make a killing by being an instrumental early employee at startup. It's apples and oranges. I'd argue that the person who is versatile and productive enough to help build a startup from zero is also in the upper tier of those FAANG employees, and commanding 400k+ per year isn't out of reach.
I personally have taken both paths, and made what I considered a ridiculous amount of money at a startup (after I'd been gone for a while, having bought my stock). When I got my cash out, I didn't quit my not-technically-FAANG-but-pretty-close job and that comp continues to grow. I never expected this, but my comp has grown to the point where the cumulative amount I've made here has actually surpassed the startup money. 7 years at each place, and the steady paycheck eventually outpaced the big windfall. The difference is I can keep the steady paycheck indefinitely, so it's definitely the win if I stick it out. Of course, now I'm itching to do a startup again. :)
I don't agree it's a myth. Is it an extreme risk? Yes, of course. Do people view the risks to be way too low? Yes. But I worked at Cloudflare pre-IPO, got shares at 1.73, and at one point CF was at 200 a share. That was more or less what I was "promised" from the equity.
Stripe is one example of a successful startup not going public, but there are tons of startups that are going public. And there are many startups that wish they could go public, but they simply don't have the finances or business to do so.
I don't think VCs changed much from when Google went public until COVID. We were seeing massive overvaluations of tech companies for years. Once through 2020, VCs got scared and now the landscape is a bit different. But the AI craze has started to get VCs back out of their shells taking bets on risky projects.
So, yeah, idk what I agree with this assessment. At least it's not been my experience in tech over the last 8+ years.
> I don't think VCs changed much from when Google went public until COVID.
VCs changed a ton over that time. In 2004 VCs were still smarting from the dot-com bust. And VCs were hardly spewing cash during and in the aftermath of the GFC of 2007/08. The days of easy VC money were mainly in the early-mid to late '10s.
And as you point out with your end date of COVID, VCs have now backed off again, as they did around 2000 and 2008 during those bust/bear cycles. I would credit interest rate increases with the current backoff, though, not COVID. During early COVID, funding was still fairly well available, assuming your business wasn't something that required in-person contact; even better if your business facilitated home-office work.
> At least it's not been my experience in tech over the last 8+ years.
That's only ~4 years pre-COVID; either seems like too short a horizon to make this sort of assessment. (Source: been in tech for 20-odd years.)
The expected value of startup equity is far, far, far below a casino. The ON bet at a craps table is 50% odds. Less than 1% of startups survive.
You might as well go to the casino. You will save years of sweat, heartache, and stress-induced mental decline.
Instead at a casino you get to blow your money quickly, enjoy fun, free drinks, and still have the upside potential to become super rich if you are in the 0.000001 luck percentile.
I think a better analogy would be a poker room than a craps table. You don't get to influence the outcome at a craps table, but your performance at a startup will influence its probability of success. Also your choice of which craps table to play at doesn't change your odds, but you can certainly change your odds of success at a startup by choosing which one to join. Obviously there are no sure things, but after a while you can at least weed out most of the dumb startup ideas and/or the incompetent founders.
This 100%. Really the only reason to work at a startup as an engineer is if you really want to, because everyone pays low and the tiny bit of equity is essentially worthless in 99% of cases, which gives it a very low value.
And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options. If you've gotten laid off, eating into your savings while searching for a job is a pretty risky proposition. If you have an appreciable amount of equity, that bill can be rather high. Then there's AMT. Many end up letting the options expire. So, taking that pay cut for equity really didn't work out -- you had less money to exercise the options and because you couldn't, the option portion of your compensation was effectively clawed back.
I very much appreciate the startups pushing to extend the exercise window out to 5 - 10 years, but that's far from the norm. I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable, but that's certainly not the case when folks are laid off. And we commonly discuss people thriving in one particular phase of a company. If you're not in that phase, it's no good for either the company or the employee to continue the relationship just to defer having to exercise options.
> And, if you exit the company -- either voluntarily or involuntarily -- you often only have 90 days to exercise your options.
This is why I advise everyone that you must early exercise (exercise your option as soon as you start with the company) if you're going to join a startup.
Some startups don't let you early excercise. Run far, far away. Find a different startup. Never join a startup that does not let you early exercise.
> This is why I advise everyone that you must early exercise (exercise your option as soon as you start with the company) if you're going to join a startup.
That's terrible advice, if you present it in an absolutist, blanket way like that. I do wish I early-exercised at my last startup, since I had a nasty AMT bill when I finally did exercise, and I could have had better tax treatment under the small business qualified stock rules when I finally sold. But: a) early exercising my initial grants would have cost me $40k, which would have eaten into my savings to a degree I wasn't comfortable with at the time, and b) I early exercised at two previous startups, which failed, and that ended up being money flushed down the drain to the tune of around $9k.
Sometimes people want to wait a bit to get a better idea of the company's prospects before investing their own money into it. Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric. Sure, if you're a super early employee and have 5-cent options, maybe you'll feel comfortable gambling that money away (but maybe you won't be!). Yes, there will likely be a tax penalty for waiting, but that can be a reasonable and sound financial decision.
I was (fortunately) a few years too young to get mired in the original '00s dot-com bust, but I know several people who were encouraged/pressured to take out loans in order to (early) exercise their startup stock options, and ended up with worthless or underwater stock, but still had to repay those loans. It would have to be a pretty exceptional situation for me to recommend anyone take that route.
(I do agree that a startup not allowing you to early exercise is a red flag, though.)
> Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric.
It is far too late then.
One of the many benefits of doing early exercise is that you exercise the option when the grant price is the same as the current valuation so there is zero profit (and you file an 83(b)).
If you wait too long, your grant might've been at $0.01 but now the valuation is $5.00 (making up numbers but both of these are in the ballpark of my past startup experiences). It is way too late to exercise those options, you'll be paying tax on $4.99 of profit on a stock that you can't sell and might go down! If you waited that long, now you need to keep waiting until there is liquidity so you can do a same day sale.
> take out loans
That would be a terrible idea. Like I said in parallel comments, if the price is too high for your comfort level, don't join that startup.
> I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable
I don't think that's debatable at all; I think it's bullshit. Once your options vest, they are yours. They are compensation for the work you have already done, not the work you will do in the future.
Once/if your company switches to RSU grants from option grants, then at vest day your stock is yours, and can't be taken away when you leave the company (well, I imagine they could write up a contract that says that, but that would be quite non-standard, and I would never work for a company that did something like that). The vested RSUs are, again, compensation for the work you have already done, not the work you will do in the future. I don't see why options and RSUs should be considered differently here.
(I might even stretch that into the idea that it's bullshit that startup options expire at all, even if you stay with the company forever, but I do think that's debatable.)
If equity is going to be a material component of compensation, then the argument "you're not committed enough, you deserve nothing if you leave..." is utter nonsense.
Imho, many/most of these draconian equity / option terms are nothing more than attempts at 'golden handcuffs' to make it more challenging for employees to leave these startups.
Sadly, they work: I know many who couldn't leave roles til they'd saved up for years, or could finally ink second mortgage on their home, etc in order to purchase all their equity in their 90 day post-exit windows....
> high risks high upside but really its extreme risk and almost no upside
Extreme risk? Some startups pay fair salaries.
I don't think startups are that risky (unless you start putting money into them, that is a suckers deal). Or if you work for free, what you naturally should not do. Not everyone can get a FAANG job so it is not very clear alternative.
If you get paid a slightly below market rate and get some worthless equity, what's the big deal? You can always quit any time and change to a corporate career. It is not an end of the world.
> If you get paid a slightly below market rate and get some worthless equity, what's the big deal?
If you really do, agree that it's ok and a fun ride.
But where are you going to find a startup that pays market rate? Never seen one.
Base salary can be very close! But at an established company you are also making money on RSUs, often more than your salary. And usually have a bonus, which can be quite significant.
So your base salary might be 250K in an established company and 200K at the startup. Not a huge difference. But total comp at the established company is more like 500K-600K vs. at the startup just 200K. Huge difference.
> But where are you going to find a startup that pays market rate? Never seen one.
I guess you're looking in the wrong places. Over the past 13 years, I've worked for five startups (both full-time and contract) that paid market rate (two paid a fair bit above, even). In my professional and social circles, this has been pretty common. Certainly some have worked below market rate for some companies, but that seems to be the exception, not the rule.
> But at an established company you are also making money on RSUs, often more than your salary
That's definitely not been my experience. At established companies, the RSUs are usually a nice quarterly bonus, in the wide range of 10-50% of base (annualized). Certainly there are some where the RSUs can end up being several multiples of base (I've worked at one like that, though my equity comp level was not common, and was mainly a consequence of my long tenure there from when they were small), but I don't think it's that common. A lot of people seem to assert that you can easily get that at a FAANG, but that doesn't seem to be true. Some people can, but not the median employee.
Also consider that a lot of the stories of high equity comp come from people talking about the FAANGs. Those companies were founded 20-25+ years ago, and matured into established companies 10-15+ years ago; the "rules" have changed quite a bit since then.
It's possible! I live in the silicon valley bubble.
I've worked for 5 startups (and had offers from about ~5 more to know what they would've paid). None have been close to total comp at a public company.
All of them have been very competitive (or even higher!) on base salary.
But there's no recurring RSUs in a startup (since there is no stock to trade), and rarely bonuses. So total comp is about 30-40% of my total comp when working at public companies.
Extreme risk is driving truck in Iraq or smuggling drugs to Singapore. Working in air conditioned office for double median US salary is not extreme risk by any means.
With that I agree with you that upside is often lower than people expect.
I think we're talking about the risk level when compared to various ways to work at a tech company, not risk level when compared against all possible occupations.
Yes but that's still better than early employees who share a lot of the stress and responsibility of company building, with at best 10% of the upside, but more likely around 0.1% - 1% of the upside that the founder has.
"mostly profit someone else who did nothing but write you a check"
There is quite a bit of work involved in reaching the point where you write a check for a Series A round. Also, the better VCs spend significant time with their portfolio companies.
Correct me if I’m wrong, but my perception of most startups at series A is that they’re not usually more than ten-ish employees, and even then, you’d expect more balanced comp packages for employee number 11+, no?
I was mentally, physically and emotionally worn out when I left my previous startup after being an early employee. Despite that I really wanted to stay and be part of what my friends and I were building. Had I had the chance to 'de-risk my life' with some equity to replenish my empty bank account, which was empty from taking an early employee salary, I may have been able to stay but in the end I had to get out.
Getting out for an early employee after funding rounds is expensive because buying options can hit you with massive tax bills on top of the cost of buying the options. Worse, the stats aren't great for a chance on return. Your lotto ticket gets expensive and risky as soon as you decide to leave.
Articles like this one hammer home more and more to me how little VCs actually value early employees. Paying out founders to stay is a strategic move. Keeping them is worth it because they are the face of the company and turmoil at that level hurts their payout. Burning out early employees is not a concern because you can just swap them without drama. In fact, with the way options are structured and the 'industry wisdom' to hold off purchasing, it feels like a strategic move to burn out early employees since many employees that are forced out often can't even buy their options. They are left with nothing after all that work and risk. From a purely cynical view this is a great thing for VCs since now the company got all the benefit of an early employee and just lost all the costs.
I don't know about the other three points, but I can guarantee you point 1 of 'right sizing perceptions' is wrong.
I’m really sorry to hear about your burnout, I hope you’ve made a recovery and are at a better place now.
I thought it was the prevailing wisdom here on HN that being the first employee almost always is bad for the employee. You’re right, the cards are stacked against them
requires having cash to tie up indefinitely, privilege alert
we did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS the election was beautiful.
I'm not the GP but was one of the first engineering hires in a startup. In my case I got caught in the cross-fire of one of the co-founders backstabbing the other which meant that by the time we closed the series A I had been diluted by 80%. To 'make this up to me' the company gave me a new grant that would counter the dilution. The downsides were that this restarted the vesting clock and the new options would cost a year worth of savings to exercise - this was much more than the few hundred dollars my original grant cost.
Fast forward four years of toil with multiple cycles of doubling and then halving headcount as well as endless leadership changes. We are now on our fourth CTO in as many years. On the upside things are starting to look up! The newest sales team have worked out how to sell the original product we built, not the bells and whistles we pivoted to on the wisdom of the overpaid CPO. We can now celebrate as we have about a year's worth of runway and can confidently project being cash flow positive in about six months.
The new ex-FAANG CTO earning three times as much as anyone in the original team has great news! As a result of the positive development we are now able to hire an extra development team in South America! This shouldn't cost us too much and they can start on the next greenfield effort. The existing developers need not worry about being replaced as the existing team has all of the experience with the money making side of the business, and besides the new devs will be working on a parallel offering anyway.
Four weeks later and we've onboarded two offshore devs. The VCs have demanded we cut our burn rate and my position is being made redundant. I have 90 days to exercise but my options are underwater, both when compared to the funds we raised a few months ago and also the FMV. Essentially to buy them now I would be worse off than someone walking straight off the street.
This is the model, you can see a lot of early stage founders looking for a "founding engineer" which is really just an excuse to pay founder salaries for 1% of the company rather than 50%. If the founding engineer quits without buying their options, then the founding team recoups the 1% equity. Its a recipe for the founding engineer to be burned out and pushed out.
If the salary is market rate for that person, I suppose it's by definition a fair deal. I've seen startups hire "founding xyz" two years after they started. Looks to be a vanity title in many cases.
Total comp needs to be market rate, not just salary. And non-preferred shares should be valued lower than preferred stock. Lumping non-preferred shares with prefereed shares is one of the bigger lies startups tell employees.
But you're getting paid a good salary for many while they probably might not. Also I'd be sleeping well at night as I can jump ship the second I'm not happy, my reputation won't be tarnished by that.
So I am not sure it's that easy.
Of course, the idea is to keep the same work/life balance one would have at a more established company.
It is that easy. Employee 1 is getting paid below market. That’s why they offer 0.9% equity. Meanwhile, the founders are also getting paid. No one is working for free. One of the first things VCs tell you is to make yourself comfortable so you can concentrate on the company. That’s literally one of the reasons why VCs tell founders to sell equity early, to make up for lost income, while Employees 1+ has to ride the rocket into the ground.
Having been in this exact position multiple times now (once quite successful, others not), you should probably consider it a wash.
Unless the company hits unicorn AND your shares become liquid (secondaries don't count—you generally won't be able to sell enough shares to make a meaningful dent), you'd make just as much or more at a FAANG firm with way less risk.
Of course, I say this while not at a FAANG firm, because I prefer startup type work.
> So you would get paid like at another company but get equity on top and it's not a good deal? How comes?
If it were truly market rate (total comp not just base salary) then sure, it's a good deal. How likely are you to find that in an early startup? It must be pretty close to zero percent chance. But if you find it, sure, it's good.
You'll still work harder and be more stressed but it'll be a different learning experience which is always nice.
A lot of it comes down to management/team quality. Do you want to spend an awful lot of time with these folks? Do you think you'll learn from each other? Do these folks seem to know what they're doing and are the building a product that interests you? If you can say yes to most (all?) of those questions, then all-in-all, it's probably a wash. If not, run.
Depends on the options available to the candidate. Typically someone joining a startup very early probably has the skill to get FAANG salaries with less stress and more free time. There are also hundreds or thousands of mid size companies that pay very well nowadays, its not just FAANG.
Yeah but smaller startups might be more open to non-US applicants, FAANG and other more established companies don't seem to be interested in hiring abroad.
That's what makes the early startup scene the only thing available for some.
How come? Most large companies have big legal/HR departments that are very efficient at the whole visa application process. A small company won't have that expertise/staff. I mostly see startups being more concerned about the visa status of applicants.
Remote + non-US is not as welcoming, so the hurdles are way higher as it's not fitting the usual way. While startups have no prior experience anyway, so it's easier to convince 1-2 people instead of changing a whole system (I believe).
Most early stage companies turn out to be poor companies for employees. Long hours, toxic leadership, unclear roadmaps etc. Working at a small firm doesn't guarantee high quality.
It depends on the role and company, if you want to get paid 200k per year for the opportunity to do X - then sure. In practice, you may end up doing basic work at a lower quality than a large firm. Such experience doesn't translate the up-leveled title to a more standard position.
And at a large corp you can get laid off just as easily. Any business can toss you out at a moments notice. It's not unique to startups.
At least with a startup you are going into it knowing that you have a higher probability of thing going south financially. With a big company, you might not get any warning at all.
Leveling up seems like a good reason for someone who’s stagnating at a bigger company. My experience is startup people want to recruit their most respected former colleagues, who by virtue of being respected are also getting promoted in place.
Titles obviously don’t transfer back to big companies, we had plenty of ex-cofounders and CTOs hired into the same junior roles as anyone else who could LeetCode.
I was recently faced with this exact offer at seed stage vs a series B with a similar salary. YMMV but what I found when I ran the numbers is the series B offer had a lottery ticket with a similar risk/reward profile to the seed stage. Of course I got less total equity, but it was way more likely to ever actually materialize. Plus being employee 80 at a Series B is a lot easier.
>> What if they give 1-2% and good market rate salary (~200k/y) to a founding engineer? Is that still a bad deal?
OR....you could just become a founding engineer by actually founding and keep 90% of the equity. You can get that salary with an equity raise, its worth not being the low-person on the totem pole.
This reminds me of how I have seen a few asks lately for roles where a company is looking for a CTO for their “AI startup”. How an “AI startup” (whatever that might actually mean) can _start up_ without a CTO is beyond me, and raises some very big red flags about what that company might be up to.
It’s not necessarily a red flag. Sometimes the founder/CEO is technical and decides to solo it with hired engineers until not having a real CTO is a flight risk, or until they’re too busy to be contributing code anymore, or both.
That is fair, assuming the CEO is technical, or technical _enough_. However, I see a lot of non-tech CEOs trying this on and in those cases, it is a red flag for me.
Mostly someone has a Phd and convinced people to give them money to 'change the world', then need someone who has actually built things beyond a script in a python notebook.
Gosh. So much this! The difference between the "average" PhD graduate in data science and the "average" software engineer with genuine experience delivering production software that people use at scale is quite something. I have nothing against data scientists, but in the same way that I wouldn't get a software engineer to build a complex model (above a certain level of complexity), neither would I get a data scientist to build a production app (above a certain level of scale). Both of these things are specialist activities that require a lot of experience, wisdom, and nuance to get right. Being good at one does not (necessarily) mean you will be good at the other.
There are a lot of "tech businesses" that are actually using pretty pedestrian tech. What they are _actually_ doing is business model innovation with an underlying tech platform. Often, that tech platform can be commodity or relatively simple tech. There are other startup propositions, though, where the tech _is_ the thing, and if you get the tech right, then some of those other things end up being secondary (not irrelevant, of course) just not primary. This is assuming that you really have punched a hole thru the door with some amazing deep tech breakthrough, which not every company is doing, contrary to what they may claim.
There is a YouTube video [0] (which goes back to 2019) that does a pretty good job of making this point. Well, much better than I can.
To be fair to your original point: you're right that marketing and sales are hard. I'm just adding the subtlety that there are some tech businesses where the tech is _also_ hard, and perhaps even harder.
I don't think we disagree. There are definitely deep tech businesses that are very hard to pull off.
My point is - asking "how did they do it without a CTO" is weird, they are hiring a CTO to do it, and they're bringing their business experience and funding - valuable stuff that a tech guy probably finds annoying. The number one suggestion on this forum is to sell before building and when somebody does it, users get wide eyes?
I guess it comes down to what "it" is. My sense (and this is just a personal orientation) is that if a CEO came to me and said, "Hey, I need a CTO for this new business I'm building", the very _next_ thing they say is really important.
If it is a) "Right, I've had this braingasm, and you need to build it, and for the privilege, you get 5% of the company!" versus b) "Right, I've had this idea, done some market validation, lined up our first 3 customers, and now we need to do some technical feasibility and put a team together to build this, and as CTO, I need a 50/50 founder, what do you say?" then I will pick b) over a) every time.
To be fair, those scenarios are cartoons on purpose, but I just wanted to make the point by highlighting the extreme cases.
As far as "sell before you build" goes, I think that really does depend on the problem you're solving. If it's a tech-powered business model innovation (where the tech is a commodity), then we are in 100% agreement. If the tech is a bit trickier and you need to show something special before funding (let alone clients), then I take a slightly different tack.
I'm not sure I get the last point about wide eyes, but I suspect it's immaterial to the bigger point.
Interesting... My initial reaction about the startup looking for a CTO was the same as yours. I was a founder and CTO, so it seems odd that you would not already have that in the mix... however I can see how there could be an idea, a market, a sales strategy, and a tech idea without the actual tech. In that case you would need to find a CTO to build that tech.
Of course the real gotcha is that there is no 'idea, market, sales strategy' that will be perfect, and the work is finding out where those ideas are wrong and fixing them. The lessons from my successes and failures says it is only worth doing that as a founder, because the failure risks are both high and unpredictable. Time is expensive, so spend it where there is both risk and reward, not just risk.
The most successful startups that haven't been founded by technical people I have seen usually didn't even have much of an idea - but they had customers and kept talking to them and created a product vision out of that. All startups should be doing that.
I recently applied to a seed stage YC company that was offering me 1.5% equity for a founding eng role which they felt was generous. So basically I get to do all the work for like 1/50th of what the founder has? Get real lol. I even pointed this out to them and they said "it's totally normal, that's the way it's done". Like oh okay, as long as everyone else is getting ripped off too.
I went through exactly the same discussion in my last job search, and was assured that the offer was in line with industry standards. Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever. I liked the team and I think it would have been a fun job, but not quite fun enough to work nearly for free. I don’t think I’ll ever work for an early startup as an employee.
> Even if this tiny company somehow became worth a billion dollars, I’d still make less money than if I’d worked as a senior engineer at Google or wherever
this is why they don’t belong in start up land
running and working in a start up requires a certain type of insanity
The OPs complaint is not that the risk is high, the OPs complaint is that the risk relative to their market rate is not balanced. Often you can end up working for junior founders and would be better off as a founder yourself.
If the founder views you as replaceable, then why not work at a big tech which would pay you dramatically more? Successful startups are not often populated by the irrational.
I recall a discussion where a founder kept insisting that a 10% offer for a pre-funding startup was beyond standard and that I should be lucky to get such an offer.. the experience left a bad taste in my mouth.
Ultimately, this individual needed someone to shape and build the core of their product and the net of a series B would have been at most a wash compared to current employment.
In my opinion, you should take the difference between their market salary and the salary they're being offered, and consider that an investment by the employee at the upcoming (not past) valuation.
For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (Of course if they already have the YC investment, then that would go down dramatically)
If that equity vests over 4 years, then frankly maybe 28% is a better starting point.
But what's fair isn't really relevant. What's relevant is what the market demand and supply is. If there's some dolt who would happily take 1.5% as a first engineer ("founding engineer") for a $125k salary cut, then the founders would be idiots not to take that deal. And frankly, if that $125k salary cut gets them their dream job, then maybe they're not even dumb for doing it.
I think what you are actually describing is that you should value equity at zero. If to work at a startup you would need 28% equity you are describing a founder. That's fine but there is an enormous difference between these two things. There is also the question of where the $125k comes from to pay your base.
Value equity at zero? I am not sure what you mean by that. If an employee sacrifices $500k to work at your company, then it would make sense to compensate them with $500k worth of equity is my point. The 28% is tongue in cheek, if you're so early that the amount of equity needed to compensate your first hire adequately is 28%, your company hasn't really started yet, and maybe you should just consider them a founder.
Bingo - if you need the kind of person whose market rate would be 28% of your company. They are a founder, if your don’t need that person… fine, but the “this is the industry standard” line is bogus.
In my experience, "fair" is almost irrelevant within a capitalist business.
Good capitalist businesses buy at the cheapest price they can, and they owners focus on balancing competing resources (control, dividends, ownership, status, information, etcetera...). However: people run businesses and people are not rational economic actors.
A good question is: what amount of equity can you negotiate? What do you have that will convince owners to share their ownership with you?
If you are negotiating with VC, then I think the game board and the rules of the game are already rigged against founders and employees. VC sets the rules and the mileau to play the long game, and employees are lucky to get a few leftovers.
You can be a founder or join a self-funded startup, that will give you a better chance of "fair" treatment, especially if you have the skills to join people that have high integrity.
In theory if you can marginally add 10% to the business value you should be able to argue to get some amount of that. However measuring an individuals effect on a business is usually really difficult (even consultants or businesses that specialise in increasing value usually only capture a tiny percentage of the value they add).
Also different people bring different resources to a business, and anyone with a monopoly on a resource can negotiate for more shareholding. There are idealistic economic theories for how people should bid in multi-party negotiations. Note that even though multiple people may each increase the value of a business by more than 50%, that doesn't mean each should get 50% of the shares (and obviously can't if more than two want >50%).
Generally if you need to ask for shares then you have already lost the game. Either found a business and put yourself in charge, or have something the owners want and demand ownership.
Disclosure: made small amounts of money as part of a self-funded startup joining high integrity co-founders. I've had little experience of VC funded companies or employee shares. Our SaaS business was doing something we'd done before and it was started decades ago when things were "easier".
> So basically I get to do all the work for like 1/50th of what the founder has?
Who raised the money that the company is using to pay salaries? When investors put money into a seed company, they're largely betting on the founders' perceived skillset and previous experience (or other bona fides like education).
One thing that most people don't realize is that being a founder means that you're inextricably tied to the company for its lifespan. Losing a founder is terrible optics and can be a death sentence for a startup. Regardless of the actual reason, every subsequent investor conversation will involve an explanation of what happened.
If you want more equity, you should ask for it! And you definitely shouldn't take a job where you'd feel under-compensated! But realistically, if you want a "founder-level" equity, you have to start your own company.
> a lot of early stage founders looking for a "founding engineer"
I always just assumed that the Entrepreneur, Founder & CEO had come up with an amazing idea like "build an startup (Ai probably) that makes a lot of money" and got some funding - but don't know what software is, don't know how to code and isn't really sure what Ai is does or can be used for; so need someone to put the pieces together to execute their vision with (for) them.
Opportunity to get in the ground floor with a future Unicorn - must have 25 years experience, Salary $25,000, 2% equity with 5 year lock-in.
I can also guarantee you points 2 & 3 are pretty wrong as well. Funny (and also sad) how different peoples realities can be. I have been worn out sitting on both sides of the table to tell you the truth. (One thing I will say is that within VC, the vast majority of the folks actually doing the work are sympathetic and helpful to companies, working with early/senior employees, but it gets lost up the food chain so to speak and there's usually just one or two people making decisions at the end of the day about a particular deal or a whole portfolio- and these people are generally very self-interested.)
the lottery ticket analogy doesn't quite hit the mark imho.
I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people.
even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that.
with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket.
I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you'll walk out worse off than you were when you walked in.
if a startup or VC truly gave a shit about anyone outside the c-suite, they'd have an employee ownership program of some form and assign actual equity, not just options. I've yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.
What would you suggest to someone who wants to work at interesting (non-evil) companies, wants a decent comp ($200k+) and doesn't mind being one of the first to lay the foundation with the possibility of upward mobility in the future?
be a founder or a consultant, not a founding engineer. build up a set of specialized skills in something you love doing, network your face off, keep lifestyle inflation under control, and keep a large amount of your savings liquid(ish). if the right people and opportunity comes along, be ready to tap those savings and live off them for at least a year while you build the company or be selective about your next consulting job. like the old cliche says, luck is where opportunity meets preparation.
if you're not that ambitious and simply want to live comfortably, then go to those early stage startups and negotiate for higher cash comp and a smaller slice of the options.
you can make great money as a SWE, but there's a massive leap between that rung on the income ladder and the ones above it. it takes a dedicated effort to get there.
Sorry I'm a total dumbo when it comes to startups, but what do you 'vest'? I thought vesting is for stock options (maybe stake?).
And your startup is not on the stock market, and won't ever be unless it gets a billion-dollar valuation.
Even stake might be worthless, if the company fails, despite you building a kickass backend for it.
Yes, you vest stock options, and given that risk for startups is very much front-loaded, vesting schedules that are back-loaded are a big red flag for incentive misalignment. And that's ignoring all of the problems with stock options as opposed to RSU's.
The baseline is something like a 4-year vesting schedule with a 1 year cliff and monthly after that, uniform distribution. Anything more back-loaded or worse than that is a red flag.
most startups don't offer actual equity even though that's what everyone calls it. they offer options. the idea is that the options you'll receive will have a strike price much lower than what the stock will be worth in future funding rounds or when the company is acquired or IPOs. the vesting schedule defines when you can start to exercise those. typically you'll receive 25% of your options after the first year, then the other 75% will vest every month after.
and yes, liquidity in a private company is always going to be an issue.
all of this is why I tell everyone that their options are worthless right up until they're not. anyone who's burned out or looking at a new opportunity shouldn't include them in their decision making process.
> Getting out for an early employee after funding rounds is expensive
Early exercise and 83(b) is a must, or forget about it.
When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it'll be after board approval but as soon as that happens).
If they don't allow that or if the price is too high for your comfort level, don't join that startup.
Every startup CEO must demystify 83(b) for their employees.
If you don't have cash on hand to pay for early taxes, the company can pay a signing bonus or something for those who elect 83(b) to pay for the upfront taxes.
OR
Just pay market salaries and leave the choice to employees to do whatever they want with cash. You want to buy our company stock great here's the grant. You want to put your money in S&P index go ahead.
The employee equity part needs a lot more simplification. I don't know why it is not as simple as
Here are 2 options for you
Salary 200K
OR
Salary 100K Equity 100K
If equity 100K
exercise 83(b) - pay taxes at 200K income
OR
defer taxes for the subsequent exercise dates. (Could land a huge tax bill)
OR
defer the exercise date for a liquidity event/secondary sale.
Those who value risk will take the last option and those who don't will stick to full salary.
83(b) exercise, when presented like this, doesn't seem all that rosy.
There could be some legalities that I am unaware of, but broadly this should work.
The irony of being an early engineering employee (and any engineer really) is that the better job you do the easier it is to replace you with someone who can maintain what you built. Accepting a below market salary and then doing a great job is a huge risk.
> Accepting a below market salary and then doing a great job is a huge risk.
By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.
In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren't so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales.
And if the startup is not growing, you can stop worrying about the equity package
In my experience there has never been a good time to be a founding engineer even in companies that have later made it. It's much better to join the company 1-3 years prior to IPO/Sale where you get many of the benefits but significantly less stress. If I had worked at startups I would have been taking a 30-40% pay cut compared to the roles I did work and none of those startups have gone anywhere with most crashing and burning.
I’ve heard this a few times. Could you elaborate why? Surely at that point, less you are hired to a very senior role, you are going to get a very small equity % and a lot of the capitalisation growth has already been priced in? In exchange it is far less risky.
Do you just go for the market salary and treat the equity as a minor plus?
Do they even pretend that they care about anything other than money? Like... ever? Maybe to family and friends (not even sure), but I mean professionally?
Nice article, but it is wrong about liquidity events at WeWork. The author only discusses a tender offer that fell through at the end of 2019 after the failed IPO and collapse, implying there was nothing ever before.
There was a tender offer in 2017 with the first SoftBank investment, and again in early 2019 (pre IPO attempt, closed in April) associated with the second investment by SoftBank. It is possible there were earlier events, but I had joined in 2015.
That isn't to say things were roses; I know many early employees who, in the lead up to IPO, exercised their options and took enormous loans to pay AMT and were left in a terrible situation.
Thank you for letting me know about this - I searched for other tender offers or liquidity for employees of WeWork and couldn't find anything (and the 2 former WeWork employees I know joined in late 2019 / 2020 - so they had a pretty terrible experience)
I will re-work that section so that it's factually correct
The single data point here is Adam Neuman, so I have a hard time taking this seriously.
I have raised 6 equity rounds as a founder of 2 companies. Never took a dime off the table, was never offered it, never asked for it. We actually did have early employees ask about it, and we encouraged them to not sell.
Why would you, especially at early stage valuations? You're either bad at math, or you know you're about to fail. And who is buying these secondary shares? I don't know a VC or angel who would "de-risk" an early founder like this; it's not aligned with their model. It also complicates QSBS status if I recall correctly.
> The founder in this scenario was offered $400,000 of liquidity at Series A and $750,000 at Series B and encouraged to do so by their board of investors to de-risk their own life.
This is from the article. I would tend to agree with you.
I straight up don't believe the article. (Edit: not saying author is lying, but that they're extrapolating from bad data.) I've worked as employee #3 at one startup, co-founded another which achieved >$3bn valuation, and am now solo-founding a third. I've networked with lots of other founders. I've never, ever heard of a secondary liquidity offer in a Series A.
I think the paragraph above that quote explains it. They're talking about founders that "mortgaged their house and lived on ramen noodles for years." It actually sounds like they got screwed out of some equity. Rather than pay themselves a reasonable salary to support their lifestyle as they build the company, they instead traded equity for a one-time payment. That's a shitty deal, and I want to know who this predatory VC is so I make sure I never take money from them.
This so much. So many folks in this thread are talking about series B+ and only paying themselves under 100k/yr and that’s just a scam. Once you have institutional money you can just start paying yourself enough to live ~comfortably.
I always thought there was another reason for VCs encouraging founders to sell shares: giving them a taste of wealth. If you're a founder that sold 2M in stock a year ago and a 200M acquisition offer comes along, you'd be less tempted now that you appreciate the difference between small millions and big millions.
If you thought you had a real chance of going much bigger, having cash already makes you more willing to take that risk. And since VCs tend to make most of their money off a couple very big wins, it's worth it to have founders that won't settle for less than billions.
> another reason for VCs encouraging founders to sell shares: giving them a taste of wealth
VCs are wealthy. Some of them weren't born wealthy. The best among them recognise that removing the worry about e.g. paying rent will make a better CEO.
It is about aligning risk preferences. Being "all-in" is not likely a good thing for a founder. The founder prefers to take less risk which results to mediocre exit for the investor. The investor would rather have bigger exit or nothing, and giving the founder some money is helping to aling the risk preferences a bit towards the same direction.
As for employees? They are typically not calling the shots about company direction. I don't see a reason why investors would care about employees.
> As for employees? They are typically not calling the shots about company direction.
They can be motivated or not, knowing that the founder made big bucks and they made nothing is bound to lower motivation. Thus the title of the article, founder's liquidity is a well guarded secret.
942 comments
[ 32.4 ms ] story [ 878 ms ] threadDo you mean cashless exercise?
Extremely beneficial when paired with QSBS and liquidity.
However, filing that 83(b) only makes any sense if you are allowed to early exercise and that is indeed entirely up to the company. So if they don't let you early exercise you also won't be filing the 83(b).
Pro tip: Never join a startup that does not let you early exercise!!
I strongly disagree, early exercise is always optimal if the cost makes sense to you.
The primary reason it is so valuable is so that you don't lose everything if you have to change jobs for whatever reason before a liquidity event. If you join a startup and don't early exercise, now you are going to have to work there for however long it takes for liquidity, which could be many many years. Maybe your life changes and you have to change jobs, but you're trapped, or lose everything you worked for.
Always early exercise! If the startup doesn't allow it, find a different startup.
Edit: I should add that by not early exercising you can still lose a lot even if there is a liquidity event while you're still there! I lost a staggering amount of money on my first startup due to not early exercising even though it went through an IPO while I was there. But later I left (lured to another startup) so I had to excercise (same day sell) all the option in the typical 90 day window after quitting. Had I early exercised years before when I joined, I could've held those shares for 15x returns.
Is it?
I'd be curious on survey data on that if something is available.
Personally I've never encountered a startup that had anything other than the standard 90 day after you quit exercise window. I know these long exercise windows exist but as far as I knew they are pretty rare.
> gamble ~50k
That's a huge number though, I'd never gamble that much either.
I'm talking about very early in the startup. If the strike price is above a few pennies, it's too late (although of course depends on the number of options and your personal budget).
> That's a huge number though, I'd never gamble that much either.
I've been offered early exercise of 25k options with a $2 strike price. Series B startup. So yeah...
[0] - https://github.com/holman/extended-exercise-windows
This is a nice list, thanks!
No idea how complete that is, but it lists roughly ~160 companies. Which is nice, but according to [1] there are about 71K startups in the US. (Of course both of these counts might be wrong but let's go with these numbers.)
So about 0.2% of startups have extended exercise windows. Not a lot ;-(
[1] https://github.com/holman/extended-exercise-windows
How would they ever find out if I did file, and why would they care?
Early exercise (yep, 83b in the US) when options are issued then allowing employees to sell shares down the road, outside of fundraising events (Forge, EquityZen, sales to angel SPVs, etc.).
Early exercise is purchasing shares before your options vest, making you a shareholder sooner and solving a bunch of tax issues. The company retains the right (basically the obligation) to repurchase any unvested shares should you leave the company before fully vesting.
"secondary sales restricted only by a short right-of-first-refusal period"
I really like this as well, I've always found it confusing when private companies are anti-secondary for former employees especially. I'll look into adding something like this to our stock plan, ROFR protects against any hostile take over weirdness and I'm confident we could add something like this to make it relatively easy to sell on secondary under a certain % threshold.
Employee 1: ~1%
Employee 10: ~0.1%
Employee 1000: 0.01%
I'm extrapolating from past experiences in SaaS companies where I was employee number X and X has varied fairly widely.
One is just a straight up naive sense of fairness. If I'm going to be in the trenches with you, I had better be able to see my ownership % in a pie chart with my glasses off. If we're out here both making chairs and when we sell a chair for $100, you get $85 (assuming someone took one of the standard-ish seed rounds that are usually 10-20%?) and I get $1? No thanks.
The other sense is aware that the founder is taking various risks and blah blah blah. Ok whatever. Let's pretend somehow 1% is a fair number and just look at it from a payoff perspective. 1% of stripe? Yeah I'll take that. 1% of the other 1000 startups who had mediocre exits or just muddle along to finally do some kind of tender? I'm barely breaking even. 1% of the other 10000 startups that just folded? At least I can mop the sweat off my brow with the paper I signed.
It seems like the only reasonable way to look at this is you either join a company for a competitive wage and get WLB, or you join a rocket ship in the hopes of becoming genuinely wealthy while pouring your blood, sweat and tears into it. So taking 1% and a shitty salary and having terrible WLB sounds like a huge suckers game.
Also, the risk profile and expectations are vastly different between founders and first employees. E.g. founders are expected to not quit unless the company collapses completely, first employees can quit whenever they wish. Also, if the runway is short, founders work for free and can even go into debt, whereas employees have a stable salary.
I think companies here tend to have less fuck you over terms in employment share schemes but OTOH are less likely to get rich but one company made several employees rich (does 8 figures count?) here.
I'm not particularly fond of the founder hype train, and the typical line is indeed "various risks and blah blah blah" but what's often left out is that employee #1 at a post-funding startup is a pretty different job/profile than co-founder.
Most employee #1's don't have relationships with investors, might not be as employable outside the startup world, and they don't sit on the board, don't have the same formal responsibilities, and rarely are able to raise money to found their own startup -- in fact, this is the often the key reason they're even interested in being employee #1.
It's a market, and as a market I'm not sure it's that skewed.
Want 25%+ of the company? Start it. There's no cabal preventing you from doing that. Have better options than 1% of a likely-dead startup, that pay more and have better WLB? Take them.
After all, few industries give any employees equity. First employee at an ice cream parlor? 0%. First employee of a hedge fund? 0%. First employee of a medical practice? 0%.
Equity grants can be motivating and aligning, and frankly more industries should probably consider them. But not that many people are in a position to found a startup that can raise money (larger equity grants are much more common for pre-external-funding employees) and this differential reflects that.
Btw, "1% of the other 10000 startups that folded" is worth about the same as a founder's 40%: $0. The issue is the middle ground, but there the equity grant is often not worth the paper it's written on: typically the acquirers dictate who gets the money. 1% or 5%, unless the acquirer is trying to retain you, chances are you'll see nothing even if the nominal payout is large.
Anyway, the upshot is what people have been saying for decades: don't do a startup for the money. Do it because you want to be part of that kind of thing, and treat any exit money as a bonus.
It’s also possible to level-up pretty well from an acquisition, where maybe the equity was not life changing but you’re now in a bigco at a higher level than you’d otherwise be. The trap there is that many startup folks are not cut out for bigco life.
But yeah if you were dreaming of sailing off into the sunset you need to be a founder (or remarkably lucky). That’s one reason why there’s so many startups.
If I'm getting no pay, I'm definitely a co-founder, but I'm getting a pretty good salary from day 0, I don't think that's too bad.
Say you get offered $200k/y +1%, if things go well, in 4 years you got $800k in cash and your 1%. If things go south, you still got $800k, a cool title, worked on a hopefully interesting product with a nice team. Doesn't sound awful to me. No?
(aside: 51 points but only 1 comment? It's a front-page worthy article, but sort of feels like there's some vote gaming happening. I've never seen 50 points w/ 1 comment.)
My theory is that it's a sign of a good article, because more energy is going into reading it than into posting quick comments (which are usually less valuable comments). But I don't have the data.
Edit: well... we have the data (to test this), but it would be enough of a pain to do the analysis that other things will probably take precedence forever.
But hey I just commented :)
Measure the time between when someone clicks a link to the article and when they upvote it, compare that to one of the "estimated reading time" metrics of the linked page...
(Which, of course won't work, because at least some people (ie me) open a bunch of tabs for everything that looks interesting on the homepage, then spend a few minutes at a time over the entire morning choosing a tab and reading/voting...)
On this post, I started reading, then paused to hurry back and upvote on HN, to do my part to keep it from falling off the front page, before I returned to finish reading.
If the company sucks, senior management gets cash back first while the investor gets top-of-stack liquidation preferences. If the company is doing great, the investor gets to buy stock at a price almost always lower than market.
They’re common in Silicon Valley, because they’re good for founders and the Board members. But they’re rare in public markets. The closest thing I can come up with is the current clusterfuck with Shari Redstone.
What does this mean?
Fund buys stock at X and simultaneously solicits LPs at 1.2X (whether by straight mark-up or, more commonly, by adding management fees, research fees, expense reserves and carry.)
It’s why tenders have a few weeks between end of sellers submitting requests, confirmation of quantities and finally funding.
VCs usually raise a fund, i.e. a basket of commitments from LPs, before finding the investments. That means they negotiate the investment terms from a position of strength, commitments in hand.
With tenders, the investor starts by commiting to the issuer and then finds LPs. To the degree they have leverage, it's in their access to the issuer.
For the former, the fees are in exchange for risk. For the latter, they're for access.
“We all go to the pay window at the same time.”
It’s ok for founders to take a little bit of money off of the table if they extend that to their employees as well. Asymmetry is where things get weird.
I’ve seen many founders who got deep into the fundraising cycles without ever realizing they could take a cent out. VCs will constantly tell you to let it all ride, and sometimes that works out, but for most people, having a little bit of financial security while you’re trying to change the world is necessary.
The best startups figure out how to manage liquidity through financing in a way that aligns incentives, keeps the goalposts at the mission, while allowing their teams to thrive.
It’s about alignment. If everyone is pulling in the same direction you’re going to execute the vision. Whether you win in the startup lottery is up to the threads of fate, but alignment is the straightest path towards a result.
Also Elon famously put 200 million of his own money into Tesla and SpaceX to keep it afloat, which is the opposite of cashing out early.
Can't "cash out" (early or not) if your company is sinking.
(This is the part where you say "Yes, having lived both <insert revelation>")
Has 250M: wishes they had 1B
If you have a philanthropic bent and want to be able to fund various charities to the tune of $5M or $10M per year (in addition to a reasonably luxurious lifestyle, though considerably less than the above hypothetical), $50M might not be enough to sustain that over time, but $250M probably will.
I think it's fair to say that there's not much difference between net worths of $25M and $50M, or between $50M and $75M. But jumping an order of magnitude from $50M to $250M will let you live a very different kind of life, if you so choose.
Nasa only contracted SpaceX because of that AND because SpaceX saves them billions of dollars from otherwise inefficient suppliers.
But that's not relevant.
https://www.sec.gov/edgar/browse/?CIK=1181412
Musk & Griffin had a relationship around establishing a Mars colony even before SpaceX foundation. Musk even tried to recruit Griffin when assembling SpaceX founding team.
Book: Liftoff, p. 11 - https://books.google.com.br/books?id=DQ7jDwAAQBAJ&printsec=f...
By 2005, SpaceX was already leasing a launch pad for Falcon 1 and Falcon 5.
https://spaceflightnow.com/falcon/050120lc36/
In 2006, Nasa contracted SpaceX, referred by Griffin in the link you shared.
https://www.nasa.gov/wp-content/uploads/2015/04/189228main_s...
> "It is unlikely that these gaps can be closed until the end of the decade."
I actually worked out my own BFR plan over the couple years of teasers we had leading up to the 2016 IAC presentation. It was based on a 3-part vehicle a bit like Soyuz (separate hab and capsule) of 15m diameter for the launcher and 12m diameter for the upper stage, payload, and capsule, which seemed to offer more options than a 2-part vehicle.
Musk makes some very optimistic plans, some of them clearly without doing the math, and each numerically extraordinary aspect renders the other numerically extraordinary aspects more difficult to believe. Even if you can class 80 or 90% of his ideas as "Audacious but feasible", there are frequent areas where he gets ahead of himself and projects unlikely extremes that become numerical impossibilities in conjunction with each other.
What is clear is that you can launch a colony on Mars based around Starship-like vehicles, but the number of launches per human Mars resident to sustain and switch them out is large ("100 colonists per launch vehicle" is wildly overshooting; Keeping 100 colonists alive for a return mission will require hundreds of Starship-sized launches, some of them years in advance), the risks are large, and that the missions are at minimum conjunction-class (a 3 year round trip) rather than opposition class. A colony that attempts to grow until it approaches self sufficiency demands lots and lots of automation, an expansive ISRU, mining, and agricultural industry, and a population of maybe ~10^4 people; Getting there is going to demand literally 10^5 to 10^6 launches, decades of work, and 10^4 to 10^5 reusable launch vehicles in play for decades.
But it's got to start somewhere; Hyper-timid incrementalist bullshit like "Flags and footprints" and "We can save some cost by using a once-in-a-decade Venus orbital assist" and "We can fit a manned Mars program into a 20 billion dollar NASA budget in theory" does not colonize other planets at all.
Is that what happened? I thought he had $200m, and put in $200m.
https://www.cnbc.com/2017/04/27/the-crucial-decision-teslas-...
Also, that may have kept tesla and spacex 'afloat' but what really saved both companies was billions upon billions of dollars in government contracts, subsidies, preferential loans, and tax breaks. Nevada alone gave nearly two billion dollars to Tesla.
Have seen companies offer this to employee's
And companies that let employee's take money off the table at series A are also likely to be generous with meaningless titles; that is they will let early employee's call themselves founders.
That's insane to me. We're talking about the first priced funding round for the company, right?
Pre-Seed, Seed, and some really really early Series A employees got to cash out fairly significant chunks of equity. Not as much as a founders' 1-2 million, enough for downpayments on homes or slick new cars all cash. The founders apparently were incredibly generous to Seed stage employees.
Still doesn't compare to a Founders' equity, as this article implies.
Yeah, at Series A.
It also works well for everyone involved if they're selling their shares to the investors for Series A - investors get shares for cheaper, founders get paid based around the value of those shares, more cash & runway in the bank.
We also see pre-seed, where the goal is to get into an accelerator. It's like $2000 for 3%. Enough for a domain name, a laptop, a babysitter, something that gives you the space to do a proof of concept, but not a full MVP.
Here where VC funding is dry, we also have some stage between seed and Series A, where the startup raises from friends, angels, crowdfunding. It's not really given a name because it's a signal that the company has already burned through seed and yet hasn't done enough to raise Series A from proper "professionals".
But here, by the time you've raised Series A, you're expected to be #1 in a market - best language app, best tax app, etc. And Series A is just to prove it works in other markets. Worst case I've seen was a guy raising US$500k seed (not Series A), but they had to prove they could be #1 in five countries.
US is a market of 300M people and even top companies like Amazon don't have to go far, but many countries have both low population and low spending, and investment is still US-centric.
By the time they're ready for a series A (VCs/larger institutional investors, though sometimes angel investors from the seed round participate as well) they'll very often have something to show for it, and may even have paying customers. The A round can come during the first year of operation, or later.
Given this, it's not uncommon for founders to be able to have some liquidity during their series A. Granted, it's usually not going to be a ton of money, but it can be a nice bonus that allows the founders to pay off debt they might have accrued during the first stages of the company, or perhaps move out of their 1BR apartment and put a down payment on a larger house, etc.
Nice to meet you. Now you know one. :)
I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.
I more recently interviewed with a pre-series A company and they said that they'd include me in a liquidity event when I brought up compensation.
I think more companies offering it is maybe driven by feedback loops around recruiting (prospective employees asking for more and varied opportunities for compensation, and rejecting offers that don't include them). And also perhaps by employees just simply becoming educated about and talking about this stuff, with the sometimes-tacit understanding that they're going to be looking elsewhere for other employment opportunities if their employers don't give them more than just salary bumps and occasional equity grant refreshes.
It's not related to risk, at least not directly. It's related to the supply of entrepreneurship as a factor of production. Entrepreneurship is scarce, so founders have leverage in any bargaining situation against early employees, who are more numerous and therefore less valuable and less powerful. If 10x the number of people tried to become founders, then founders would hold less leverage and the equity terms would become more "fair" because they'd have no choice but to give generous terms if they wished to hire people.
But this isn't a static situation. For example, the article author points out that his startup doesn't reduce the options-expiration clock to 90 days after leaving the company, and I've read of similar cases in the past 5 years or so. I wouldn't say this practice is common now, but I feel like this was unheard of around, say, 2010.
After the company I worked at went public in 2016, they did another public offering 2 or 3 months later, before the 6-month lockup period ended. Nonetheless, they allowed employees to participate and sell up to 10% of their shares in this offering. I feel like this sort of thing is more common these days, and absolutely wasn't 20 years ago.
Established still-private companies like Stripe, and even newer ones like OpenAI, have given employees the opportunity to sell some of their equity to new investors during funding rounds, giving them some pre-IPO/pre-exit liquidity. There are certainly other examples of this in recent years. That surely was rare in the past.
I'm not sure what's driving these changes. Employees have been gaining more negotiating power somehow. Maybe that's a function of labor supply. Maybe that's a function of employees being better educated now about corporate finance and the things that are possible but historically not offered. Not sure.
Oh wow, how many companies have a series A after 3 years? How did your company survive without any raises for 3 years and what made your company finally decide to raise money after going 3 year without doing so?
We hit an inflection point in the early pandemic where money was cheap and we had a ton of new customers coming in, so we were able to secure very favorable terms for the Series A and used that money to expand the business. Things continued to go in the right direction for the next ~2 years and we ended up doing a Series B round, and that in retrospect was a mistake. We over-hired in 2022 and couldn't back that up with increased business. And because we had given up so much control to investors in the previous rounds, we were unable to return to the sustainable-growth strategy that had worked for us in the past, and had to adopt faster growth strategies, none of which panned out and ultimately hurt the company and led to many rounds of lay-offs.
As someone that is outside of the tech industry, the fact that this is seen as an abnormal approach seems quite ridiculous.
The problem is that new startups often don't have options here. Unless you're in a market where VCs are shy about funding new companies, if you don't take the VC cash and go into high-growth mode, someone else will, and they'll end up out-competing you, at least in the short term. (Long enough that you won't be able to remain solvent, at least.) So you either fail, or take the money and often get into a situation of doing not-particularly-sustainable things.
You can find your comment in the HN archives as far back as 2010.
I think there are a lot of us who struggle to fit the larger corporate mold who pretty much only thrive in the startup world. I can't speak for all of them, but I've been very willing to take the balance of lower cash compensation and a fistful of lottery tickets and not having 12 layers of middle management breathing down my neck over more liquidity.
I guess I'm also blessed with inexpensive tastes, which helps, but I'm still able to live somewhere I love and do all the things I care to do, so it works out.
It’s possible you’d be making $700k+/yr if you were at google. About triple what you are now.
With that perspective, $200k/year and $700k/year both reduce to "well-paid".
Also, a Staff title at a Seed or Series A startup can definitely ask for $250k/year, although they'd likely be trading off against equity grants.
Assume an "effective" average pay (i.e. "net" pay + retirement and other deductions, inflation-adjusted to today's dollars and averaged over the course of your career) of $120k/year.
From age 22 to 40, you've earned $2.16mm in inflation-adjusted-to-today dollars as a single earner. With a not-unreasonable average savings rate of 30%, not accounting for tax-advantaged growth or any growth at all, you'll come out with $650k of inflation-adjusted-to-today capital in savings.
Realistically, this should end up invested in some kind of equity (housing, stocks, bonds, whatever). If you finance the purchase of a house at 30, you're only 10 years into a traditional 30-year mortgage at this point, for reference. So you're roughly 1/3rd of your way to owning all the equity in your home. That's fairly comfortably a $1mm home (home equity being 30% of your assets at 40).
Of course, if you're DCA-ing into something that yields a modest average of 5%/year in inflation-adjusted returns, that $650k is closer to $1mm inflation-adjusted-to-today capital. And you still have 25 years at that point for your retirement savings to compound. And you can work part-time in something more fulfilling until retirement to supplement your income.
YMMV, but the marginal utility of money beyond $1mm in equity at 40 and $6k/month in expendable (on rental housing, food, travel, social events) income during your 20s and 30s is pretty small for most people. If you add a partner with any kind of income to the mix, it makes the marginal stress of earning more money even less appealing.
Edit: the main thing you ought to avoid like the plague is lifestyle creep. Spending money on things with zero or vanishingly-small happiness ROI. Read this story every year or two, or whenever you get a raise at work. https://www.marxists.org/archive/tolstoy/1886/how-much-land-...
Certainly this depends on where you're going to live, but if you're in a place where startups are common (even considering the current remote work situation), $200k/yr will either be a stretch for you to meet your living expenses, or will require that you live fairly modestly, especially if you have dependents. If you are able to put any of that into savings/investments, it will be a fairly small amount.
With $700k/yr, you can live quite comfortably, while putting quite a bit away for retirement.
And I don't think your (1) & (2) points really make sense here. Investments compound over time; starting off in your early 20s putting $50k in your investment/retirement accounts every year vs $10k will give you a very different outcome once you reach retirement age. Hell, you'll reach a very different outcome in your 40s. (But honestly, if you decided to live a $200k/yr lifestyle at $700k/yr, you'll be saving so much money that you could easily retire in your 30s.)
It will also mean getting to put a down payment on that house much earlier, and/or being able to afford more of a house. And in the meantime, it will mean being able to dine at fancier restaurants, take more luxurious vacations, buy more expensive toys, etc., if that's the sort of thing you value. And I wouldn't even consider all this to be lifestyle creep (as you genuinely wisely advise against downthread of a sibling comment); this kind of lifestyle would be perfectly sustainable at $700k/yr, but not at $200k/yr.
(But really, though, who the hell is making $700k/yr in their early 20s? Very few, very exceptional people, that's who.)
This boils down to "if you have more money, you can spend more money and maybe retire early". This is not a line of reasoning I'm trying to refute.
Dependents are an interesting wrinkle that is worth discussing separately. But let's stay on the straight and narrow, we can talk about in another comment if you wish.
> And I don't think your (1) & (2) points really make sense here. Investments compound over time
The reason I invoked these points was not to compare "could you save $50k at age 22 or $10k at age 22?", it was to compare "could you save $10k at age 22 or $50k at age 32?"
If you're beginning a high-income career later in life, the time-value of money is different because you have less time.
If you start early, you actually need to earn less to hit the same comparatively "fixed" long-term savings goals, because you have more time to compound.
Again, be careful to avoid falling back on "if you have more money, you'll have more money, which is obviously good".
> And I wouldn't even consider all this to be lifestyle creep
Regularly dining at fancy restaurants (anything in the Michelin orbit), taking luxurious vacations (I'd define as anything north of $300/day), and purchasing expensive toys (I don't think this needs any qualification...) is indeed the definition of lifestyle creep, and it's A-OK that they aren't sustainable at $200k/yr.
You can live extremely comfortably without these things. Whether you perceive them as acceptable or not is a you thing, not an objective thing. We actually do get to choose our values and our hobbies!
If someone's offering $500k/yr to an engineer plus stock, they're definitely trying to attain someone with very niche skills. Which begs the question: Just how applicable is this scenario for everyone else?
I haven't found many startup roles going past $200k for a fully remote engineer, almost regardless of level. I don't think they even try to get someone who would be Staff+ at FAANG because it's basically pointless.
Top quality in your scenario might mean niche skills like you've done specific computer vision work, have a PhD, and are going to a self-driving startup... Cool but not really applicable to most of us, is it?
Whereas compare as to how common it is to be a typical full stack or backend engineer with a decade of experience... join FAANG at Staff and make $600k+.
> It’s possible you’d be making $700k+/yr if you were at google.
Possible, sure, but not likely. For a mid-tier SWE joining Google (or another FAANG) today, even $350k/yr salary+equity is probably above the median.
Also that feels like a specious comparison: most people (including those who would be otherwise joining a startup) are not joining a FAANG, and will not be getting paid as well.
At a startup you have more autonomy and power over your personal position. I wrote 90% of the code that is generating company growth, released 2 months after a layoff. If I had taken longer to release that code or if my code didn't work the company would be in a worse financial position.
But that also means a lot of personal stress. There aren't 4 layers of middle management to catch flak for you. If you fuck something up, you are directly responsible and depending on the environment that can result in some heated conversations. I also work way harder at a startup than I ever did for a big company
What makes me want to put my head through a wall is when I fuck up, and four layers of people above me are the only ones allowed to fix the thing, but they don't, so I keep catching flak for my fuckup without any way to stop it and fix the thing. I have many more heated conversations with those managers, which typically leads to the door.
When I fuck something up, rarely is anyone more upset about that than I am. Nobody's dumping more heat on me than I am on myself, so bring on the heat-- as long as I have the agency to fix the problem.
As a rule, it is and always has been. For every unicorn piñata stuffed with winning lottery tickets, there are hundreds/thousands? of others whose employees walk away with nothing or less (debt, strained relationships, mental health issues, etc.) at worst or a job at AcquiHireCo at best.
To put it another way: early employee equity was always a lotto but now the payout is like some lame scratch off instead of the powerball jackpot.
It's just that these companies very often are the darlings since their inception, get constantly talked about. Everyone wants to to invest in them and everyone wants to join them. So they have the ability to pick out the best talent, in other words, it's unlikely you'll be able to join that specific startup.
But even 20 years ago, try getting into early Google. From what I heard they had extremely high bars for hiring as well and only lowered them once they got so large that the pool was exhausted.
I'd argue that the total comp at the established companies for engineers has increased precisely because of competition from startups: to make the startup not be the better option.
Does that mean that VCs are not taking a bigger slice than they used to? Absolutely not, but I wouldn't put the blame solely on them.
We’ll see when it happens. If I had to name a company most likely to have massive landmines buried in front of common stock cashing out, it would be at the top of the list.
As long as naive 22 year olds think have that one friend that stuck around long enough to cash out on an IPO, then yes. On a risk-adjusted basis, this has basically always been the case - you're better off working at FAANG.
And I think starting now at a FAANG is a lot less lucrative than people seem to think for the average (or even above-average) employee. Certainly nowhere near as lucrative as it was 7-10 years ago or more.
My startup idea is a firm that uses generative AI to flood the internet with pro-startup, pro-VC, pro-founder propaganda, so that message will never reach the naive 22 year olds. Personally, I think it's like saving the environment, since naive 22 year olds are precious resource we cannot allow to be destroyed.
But overall that statement is making a lot of assumptions.
It's assuming money is the main priority for everyone. Sometimes the priority is to have a ton of autonomy and influence on product direction, not have to deal with 8 layers of management, and have an actual, large, often-measurable impact on the company's success.
It's assuming that the alternative is that anyone can work at a FAANG, and be in the higher tiers of salary they offer for their quite-above-average employees (hired today, not 10 or 20 years ago). Most competent, talented people won't pass an interview at a FAANG. Of those that do, many of them will not immediately be making $500k/yr. These points are especially true for 22 year olds, naive or otherwise.
I was going to make a comment about working your ass off at a startup vs. working 9-5 at a more established company, but I know plenty of people at FAANGs who work 50- or 60-hour weeks, every week, and often put in time on weekends. Granted, I would agree that pretty much everyone at a small/early startup is going to be working long hours, while a large number of people at a FAANG are going to enjoy a nice, relaxing life outside of work, so they're not at all equivalent in that regard.
It's also not in the interest of the VC that the founders are worried about making their rent or mortgage payments, or paying off the credit cards they maxed out paying their AWS bills in the early stages of their company.
The VCs want their founders to be hungry for more, and see their company's growth as a vehicle for that. But they don't want founders to be stressing over basic human needs, either.
Any VC that would refuse to let you take some liquidity in these situations is not a VC you want to make a deal with. And if you can only find VCs like that, your company is probably doing poorly enough that you might want to rethink what you're doing.
Along that line, I would be very surprised that there are founders who don’t seek an opportunity to set aside their nest egg to “de-risk”.
You say you have seen such guileless dedication to the founding first hand, can you share what industry or type of company? Perhaps I’m just exposed to the wrong crowd.
Yeah, if the founders don't do this I wouldn't want to work for them (not that I'm the target demographic anyway).
I think giving founders liquidity but not employees is maybe ok for series A: the founders may have been working for $0 for a couple years at that point, and may have taken out a second mortgage or ran up a bunch of credit card debt to keep things going. An early employee is not going to do any of that once they join, even if they're getting paid a below market rate salary. That is definitely an asymmetry! Getting some liquidity at the series A allows the founders to pay down debt and replenish their savings, financial issues that are probably directly related to their time working on their company.
But after the series A, founders should be able to pay themselves a livable salary. The founders and employees should be on much more equal (or at least comparable) footing when it comes to their regular income. By the time the series B comes along, if the founders are going to get some (more) liquidity, the employees should get some too. That only seems fair.
To me, this just seems like a capital-efficient alternative to the founder increasing their salary that could be negotiated. I had no such perception that this was some “secret” thing, I assumed it happened since you can do whatever you want if the investors and founders agree that it makes sense.
My friends in software startups balk at the sheer burn rate and funding rounds at mine. $100mm for a Series A is unheard of in software.
Thank you Thiel for setting the bar so high (the famous, "you need $1billion in total capital to successfully pull off hardware startups" quote).
Peak 2020: https://www.wiz.io/blog/wiz-comes-out-of-stealth-with-100m-s...
But for software, and my impression is that it is even more like this in most other industries, a huge amount of tech ventures never receive any funding. Many of these are never even properly incorporated and may not be included in datasets. Then, for the ones that do raise seed money, usually with SAFEs, 50-60% of them would fail before raising a significant priced round (series A).
The overall point being, there’s a lot of risk between starting a company and raising a sizeable priced round for most people.
I imagine other companies went through a similar scenario but failed before series A
Not to want to sound like I'm standing up for Vulture Capital, but while it's not "getting scammed" as such - I suspect most VCs lose money on most startups they invest in. And not all VCs land enough 100x exits to make up for all those losses. (The "successful" VCs are the ones who make all the losses end up in pension fund balance sheets, while ensuring most of the profits land in their friends and their own pockets.)
And a counterpoint to your perspective, I joined a startup a couple years out of college, had the most fun of my career, and the options were very much worth something. Working for a well-funded start-up is something I'd especially recommend early in your career when you can take more risk even if the equity doesn't always work out.
If anything, I'd discourage becoming a founder as a new grad more than SV typically discusses. I really appreciated taking time to build up my savings and get experience before taking a shot at that.
Generally they make more decisions that directly effect the odds of the company existing 6 months or a year down the line than the average employee does (with some exceptions obviously).
You can still be cynical, I think all employees should be given the ability to get liquidity early, but it's not like it's totally unjustifiable.
Author's suggestion that they could have taken a "similar level of risk" as an early employee by taking secondaries as a founder is way off, IME.
> I have been an early or first engineer at five different companies and have had three liquidity events in a 9-year career.
A "big" success is a 10+ year journey. For an early employee, it is perfectly acceptable to give a few weeks' notice and move on to the next lotto ticket. This doesn't work for a key founder-exec -- they're likely going to commit to a decade working on one big problem, and investors want to incentivize them to shoot for the moon & stick with it for the long haul.
It's definitively not the same for an early employee.
If you want to get wealthy, there are more efficient, less effort ways. If you want to suffer with low chances of success based on all available data, well, help yourself to the firehose of startup jobs.
I’ll take the lottery ticket over me any day, not because I suck, but because I am human. Even exceptional humans fail. I don’t drink the exceptionalism koolaid.
The startup failure/success rate already have some level of "smart, motivated staff" baked in. So you're really making a bet on how much better you are than the average early stage startup employee.
The employees bear the burden too, if they're working their asses off at an early stage startup they believe in the cause just as much. Viewing founders as somehow magically special is a symptom of the broader misguided hero worship the US has right now.
I've been a founder, and I've been a key early employee. It is very different.
For funded startups - at least with a healthy seed round, the investors expected us to burn fast and hard in order to prove our hypothesis or fail trying as quickly as possible, but they also expected us to not pay ourselves very much. As we found product-market fit and raised Series rounds, it was understood that we would pay ourselves competitive salaries.
Being stuck at the seed stage for 10 years is not healthy - neither in Europe, nor in Silicon Valley.
Making $400k after making $100k for 4 years doesn’t really change much.
It gets you upto junior engineer level.
The underestimated play is becoming a cofounder to a great CEO 2nd time founder.
Even that averages to a senior Eng salary for the very very few founders who get there.
This has to be tempered by other realities - no social life - working 80 hours a week easily - risking personal finances - health problems - good chance of divorce / no deep relationships
Starting a company is no joke.
Very few get to series B/C.
Before 2020, it was fairly uncommon to work remotely and most employees were expected to physically come to the office. You would relocate if you got a job in another state, and employers had to go through a painful visa process to access foreign workers or set up expensive international satellite offices.
The great WFH experiment kicked off by the pandemic concluded that no productivity was lost, so many employers realized that they did not actually need to hire domestically at all. Everyone can be remote and work from wherever. LCOL in the US is still extravagant compared to many other regions, so a top engineer can now be hired for pennies on the dollar. I think there's a very good chance that tech salaries in the US have begun to and will continue to equalize with the rest of the world as a result.
Also it took the risk off the CEO plate that remote might fail. Further the market is rewarding them for it now.
And bitching about bureaucratic terms like non-resident alien? All countries have silly bureaucratic language and words can have multiple meanings. Nobody thinks "alien" in this context means you're a little green man from Mars.
No offense but it is spoken like a true American. I have dealt with European immigration and it was pleasant/painless for the most part. In the US they make you feel unwelcome and they drown you in paperwork. Not that Canada is much better these days, but I am a citizen so don't need to deal with it.
100% agree, but we weren't talking about which system is better, we were talking about why Canadians may be reluctant to relocate to the US. It's not like Canadians who come to work in the US give up their citizenship. Worse comes to worst and you lose your job and health care and have a major medical issue, the Canadian safety net is still there for you.
> Ask most venture-backed founders why they get 10x more equity than employee #1
Employee #1 typically gets 1%. Sometimes could be up to 2%, but 1% is standard. So then the founder gets 10%? No way.
I posit that very, very few early non-founding employees in SV startups have a true notion of how cheap they're working compared to the founders. Founders do founder-y stuff, the early engineers build and launch the full product, and if all goes well, the founders fly private the rest of their lives while early engineers make good progress towards a down payment.
Often though, the startup has a "soft landing" where it's acquihired by a larger company, and then the founders typically get executive or very senior roles (with large bonuses, etc) meanwhile the non-founders get standard employee packages.
The other thing no one talks about is founders tend not to dilute themselves, but often early employees are diluted heavily.
The fact remains that sweat-equity deals rarely work out in a founding employees favor.
i. IP selloff to umbrella firm for $10
ii. contract restructuring or share dilution
iii. jettisoned from a company months before an IPO
Most techs have seen all of these events unfold... if you are around long enough.
People always have their own strategic truths once significant money is on the table. Even moderate success can destroy peoples memory, and anything not legally watertight is just hot air.
Best of luck, =3
In Canada even at Series A Canadian VCs will not offer you liquidity while at the same time allotting pennies in the first place. Absolutely conservative poor people.
If things are working, derisking the founder so that they can focus all in on the problem is the best thing you can do as a VC.
A lot of startup compensation seems to rely on people not having transparency and honesty. The founders, investors, etc. all have very different risk and reward situations compared to typical employees and even non-founder executives. But for most it seems like a raw deal compared to working at a big tech company, unless you’re lucky and strike gold at a place like OpenAI or whatever.
Another area where there is a lot of obscure but important detail is in the cap table, stock plan documents, and so forth. If company financials and cap tables were transparent, and if it was clear the various ways in which a company could screw over employees through various clauses deep in their documents, no one would take those jobs.
On the other hand, I can't stand how corporate politics corrupt a product's vision. Even low-level politics like "strategy taxes" are infuriating.
> As of 4 months ago I left a very successful stealth startup (which grew to 40M in ARR in two years) to become a founder and that is when it clicked - I expected to feel stressed, pressured, and the weight of all of the risk I was taking.
Please let us all know how that's working out for you in 5-10 years. 4 months in and no stress? Must be easy riding from here!
Only in some states would minority shareholders have a cause of action. So there are some states in which the courts agree with you. As you might imagine, startups do not typically incorporate in those states.
because, ultimately, Capital writes the rules, and they chose to allow this
In our case, we offered all vested employees the option of selling in the same round on the same terms.
I personally don’t recall any disclosure requirements at 10 people; however, we didn’t have that many participate so perhaps it didn’t apply.
In general, Founders Preferred does layer on the preference stack but also hopefully by a relatively trivial amount to the overall funding size.
If you care what other people think that much, you probably don’t have sufficient quantities of the oft-cited “grit” that founders supposedly require.
I am sure enough that I would crumble under that specific kind of pressure that I don't put myself in situations where I would experience that specific kind of pressure. Works great!
There’s a pretty large risk to family security. By year two of the startup I have made 15-20% the cash I could have made elsewhere. I have stock that I trust will be worth more in the future (so imo worth it). However, I can see liquidity events being useful if you’re tight on cash after that run
cause if you fail you have to tell your investors you lost money
cause if you fail is a thought that’s always running through your head as you live it
I can't imagine caring about reputational damage with rich people unless that reputation is in service of not starving in the streets.
I have worked in startups in Silicon Valley and have had many friends working for them. Most startups pay a base salary of around 200k$ I reckon (for new grads, perhaps 150k). This might come down to 9-10k after taxes per month. A good 2 bedroom house to rent in a location like San Jose would be 3k$ per month, which leaves you 6k for other expenses. Assuming 1k for car, you should still have 5k in savings per month, in a year of working you will have saved up 20 months of rent, maybe 12 months of living without a job. I find it hard to believe anyone in SV startups, is in risk of “personal financial ruin”, or “starving in the streets” just because they lost a few months of paychecks while searching for another job. That may be true in another country, in another market, but all tech workers in the Bay Area are living well above subsistence and acting like they are living paycheck to paycheck is a fantasy. There is a cost to working in startups, and it is an opportunity cost of not working in a big tech company and cashing out your 200k+ RSU over 4 years and instead receiving paper money stock options that can be worth 0.
But I'd like to point out that in your math, you calculated the cost of a car and a rent, but no other living expenses. Also in what universe does a car cost $1000/month??
Inconveniences are part of life anyway. Being the first engineer means you get all these inconveniences (tell your wife and your kids) plus real risks as above (taking a loan to buy the options and losing it)
Compare startups to restaurants- their failure rate is absolutely massive. Working for a new company is simply always a risk for everyone involved, there's no getting around that.
at megacorp, you shrug and look them in the eye and they know you can’t do much
your in the same boat
as a founder every layoff is YOUR failure
This isn't the founder's risk. It's the employee's risk. And it has the added bonus of, if there is a liquidity event, the employee's don't get the upside.
I was like engineer #3 at a company that eventually was acquired for ~$250MM. My payout was $60,000, after 5 years of employment there. I could have made more by going and contracting at megacorp for a single year. There was never any upside for me.
That was because you negotiated and accepted a shitty deal. Unless someone scammed you into believing something that isnt' true, which I doubt. Founders can be overly optimistic, but it isn't same as scamming.
Startups are a difficult game. Everyone gotta watch for themselves. Don't blame on others if you accepted a suckers deal.
financially you are correct, but being a leader is mostly about the human stuff
1. Caring about the mission -- the real-world positive impact -- and potentially able to make or break that. Not just taking a shot at making money, for some opportunity cost that I could evaluate quantitatively on a napkin, and walk away from as soon as an option with a higher expected dollars number came along.
2. Livelihoods and investments of time&effort by colleagues hinge to a large degree on decisions I make, ideas I have, and things I have to pull off, and not wanting to let them down. (A bit similar with money investors, but I care more about personal connections, and involvements where it's not just someone buying lots of lottery tickets.)
3. Low "paychecks" for my HCOLA, at that startup and earlier, so personally needing a big win financial exit, and the startup is what I decided to invest my time&energy into. If that fails, it's starting over, and a lot of wading through various startup ickiness to get another good opportunity (or doing FAANG interview BS, and then their promotion-chasing BS).
> You don’t lose any money if your startup fails.
Except all the money you lost by not having a proper job along the way. Also it’s not uncommon for founders to float the company at early stage until investment is raised, and they don’t always get a refund for this.
But I'm finally debt free and ready to risk my future yet again on another startup.
Though if you don't care about anything in the first place what are you doing trying to build a company?
Honestly VC-funded startups seem like a cake walk compared to actually starting a small business. Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque. If you fail you get acquired and get golden handcuffs.
If you start a real business you can expect to take on debt, and you'll be personally guaranteeing it because nobody cares about equity in your boutique ice cream parlour. Plus a 5-year lease (which you will also personally guarantee).
Make this about any brick/mortar businesses and the stresses multiply by another factor. If they're in a federally regulated biz (compliance) or an insurance dominated state (rates, inspections), then multiply again.
And yes, some businesses are even harder due to regulatory requirements
Sure, if you magic up a startup with VC funds you suddenly have it easier than a small, bootstrapped business.
Startups almost never start with a round of VC though. There are almost always months or years of the same experience as a bootstrapped business (ie: extreme uncertainty, no money to pay yourself, etc).
Most startups don't manage to raise VC, and most startups that raise VC fail with no acquihire.
"Your biggest challenge is walking into a room full of rich dudes and schmoozing for your pay cheque." - Sounds like you are trolling or alternatively incredibly naive.
"If you start a real business you can expect to take on debt". ... Real business? Come on.
No one in this thread is saying starting a business is easy - ice cream business is debt funded because you have a very definitive range of outcomes. Venture funding is completely different animal - failing to see that limits the value of your comment significantly.
In terms of economic disparity it _is_ very much an us vs them situation.
Consider the optics over the last 20+ years. The middle class and their small businesses have been decimated while former VC funded companies hoover up their futures on Wall Street.
The level of risk involved starting an average small business is much closer to home compared with a startup seeking VC funding. The former can literally lose his shirt, the latter has to settle for a high six figure salary somewhere else.
Failing to see that limits the value of your comment significantly.
Making a wedge where there isn't one is disingenuous.
Sure, you've got a decent chance to rocket past them in wealth. But they've got everything they really want. You might have foregone your shot at a partner to build a company to mostly profit someone else who did nothing but write you a check. If you do have kids, you'll be old as hell raising them. All you'll have is extra stuff hardly anyone cares about - except maybe you - if you're the type of person chasing down a decimillion net worth.
I hope these people truly enjoy their boats and their third homes in Aspen! It sure is a lot of work to get them.
Founders tend to only talk about the good things happening at their companies, and tech press tends to focus on the successes. These things contribute to more people starting companies.
On the flip side, though, any regular HN reader has likely seen dozens of accounts written by startup founders whose companies have failed. And there's quite a bit of overlap between the set of HN readers and the set of past, current, and likely-future startup founders.
I might rephrase that as you have a non-zero chance. Odds are not that high and certainly not decent.
"It's not your money anymore."
I’m not sure where that’s coming from.
Also plenty of companies out there have control past the A.
And in the best case it’s just one series A taking ~15%, thus founders still have 85%
Equity ownership and voting control are also different things. After the B you commonly have 2 investors and an independent director on the board, alongside 1-2 founders.
What a horrible fate. They only got five years of salary plus 200k extra. I'll include them in my prayers (just kidding, I don't pray).
Also realize you were probably forced to take a pay cut and have a below average salary due to cost-cutting measures from the board. We'll ignore the non-financial problems, like tons of stress, complaining employees demanding more equity because you couldn't give them raises...
No, it's not a good situation.
Can you say more on this? I didn't realize FAANG TCO was quite that high. Maybe it's time to swallow some pride and take the adtech money after all...
In 5 years, if you work even a fraction of as hard as you need to be a successful founder, you should be L7 - salaries are usually >$800k at that point.
No, it is not like any average slacker straight out of college in 5 years can get to a $1M salary at FAANG. But if you're the type of person that could successfully grow a company to a multi hundred million valuation in 5 years - you can make $1M at FAANG.
1. You’ll have to be located in SF or Seattle.
2. Going from L5-L7 is _not_ trivial. It requires a somewhat miraculous combination of being on a productive team with a good boss, a lot of opportunities for showy work and your own gamesmanship around corporate politics.
Is it possible? Sure. But in my short stint at Amazon, I met a lot of people who should have been higher level and were simply not due to missing one of these factors.
It is trivial compared to growing a company successfully from $10M valuation to $100M valuation + an exit.
Frankly, many more aspects of trying to grow your career from l5-l7 are out of your hands than they are when you're at a startup.
There are literally thousands of people going from L5-L7 at the major tech companies per founder successfully exiting a >$100M company.
You're going to need to be this size to have a ~$100M+ exit.
There's about ~5 years between funding Series C and Series D [1].
Only ~55 Series C companies got funding in Q1 [2].
Only ~39 Series D companies got funding in Q1 [1].
You're going to have a MAX of about ~.7 * ~2300 * 1/5 = ~322 successful > $100M VC exits per year.
Ultimately, you really need to IPO to have a successful exit - and there's only ~257 per year total, only ~65% of which are VC = ~167.
~5% of FAANG is L7+ - if you're including Microsoft, Nvidia, AirBNB and all the other companies with FAANG-like pay - you're at >2M employees.
That's ~100k If the average tenure is ~10 years before retirement - you're looking at ~10k per year.
Okay - it's about ~100 per successful exit.
[1] https://carta.com/blog/state-of-private-markets-q3-2023/
[2] https://www.mosaic.tech/saas-startup-funding/series-c
Can you say more about that?
https://www.levels.fyi/companies/google/salaries/software-en...
The distribution of the ladder is logarithmic. Most never make L6. L5 is often terminal level IC without any “up or out” obligations. Lots of people spend a long time at L5 and retire.
Disagree. Totally different skill sets. Not saying there is no correlation at all, but probably less than one might think.
1. https://www.levels.fyi/companies/google/salaries/software-en...
Microsoft in the Ballmer years (early/mid 2000s) had this problem. Promising L65/L66/L67 (probably equiv to L5/6 at AMZN) would leave because the next step was full. All the "partners" were hanging around and not making room for the next gen of leaders.
Also note that some comp numbers get heavily inflated by people incorporating stock value increasing between the equity was first issued and the stock actually vested.
Yeah ever since COVID this has really muddied the water, partially both up and down. Depending on the year combined with the type of company (large cap vs growth SaaS vs finance) you can massively swing the same exact "offer comp" into many communicated effective comps.
I can't help but feel this would be better for the founders, the employees and the customers of the company. It just doesn't make as much sense for the investors.
onlyrealcuzzo is comparing 2 things:
* Being a founder and working mega hours and having no life (e.g. no spouse or kids) and having a decent chance of losing most of your money as the company fails.
* Working at FAANG and making a lot of money while not having to work too much.
onlyrealcuzzo is saying the second option is better.
Talk about detached from reality.
A 30k job at a local dev shop in Poland is going to reward you more than most startups in the US.
Unless you are a manager, in which case you are working more like 12 hour a day.
I highly doubt ALL your peers are making that much. And I think the people making $1M per year at FAANG tend to work much more than 6 hour days. You have to be very productive to get $1M per year.
Its like going to Disney Land and saying "Oh i'll just sit at the coffee shop". Some people are here for the ride. Some people like the 9 to 5. Like you, obviously. Why dont you go start corporate-drone-news.org, this board is for hackers and founders.
But beyond that, it’s interesting you picked FAANG SWE and not startup SWE as the basis of your comparison.
The whole premise of the article is that startup employees are often sold a bag of goods about equity and upside that’s simply a terrible deal. Not terrible in the sense that it’s highly risky, but that it doesn’t even come close to compensating for that risk premium. Its sold as FAANG is low risk medium upside but startup SWE is high risks high upside but really its extreme risk and almost no upside because VCs find dozens of ways to carve it out. And people will say startups pay “market” compensation but they almost always mean base salary only, and the equity is such a horrible deal, it’s borderline fraudulent scam on the part of founders to sell startup employees on the equity as a fair deal.
As an aside, when people think SWEs don’t need unions/ professional associations, they think of teachers unions or autoworker unions where pay is standardized on seniority. Instead, we could have something where our lawyers in our camp could review equity terms and we could collectively advocate for things like liquidity deals. That will never ever happen if you only trust the deals the VCs and founders offer.
The world has changed. Google IPOed just a few years after it founded. Now Stripe, objectively one of the most successful startups ever, still hasn’t IPOed after 15 years.
Liquidity preference Dilution
Even the F in FAANG had a major movie made about early employees getting shafted by dilution!
FAANG is 5 companies founded a long time ago. Since then VCs have completely rewritten the rules of the game. But they’ll still point to extreme outliers in the old rules. The fairy tale of the Google masseuse has probably cost tens of thousands of engineers millions in compensation.
You need to get things in writing and do the math and startups make it as difficult as possible to do that and then the math never adds up. So they resort to fairy tales.
Consider that if you could make 400k (including liquid stock) in compensation at FAANG but you take 180k at the startup, you're basically betting 220k a year on the company. Except unlike any other company you bet 220k on, you won't get a board seat, you won't get access to key metrics, your influence will be dominated by "real" investor's influence.
If your NW is less than 10M, which presumably it is, anyone who's heard even heard of the words "Kelly Criterion" would tell you your nuts for betting 220k a year on one startup. And yet, you get treated like "an employee" and not like "an investor" for taking that insane risk.
So YC has invested in 5000 companies, and you can name 3 that had top-notch outcomes, thats 0.06% success - and you had to work like a dog to realize it! And that money was locked up. Those same early employees could have taken that $220k/ year, put it on Bitcoin or Apple stock, and retired off that. And Bitcoin and Apple were much easier "picks" than an given startup.
The math simply does not add up and the whole system runs off mystique and naivety. And I've worked at startups that gave me a hard time about asking about outstanding shares, about asking about the cap table, about asking about liquidation preference. This is _critical_ information before you invest a significant portion of your life and net worth on a company and that they're guarded about and it should raise the ultimate alarm bells that they don't fall over themselves to explain every part of it.
There's a bunch of propaganda out there "Explaining ISOs, written by a16z" that's a smoke screen of the truth. The math does not add up.
The dream startup employee is really really good at Transformer architectures and really really bad at personal finance. Fortunately for startups, a shocking amount of these people exist. But it doesn't change that if sharp financiers looked at employee equity packages at startups objectively, every single one would agree it's a scam deal.
Your denominator (5000) is _all_ investments that YC has made. You need to look at investments of a certain vintage, e.g., 10 years or more. You also need to include all the other companies of that vintage where employees did well (way more companies in that cohort have sold or gone public). The result is 0.06% is a gross understimation of the success rate (where success is defined as successful enough for early employees to make a lot of money).
People who can get 400k job at FAANG should be smart enough to avoid shitty startups. Looks like they aren't, based on these comments.
Even worse, your bet is on common shares. Far better to work at FAANG and Angel invest so you get preferential shares.
The biggest scam of VC is that the dollar value of your time is hugely undervalued compared to a $ from VC that gets preferential shares.
I'm very skeptical of the idea that this is common for new hires at FAANGs today. Certainly some people can command that level of comp, but I find it hard to believe the median employee can.
I personally have taken both paths, and made what I considered a ridiculous amount of money at a startup (after I'd been gone for a while, having bought my stock). When I got my cash out, I didn't quit my not-technically-FAANG-but-pretty-close job and that comp continues to grow. I never expected this, but my comp has grown to the point where the cumulative amount I've made here has actually surpassed the startup money. 7 years at each place, and the steady paycheck eventually outpaced the big windfall. The difference is I can keep the steady paycheck indefinitely, so it's definitely the win if I stick it out. Of course, now I'm itching to do a startup again. :)
Stripe is one example of a successful startup not going public, but there are tons of startups that are going public. And there are many startups that wish they could go public, but they simply don't have the finances or business to do so.
I don't think VCs changed much from when Google went public until COVID. We were seeing massive overvaluations of tech companies for years. Once through 2020, VCs got scared and now the landscape is a bit different. But the AI craze has started to get VCs back out of their shells taking bets on risky projects.
So, yeah, idk what I agree with this assessment. At least it's not been my experience in tech over the last 8+ years.
VCs changed a ton over that time. In 2004 VCs were still smarting from the dot-com bust. And VCs were hardly spewing cash during and in the aftermath of the GFC of 2007/08. The days of easy VC money were mainly in the early-mid to late '10s.
And as you point out with your end date of COVID, VCs have now backed off again, as they did around 2000 and 2008 during those bust/bear cycles. I would credit interest rate increases with the current backoff, though, not COVID. During early COVID, funding was still fairly well available, assuming your business wasn't something that required in-person contact; even better if your business facilitated home-office work.
> At least it's not been my experience in tech over the last 8+ years.
That's only ~4 years pre-COVID; either seems like too short a horizon to make this sort of assessment. (Source: been in tech for 20-odd years.)
You might as well go to the casino. You will save years of sweat, heartache, and stress-induced mental decline.
Instead at a casino you get to blow your money quickly, enjoy fun, free drinks, and still have the upside potential to become super rich if you are in the 0.000001 luck percentile.
I very much appreciate the startups pushing to extend the exercise window out to 5 - 10 years, but that's far from the norm. I've debated this with a couple of investors and their stance is if you leave the company then you're not committed enough and shouldn't receive anything. I think that's quite debatable, but that's certainly not the case when folks are laid off. And we commonly discuss people thriving in one particular phase of a company. If you're not in that phase, it's no good for either the company or the employee to continue the relationship just to defer having to exercise options.
This is why I advise everyone that you must early exercise (exercise your option as soon as you start with the company) if you're going to join a startup.
Some startups don't let you early excercise. Run far, far away. Find a different startup. Never join a startup that does not let you early exercise.
That's terrible advice, if you present it in an absolutist, blanket way like that. I do wish I early-exercised at my last startup, since I had a nasty AMT bill when I finally did exercise, and I could have had better tax treatment under the small business qualified stock rules when I finally sold. But: a) early exercising my initial grants would have cost me $40k, which would have eaten into my savings to a degree I wasn't comfortable with at the time, and b) I early exercised at two previous startups, which failed, and that ended up being money flushed down the drain to the tune of around $9k.
Sometimes people want to wait a bit to get a better idea of the company's prospects before investing their own money into it. Maybe they want to hold off until the company has revenue, or hits/maintains a particular revenue or growth metric. Sure, if you're a super early employee and have 5-cent options, maybe you'll feel comfortable gambling that money away (but maybe you won't be!). Yes, there will likely be a tax penalty for waiting, but that can be a reasonable and sound financial decision.
I was (fortunately) a few years too young to get mired in the original '00s dot-com bust, but I know several people who were encouraged/pressured to take out loans in order to (early) exercise their startup stock options, and ended up with worthless or underwater stock, but still had to repay those loans. It would have to be a pretty exceptional situation for me to recommend anyone take that route.
(I do agree that a startup not allowing you to early exercise is a red flag, though.)
It is far too late then.
One of the many benefits of doing early exercise is that you exercise the option when the grant price is the same as the current valuation so there is zero profit (and you file an 83(b)).
If you wait too long, your grant might've been at $0.01 but now the valuation is $5.00 (making up numbers but both of these are in the ballpark of my past startup experiences). It is way too late to exercise those options, you'll be paying tax on $4.99 of profit on a stock that you can't sell and might go down! If you waited that long, now you need to keep waiting until there is liquidity so you can do a same day sale.
> take out loans
That would be a terrible idea. Like I said in parallel comments, if the price is too high for your comfort level, don't join that startup.
I don't think that's debatable at all; I think it's bullshit. Once your options vest, they are yours. They are compensation for the work you have already done, not the work you will do in the future.
Once/if your company switches to RSU grants from option grants, then at vest day your stock is yours, and can't be taken away when you leave the company (well, I imagine they could write up a contract that says that, but that would be quite non-standard, and I would never work for a company that did something like that). The vested RSUs are, again, compensation for the work you have already done, not the work you will do in the future. I don't see why options and RSUs should be considered differently here.
(I might even stretch that into the idea that it's bullshit that startup options expire at all, even if you stay with the company forever, but I do think that's debatable.)
If equity is going to be a material component of compensation, then the argument "you're not committed enough, you deserve nothing if you leave..." is utter nonsense.
Imho, many/most of these draconian equity / option terms are nothing more than attempts at 'golden handcuffs' to make it more challenging for employees to leave these startups.
Sadly, they work: I know many who couldn't leave roles til they'd saved up for years, or could finally ink second mortgage on their home, etc in order to purchase all their equity in their 90 day post-exit windows....
Extreme risk? Some startups pay fair salaries.
I don't think startups are that risky (unless you start putting money into them, that is a suckers deal). Or if you work for free, what you naturally should not do. Not everyone can get a FAANG job so it is not very clear alternative.
If you get paid a slightly below market rate and get some worthless equity, what's the big deal? You can always quit any time and change to a corporate career. It is not an end of the world.
If you really do, agree that it's ok and a fun ride.
But where are you going to find a startup that pays market rate? Never seen one.
Base salary can be very close! But at an established company you are also making money on RSUs, often more than your salary. And usually have a bonus, which can be quite significant.
So your base salary might be 250K in an established company and 200K at the startup. Not a huge difference. But total comp at the established company is more like 500K-600K vs. at the startup just 200K. Huge difference.
I guess you're looking in the wrong places. Over the past 13 years, I've worked for five startups (both full-time and contract) that paid market rate (two paid a fair bit above, even). In my professional and social circles, this has been pretty common. Certainly some have worked below market rate for some companies, but that seems to be the exception, not the rule.
> But at an established company you are also making money on RSUs, often more than your salary
That's definitely not been my experience. At established companies, the RSUs are usually a nice quarterly bonus, in the wide range of 10-50% of base (annualized). Certainly there are some where the RSUs can end up being several multiples of base (I've worked at one like that, though my equity comp level was not common, and was mainly a consequence of my long tenure there from when they were small), but I don't think it's that common. A lot of people seem to assert that you can easily get that at a FAANG, but that doesn't seem to be true. Some people can, but not the median employee.
Also consider that a lot of the stories of high equity comp come from people talking about the FAANGs. Those companies were founded 20-25+ years ago, and matured into established companies 10-15+ years ago; the "rules" have changed quite a bit since then.
It's possible! I live in the silicon valley bubble.
I've worked for 5 startups (and had offers from about ~5 more to know what they would've paid). None have been close to total comp at a public company.
All of them have been very competitive (or even higher!) on base salary.
But there's no recurring RSUs in a startup (since there is no stock to trade), and rarely bonuses. So total comp is about 30-40% of my total comp when working at public companies.
With that I agree with you that upside is often lower than people expect.
Well, some founders care about their employees and their idea, and the idea of the start up failing is much more than just money.
There isn't much point sweating for another person's dream, go big with your own startup or rest and vest at FAANG and live life.
I think you overestimate median pay at the FAANGs by quite a lot.
There is quite a bit of work involved in reaching the point where you write a check for a Series A round. Also, the better VCs spend significant time with their portfolio companies.
Getting out for an early employee after funding rounds is expensive because buying options can hit you with massive tax bills on top of the cost of buying the options. Worse, the stats aren't great for a chance on return. Your lotto ticket gets expensive and risky as soon as you decide to leave.
Articles like this one hammer home more and more to me how little VCs actually value early employees. Paying out founders to stay is a strategic move. Keeping them is worth it because they are the face of the company and turmoil at that level hurts their payout. Burning out early employees is not a concern because you can just swap them without drama. In fact, with the way options are structured and the 'industry wisdom' to hold off purchasing, it feels like a strategic move to burn out early employees since many employees that are forced out often can't even buy their options. They are left with nothing after all that work and risk. From a purely cynical view this is a great thing for VCs since now the company got all the benefit of an early employee and just lost all the costs.
I don't know about the other three points, but I can guarantee you point 1 of 'right sizing perceptions' is wrong.
I thought it was the prevailing wisdom here on HN that being the first employee almost always is bad for the employee. You’re right, the cards are stacked against them
we did this on our crypto token grants though. once we realized we can play with the prices much more than with securities and that vesting isn’t standardized by any law, we granted ourselves deeply discounted tokens in a vesting schedule of like 3 months, the whole grant being a couple hundred dollars and launched the token the next day. mailing the IRS the election was beautiful.
Fast forward four years of toil with multiple cycles of doubling and then halving headcount as well as endless leadership changes. We are now on our fourth CTO in as many years. On the upside things are starting to look up! The newest sales team have worked out how to sell the original product we built, not the bells and whistles we pivoted to on the wisdom of the overpaid CPO. We can now celebrate as we have about a year's worth of runway and can confidently project being cash flow positive in about six months.
The new ex-FAANG CTO earning three times as much as anyone in the original team has great news! As a result of the positive development we are now able to hire an extra development team in South America! This shouldn't cost us too much and they can start on the next greenfield effort. The existing developers need not worry about being replaced as the existing team has all of the experience with the money making side of the business, and besides the new devs will be working on a parallel offering anyway.
Four weeks later and we've onboarded two offshore devs. The VCs have demanded we cut our burn rate and my position is being made redundant. I have 90 days to exercise but my options are underwater, both when compared to the funds we raised a few months ago and also the FMV. Essentially to buy them now I would be worse off than someone walking straight off the street.
First employee is always a sucker
So I am not sure it's that easy.
Of course, the idea is to keep the same work/life balance one would have at a more established company.
It’s Baby’s First Labor Exploitation.
Unless the company hits unicorn AND your shares become liquid (secondaries don't count—you generally won't be able to sell enough shares to make a meaningful dent), you'd make just as much or more at a FAANG firm with way less risk.
Of course, I say this while not at a FAANG firm, because I prefer startup type work.
So you would get paid like at another company but get equity on top and it's not a good deal? How comes?
If it were truly market rate (total comp not just base salary) then sure, it's a good deal. How likely are you to find that in an early startup? It must be pretty close to zero percent chance. But if you find it, sure, it's good.
You'll still work harder and be more stressed but it'll be a different learning experience which is always nice.
That's what makes the early startup scene the only thing available for some.
Maybe you'd lose our on some tiny perk/benefit but that's not always the case.
So I'm not seeing what's wrong with this deal with the only caveat that the engineer has the experience not to overwork/burn out.
The startup can go bankrupt any moment, thats a big deal. You get crappy perks, often poor benefits.
At least with a startup you are going into it knowing that you have a higher probability of thing going south financially. With a big company, you might not get any warning at all.
Titles obviously don’t transfer back to big companies, we had plenty of ex-cofounders and CTOs hired into the same junior roles as anyone else who could LeetCode.
OR....you could just become a founding engineer by actually founding and keep 90% of the equity. You can get that salary with an equity raise, its worth not being the low-person on the totem pole.
The really hard thing is marketing and closing big clients.
There are a lot of "tech businesses" that are actually using pretty pedestrian tech. What they are _actually_ doing is business model innovation with an underlying tech platform. Often, that tech platform can be commodity or relatively simple tech. There are other startup propositions, though, where the tech _is_ the thing, and if you get the tech right, then some of those other things end up being secondary (not irrelevant, of course) just not primary. This is assuming that you really have punched a hole thru the door with some amazing deep tech breakthrough, which not every company is doing, contrary to what they may claim.
There is a YouTube video [0] (which goes back to 2019) that does a pretty good job of making this point. Well, much better than I can.
To be fair to your original point: you're right that marketing and sales are hard. I'm just adding the subtlety that there are some tech businesses where the tech is _also_ hard, and perhaps even harder.
[0]: https://www.youtube.com/watch?v=C1DlZWfI6rk&ab_channel=YComb...
My point is - asking "how did they do it without a CTO" is weird, they are hiring a CTO to do it, and they're bringing their business experience and funding - valuable stuff that a tech guy probably finds annoying. The number one suggestion on this forum is to sell before building and when somebody does it, users get wide eyes?
If it is a) "Right, I've had this braingasm, and you need to build it, and for the privilege, you get 5% of the company!" versus b) "Right, I've had this idea, done some market validation, lined up our first 3 customers, and now we need to do some technical feasibility and put a team together to build this, and as CTO, I need a 50/50 founder, what do you say?" then I will pick b) over a) every time.
To be fair, those scenarios are cartoons on purpose, but I just wanted to make the point by highlighting the extreme cases.
As far as "sell before you build" goes, I think that really does depend on the problem you're solving. If it's a tech-powered business model innovation (where the tech is a commodity), then we are in 100% agreement. If the tech is a bit trickier and you need to show something special before funding (let alone clients), then I take a slightly different tack.
I'm not sure I get the last point about wide eyes, but I suspect it's immaterial to the bigger point.
Of course the real gotcha is that there is no 'idea, market, sales strategy' that will be perfect, and the work is finding out where those ideas are wrong and fixing them. The lessons from my successes and failures says it is only worth doing that as a founder, because the failure risks are both high and unpredictable. Time is expensive, so spend it where there is both risk and reward, not just risk.
startups are about the work
this is why they don’t belong in start up land
running and working in a start up requires a certain type of insanity
this individual is not a fit
If the founder views you as replaceable, then why not work at a big tech which would pay you dramatically more? Successful startups are not often populated by the irrational.
Ultimately, this individual needed someone to shape and build the core of their product and the net of a series B would have been at most a wash compared to current employment.
For example if they're in SF and they're hiring a senior first engineer that would maybe make 250k elsewhere, and they're offering them 125k, and they would take the classic 7% for 125k, then 7% is a good starting point. (Of course if they already have the YC investment, then that would go down dramatically)
If that equity vests over 4 years, then frankly maybe 28% is a better starting point.
But what's fair isn't really relevant. What's relevant is what the market demand and supply is. If there's some dolt who would happily take 1.5% as a first engineer ("founding engineer") for a $125k salary cut, then the founders would be idiots not to take that deal. And frankly, if that $125k salary cut gets them their dream job, then maybe they're not even dumb for doing it.
Good capitalist businesses buy at the cheapest price they can, and they owners focus on balancing competing resources (control, dividends, ownership, status, information, etcetera...). However: people run businesses and people are not rational economic actors.
A good question is: what amount of equity can you negotiate? What do you have that will convince owners to share their ownership with you?
If you are negotiating with VC, then I think the game board and the rules of the game are already rigged against founders and employees. VC sets the rules and the mileau to play the long game, and employees are lucky to get a few leftovers.
You can be a founder or join a self-funded startup, that will give you a better chance of "fair" treatment, especially if you have the skills to join people that have high integrity.
In theory if you can marginally add 10% to the business value you should be able to argue to get some amount of that. However measuring an individuals effect on a business is usually really difficult (even consultants or businesses that specialise in increasing value usually only capture a tiny percentage of the value they add).
Also different people bring different resources to a business, and anyone with a monopoly on a resource can negotiate for more shareholding. There are idealistic economic theories for how people should bid in multi-party negotiations. Note that even though multiple people may each increase the value of a business by more than 50%, that doesn't mean each should get 50% of the shares (and obviously can't if more than two want >50%).
Generally if you need to ask for shares then you have already lost the game. Either found a business and put yourself in charge, or have something the owners want and demand ownership.
Disclosure: made small amounts of money as part of a self-funded startup joining high integrity co-founders. I've had little experience of VC funded companies or employee shares. Our SaaS business was doing something we'd done before and it was started decades ago when things were "easier".
Who raised the money that the company is using to pay salaries? When investors put money into a seed company, they're largely betting on the founders' perceived skillset and previous experience (or other bona fides like education).
One thing that most people don't realize is that being a founder means that you're inextricably tied to the company for its lifespan. Losing a founder is terrible optics and can be a death sentence for a startup. Regardless of the actual reason, every subsequent investor conversation will involve an explanation of what happened.
If you want more equity, you should ask for it! And you definitely shouldn't take a job where you'd feel under-compensated! But realistically, if you want a "founder-level" equity, you have to start your own company.
I always just assumed that the Entrepreneur, Founder & CEO had come up with an amazing idea like "build an startup (Ai probably) that makes a lot of money" and got some funding - but don't know what software is, don't know how to code and isn't really sure what Ai is does or can be used for; so need someone to put the pieces together to execute their vision with (for) them.
Opportunity to get in the ground floor with a future Unicorn - must have 25 years experience, Salary $25,000, 2% equity with 5 year lock-in.
I've been seeing really shitty vesting schedules more often these days. a year in an early stage startup is often more intense than years in larger companies, yet they feel the need to push vesting schedules like 5/15/30/50 on people.
even if you do stick it out and exercise those options and eat the tax burden, those shares can still be ignored in an acquisition or diluted into oblivion in an IPO if the agreements are structured to allow that.
with a fat carrot dangling at the end of year four and the promise of an IPO Soon™, a lot of people will be more than happy to ignore important parts of their lives and financial well being for the chance of maybe, just maybe, getting access to that lottery ticket.
I think a better analogy might be like gambling in a casino. investors get to write the rules and hold all the leverage. the worst places are mobbed up, the rest might be legit but either they have every incentive to keep selling you the dream of winning big. in all likelihood, if you keep making that bet you'll walk out worse off than you were when you walked in.
if a startup or VC truly gave a shit about anyone outside the c-suite, they'd have an employee ownership program of some form and assign actual equity, not just options. I've yet to see many of them do this though because founders are the most likely ones to be gambling in those kinds of casinos.
if you're not that ambitious and simply want to live comfortably, then go to those early stage startups and negotiate for higher cash comp and a smaller slice of the options.
you can make great money as a SWE, but there's a massive leap between that rung on the income ladder and the ones above it. it takes a dedicated effort to get there.
Is it networking again or some other approach?
Even stake might be worthless, if the company fails, despite you building a kickass backend for it.
The baseline is something like a 4-year vesting schedule with a 1 year cliff and monthly after that, uniform distribution. Anything more back-loaded or worse than that is a red flag.
and yes, liquidity in a private company is always going to be an issue.
all of this is why I tell everyone that their options are worthless right up until they're not. anyone who's burned out or looking at a new opportunity shouldn't include them in their decision making process.
Early exercise and 83(b) is a must, or forget about it.
When considering joining an early startup ask if they will allow you to early exercise as soon as you start (well, it'll be after board approval but as soon as that happens).
If they don't allow that or if the price is too high for your comfort level, don't join that startup.
If you don't have cash on hand to pay for early taxes, the company can pay a signing bonus or something for those who elect 83(b) to pay for the upfront taxes.
OR
Just pay market salaries and leave the choice to employees to do whatever they want with cash. You want to buy our company stock great here's the grant. You want to put your money in S&P index go ahead.
The employee equity part needs a lot more simplification. I don't know why it is not as simple as
Here are 2 options for you
Salary 200K OR Salary 100K Equity 100K If equity 100K exercise 83(b) - pay taxes at 200K income OR defer taxes for the subsequent exercise dates. (Could land a huge tax bill) OR defer the exercise date for a liquidity event/secondary sale.
Those who value risk will take the last option and those who don't will stick to full salary. 83(b) exercise, when presented like this, doesn't seem all that rosy.
There could be some legalities that I am unaware of, but broadly this should work.
By doing bad quality work on purpose will not make you learn anything. Better idea is to leave your underpaid position, start your own startup or join another that has better salary and compensation.
In startups that experience internet growth, you find yourself trying to build systems so fast and hire people that you aren't so worried about someone replacing the job you used to have because the nature of your job is changing as the company scales.
And if the startup is not growing, you can stop worrying about the equity package
Do you just go for the market salary and treat the equity as a minor plus?
Do they even pretend that they care about anything other than money? Like... ever? Maybe to family and friends (not even sure), but I mean professionally?
There was a tender offer in 2017 with the first SoftBank investment, and again in early 2019 (pre IPO attempt, closed in April) associated with the second investment by SoftBank. It is possible there were earlier events, but I had joined in 2015.
That isn't to say things were roses; I know many early employees who, in the lead up to IPO, exercised their options and took enormous loans to pay AMT and were left in a terrible situation.
I will re-work that section so that it's factually correct
If you have access (or have friends with access) to PitchBook, their file on WeWork would have comprehensive data about all the liquidity events.
I have raised 6 equity rounds as a founder of 2 companies. Never took a dime off the table, was never offered it, never asked for it. We actually did have early employees ask about it, and we encouraged them to not sell.
Why would you, especially at early stage valuations? You're either bad at math, or you know you're about to fail. And who is buying these secondary shares? I don't know a VC or angel who would "de-risk" an early founder like this; it's not aligned with their model. It also complicates QSBS status if I recall correctly.
Well they certainly wouldn't volunteer the offer without you asking for it.
This is from the article. I would tend to agree with you.
I think the paragraph above that quote explains it. They're talking about founders that "mortgaged their house and lived on ramen noodles for years." It actually sounds like they got screwed out of some equity. Rather than pay themselves a reasonable salary to support their lifestyle as they build the company, they instead traded equity for a one-time payment. That's a shitty deal, and I want to know who this predatory VC is so I make sure I never take money from them.
If you thought you had a real chance of going much bigger, having cash already makes you more willing to take that risk. And since VCs tend to make most of their money off a couple very big wins, it's worth it to have founders that won't settle for less than billions.
VCs are wealthy. Some of them weren't born wealthy. The best among them recognise that removing the worry about e.g. paying rent will make a better CEO.
As for employees? They are typically not calling the shots about company direction. I don't see a reason why investors would care about employees.
They can be motivated or not, knowing that the founder made big bucks and they made nothing is bound to lower motivation. Thus the title of the article, founder's liquidity is a well guarded secret.
Only once the startup has matured at least a little, too much money too early and your hungry founders become lazy.