How I negotiated my startup compensation (with numbers)(blog.keen.io)
blog.keen.io
How I negotiated my startup compensation (with numbers)
http://blog.keen.io/post/29904565692/how-i-negotiated-my-startup-compensation
221 comments
I wish good luck to all involved with this company. I am not sure if it's a good idea to work so closely with your fiance/wife/husband in a start up. If things don't work out, there will be more than a job that's lost.
Yeah, there will be both jobs lost.
While I can see hedging your bets by having your spouse work a normal job (and possibly get you on their health insurance), if a failed startup is going to doom your marriage, your marriage is already doomed.
While I can see hedging your bets by having your spouse work a normal job (and possibly get you on their health insurance), if a failed startup is going to doom your marriage, your marriage is already doomed.
Also: if your relationship is strong, and the working relationship is hurting the personal relationship (or vice versa), one of the two will just find another job. People change jobs for their relationship all. the. time. --- for instance, almost every time one spouse wants to move out of state for a better job.
Well said, tptacek.
Phil - I agree :)
That bit of information about them being engaged was just kind of sprinkled into the middle of the article as if it was of no significance.
Yeah, it completely changes the dynamic of the situation. I can't imagine many other people are really going through a salary negotiation with their fiance as the other party.
I usually let someone else handle financial negotiations if I referred someone into a company (even if I'd otherwise be the one doing that), unless it's a totally mechanical calculation. I'm not sure how I would do that with a fiancee.
The whole post/situation was fucking bizarre.
I came here to say the same thing. I had to do a CTRL+F to search for "Michelle" to see if I had missed where "Me:" and "Kyle:" turned into "Michelle:" and "Kyle:".
Also, Michelle mentioned that she was "friends with all of the founders of Keen." No small detail there.
Thanks for the feedback. I realized the article was confusing so I added an intro.
However, I feel no need to mention my gender or sexuality when introducing myself. If I didn't have a clearly female name, should I have said "Hi, I'm Pat, and I'm a female in the tech industry"?
However, I feel no need to mention my gender or sexuality when introducing myself. If I didn't have a clearly female name, should I have said "Hi, I'm Pat, and I'm a female in the tech industry"?
Ahh, yikes. Sorry. I should've been clearer.
I didn't mean (though it certainly sounded that way) that it's necessary for the reader to know your gender. Looking back, in fact, I realize that I weakened my position by even mentioning it (especially in the vague, imprecise way that I did).
I brought up gender because it was confusing (and I, along with other readers here, felt misled) when you – very casually, I might add – mentioned you were engaged to the CEO, up until which point I'd been under the false impression that you were a man.
So, to answer your question: no, you wouldn't have needed to inform the reader of your gender if you had an ambiguous name because what's really important here is not that you're a woman but that you're engaged to the CEO. Whether you're a man or a woman is irrelevant: all that is relevant is that you have a close personal history with the guy you're negotiating with, a fact which, again, completely skews the context of the article.
I didn't mean (though it certainly sounded that way) that it's necessary for the reader to know your gender. Looking back, in fact, I realize that I weakened my position by even mentioning it (especially in the vague, imprecise way that I did).
I brought up gender because it was confusing (and I, along with other readers here, felt misled) when you – very casually, I might add – mentioned you were engaged to the CEO, up until which point I'd been under the false impression that you were a man.
So, to answer your question: no, you wouldn't have needed to inform the reader of your gender if you had an ambiguous name because what's really important here is not that you're a woman but that you're engaged to the CEO. Whether you're a man or a woman is irrelevant: all that is relevant is that you have a close personal history with the guy you're negotiating with, a fact which, again, completely skews the context of the article.
Cool. Do you think the intro I added resolves the confusion?
"Hi, I’m Michelle. I recently left my job as a technical consulting manager and joined my best friends and my fiancé, Kyle, at Keen.io (I wrote about that here <link>). This is the story of how I negotiated my compensation."
"Hi, I’m Michelle. I recently left my job as a technical consulting manager and joined my best friends and my fiancé, Kyle, at Keen.io (I wrote about that here <link>). This is the story of how I negotiated my compensation."
Wait, what? Firstly: She's engaged to the founder. Secondly: This is on the company blog (which indicates she might not be 100% forthright). (And what am I supposed to learn about Keen.io, here?)
Finally (and most importantly): Did she run the numbers about what that 1.25% might realistically be worth? She compared the offer to her current position and (without the equity) there's a ~$55,000 difference. That's a shit-ton! How much of an exit would Keen.io have to have in order for that to pay off if she's on a reduced income for, say, four years? She'd have to get a couple hundred grand off of that exit. Will her share of equity get her that?
Anyway. This isn't a negotiation. And she didn't fully run the numbers.
[Edit]
I also wrote up my experience negotiating with a start-up [http://auscillate.com/post/238]. I'm pretty naive about this stuff, but at least I attempted to answer some of the issues of the value of equity.
Finally (and most importantly): Did she run the numbers about what that 1.25% might realistically be worth? She compared the offer to her current position and (without the equity) there's a ~$55,000 difference. That's a shit-ton! How much of an exit would Keen.io have to have in order for that to pay off if she's on a reduced income for, say, four years? She'd have to get a couple hundred grand off of that exit. Will her share of equity get her that?
Anyway. This isn't a negotiation. And she didn't fully run the numbers.
[Edit]
I also wrote up my experience negotiating with a start-up [http://auscillate.com/post/238]. I'm pretty naive about this stuff, but at least I attempted to answer some of the issues of the value of equity.
I modeled the cap table and various financial outcomes to figure out what 1.25% might be worth. In fact, we reviewed those numbers as a team (this was in my post).
The founders also set expectations that we'd adjust salaries to market value in the event of a Series A, though that isn't something I relied on as a part of my decision.
The founders also set expectations that we'd adjust salaries to market value in the event of a Series A, though that isn't something I relied on as a part of my decision.
I'm not sure what this critique has to do with the point of the article. This is, I think, a more careful (and lucrative) negotiation process than 99% of engineers are apt to us. The point of the post was to explain that process, presumably in the hopes of benefiting other startup employees.
Do you disagree with the methodology? How? Let's talk about that, and not what you think about the blog author's personal life.
Do you disagree with the methodology? How? Let's talk about that, and not what you think about the blog author's personal life.
I think she used a valuation of $5mil when doing her calculations. What are the odds the company will exit at that number? What are the odds it'll exit higher? What are the odds that it'll flame out and be worth nothing? Will her shares dilute? How much more does she feel she should earn to make up for all of this extra risk she's assuming?
She doesn't appear to consider any of this. At least, I don't see any numbers that take this stuff into account.
She doesn't appear to consider any of this. At least, I don't see any numbers that take this stuff into account.
She's using the note valuation; she didn't just make up $5MM.
Those are all good questions to ask. Some of them are questions she considers, some of them aren't.
Ultimately, though, the question of how you --- a prospective employee --- value equity is orthogonal to the question this post engages with, which is "how do I take the valuation for my role that I arrive at and effectively communicate it to the prospective employer so as to improve my initial offer". And, in that regard, I think this is a very good and useful post.
Those are all good questions to ask. Some of them are questions she considers, some of them aren't.
Ultimately, though, the question of how you --- a prospective employee --- value equity is orthogonal to the question this post engages with, which is "how do I take the valuation for my role that I arrive at and effectively communicate it to the prospective employer so as to improve my initial offer". And, in that regard, I think this is a very good and useful post.
I think her methodology was sound, and knowing to use it at all was great. I just question the CEO/founder for low-balling to begin with, and I'm not sure if the whole thing raises the perceived awesomeness of keen.io as an employer (which is what you'd want on a corporate blog).
On the meta point: I agree, it wasn't a great Keen.io boosting piece. Probably no blog post that has salary numbers next to equity allocations can be. But then, I found the honesty bracing in... mostly... a good way.
His point is that the methodology is flawed because of the unique circumstances of the author being engaged to the CEO. This skews the inputs upward in her favor.
Do you think the negotiating framework she wrote about here is unlikely to yield good results for normal startup people?
I feel like people put more weight on advice with personal experience behind it. That weight is understandably lowered when the circumstances turn out to be unique and odd and not really generally applicable.
I mean, would you take advice about how to move up in a company the same from the son of the founder?
I mean, would you take advice about how to move up in a company the same from the son of the founder?
You think because they're engaged that she was more likely to get a favorable offer?
Surely it messes with things that a favorable offer to her is also a favorable offer to her husband.
It completely distorts the negotiating position because (assuming no divorce), she's going to benefit from the success either way.
I have seen the opposite the case sometimes, too -- people overcompensate and treat their friends/spouses worse than they'd treat an arms length employee.
I personally worked with a married couple as founders, and would never do this again (a lot had to do with them in specific, but the general failure mode of any relationship problems spilling over into business, on top of them always ganging up on others, seems general). I'd probably work at a company with siblings as founders, and maybe at a company where a couple were in different roles (founder + employee).
I personally worked with a married couple as founders, and would never do this again (a lot had to do with them in specific, but the general failure mode of any relationship problems spilling over into business, on top of them always ganging up on others, seems general). I'd probably work at a company with siblings as founders, and maybe at a company where a couple were in different roles (founder + employee).
Well, yes. Being engaged to the CEO usually has that effect, especially when the CEO himself is handling the negotiations. It would be different if someone else who she was not friends with (and who was not friends with the CEO) was handling the negotiation, but not much. In the end, being the CEO's future wife plays a substantial role in her situation.
I think that's a fair thing to assume. Full disclosure: I'm Dan, one of the other co-founders of Keen. I actually did the negotiation with Michelle - Kyle delivered our original offer. But she's one of my best friends as well. As is Kyle. As is our other co-founder and the two other people on our team.
The negotiation was awkward, but I'm personally convinced that we're a stronger team because of our close personal bonds. It's not for everybody or every team, of course, but I believe it works for us.
The negotiation was awkward, but I'm personally convinced that we're a stronger team because of our close personal bonds. It's not for everybody or every team, of course, but I believe it works for us.
Did the team contemplate in making this offer that if something went sour in that relationship, you'd end up with a CEO who has both personal drama and potentially a very difficult situation in the office, given that she'd be reporting to him? How did your corporate counsel feel about this? Your board?
If she's not reporting to the CEO, how does her new manager feel about having a team member who's his bosses' fiancee? Would he be comfortable firing her if she fails to perform?
I know this seems hypothetical, but I think anyone who's been around startup has seen some variant of this play out multiple times. It's bad enough when it's friends; it's even more treacherous when it's a fiancee/wife.
If she's not reporting to the CEO, how does her new manager feel about having a team member who's his bosses' fiancee? Would he be comfortable firing her if she fails to perform?
I know this seems hypothetical, but I think anyone who's been around startup has seen some variant of this play out multiple times. It's bad enough when it's friends; it's even more treacherous when it's a fiancee/wife.
I'm biased, as I work with my spouse, but this is I think an overblown concern. People leave companies for all sorts of reasons, many of them dumb. They do not need to have made a lifelong personal commitment to their manager to find those reasons. Also, people do not need to have made that commitment in order to access their unprofessional self; normal team members find ways to be deeply unprofessional without entangling their relationships into their companies.
Yes. Strictly speaking, if you get into business with your significant other, you are increasing the cardinality of the set of things that can go wrong with your team. For people that think like us, maybe that's where you stop thinking, and if so, fine. But the set we're talking about is very large, and I also know high school statistics, and so can observe that the relationship stuff is unlikely to be the event that blows up your team.
Believe in working with your spouse (or close friends, or whatever) or not. Either way: it has nothing to do with negotiating for a job, and it's a little creepy to bring it up here.
Yes. Strictly speaking, if you get into business with your significant other, you are increasing the cardinality of the set of things that can go wrong with your team. For people that think like us, maybe that's where you stop thinking, and if so, fine. But the set we're talking about is very large, and I also know high school statistics, and so can observe that the relationship stuff is unlikely to be the event that blows up your team.
Believe in working with your spouse (or close friends, or whatever) or not. Either way: it has nothing to do with negotiating for a job, and it's a little creepy to bring it up here.
Well as long as the reporting structure at work is the same as the reporting structure at home I'm sure it can work. When they are reversed its a recipe for disaster.
I'm not sure what you mean here. The working relationship I have with Erin is nothing like my home relationship with Erin.
I worked at a company where the husband was the CEO and the wife reported to him. But at home it was pretty clear the wife made the decisions and the husband reported to her. As a result we got to experience the CEO making some decision which the wife disagreed with, only to have the decision changed the next day after they had spent some time out of the office. It was uncomfortable for everyone, and ultimately fatal to their marriage.
Of course we've thought of this (and a number of other hypotheticals). And of course we've discussed it, openly amongst the entire team as well as behind closed doors with our board and counsel. It does complicate things. In the end we felt like the positives (having Michelle on the team so we can take advantage of her strengths) outweigh the potential negatives. It could absolutely turn out badly. As with almost everything else in startups, we're making a hedged bet. And you're free to think we've made a mistake, of course, as long as you don't leave believing we haven't thought a ton about this. :)
It would be different if we were inserting Michelle into some rigid organization structure, especially if she was reporting to somebody other than our CEO. We don't have that kind of structure, though, and even if we did, we would never tell a frontline manager to hire somebody based on nepotism. That's a sure-fire way to kill a company in my book.
It would be different if we were inserting Michelle into some rigid organization structure, especially if she was reporting to somebody other than our CEO. We don't have that kind of structure, though, and even if we did, we would never tell a frontline manager to hire somebody based on nepotism. That's a sure-fire way to kill a company in my book.
Fair enough, as long as you're going into this with open eyes. It's not like most risks that startups take; inherently, most people wildly underestimate the risk that a personal relationship will go sour down the road. (If we didn't, a lot fewer people would get married.) I'm pretty sure if you ask most folks getting married what they estimate their chance of staying together is, they'll pick a number higher than ~50%.
Even if she's reporting directly to the CEO now, that raises its own questions, in particular for other employees. If I'm at her same level, do I feel like I'm going to get a fair shake if she and I are gunning for the same promotion? Down the road, as the organization grows, is she forever tied to reporting to the CEO? How do you ensure there's never a quid pro quo exchange that opens you to a lawsuit?
It's those kinds of questions that scare most organizations away from having direct reports romantically involved. It's especially fraught in a relatively unstructured organization like a startup where things like promotions and org changes can be fairly sudden and subjective.
Even if she's reporting directly to the CEO now, that raises its own questions, in particular for other employees. If I'm at her same level, do I feel like I'm going to get a fair shake if she and I are gunning for the same promotion? Down the road, as the organization grows, is she forever tied to reporting to the CEO? How do you ensure there's never a quid pro quo exchange that opens you to a lawsuit?
It's those kinds of questions that scare most organizations away from having direct reports romantically involved. It's especially fraught in a relatively unstructured organization like a startup where things like promotions and org changes can be fairly sudden and subjective.
It's true that being romantically involved with a direct report is fraught, because the whole team will assume favoritism. But it's also obvious, and it does not take a management genius to come up with mechanisms both to avoid the problem and soothe the concerns of the team.
If that was easy, it wouldn't be standard practice at corporations to disallow it. In most large companies, if you are in a relationship with someone in your reporting line, one of you has to transfer or leave.
Even if the reality is that there's no favoritism, it opens you up to lawsuits both from the people who are involved, and from their coworkers. If they break up, and then he demotes her or lets her go, lawsuit city.
I've seen this firsthand at a major venture startup (but wasn't involved in it myself) - a fiancee/employee decides to leave an officer for one of the other officers of the company. Disastrous for the company.
Anyway, it's their company, and I respect that they can do whatever they want - I only raised this issue because it happens fairly often in the startup world that a very tiny company wants to hire someone in a relationship with an existing employee, and there's a lot of issues you bring on board when you do that.
Even if the reality is that there's no favoritism, it opens you up to lawsuits both from the people who are involved, and from their coworkers. If they break up, and then he demotes her or lets her go, lawsuit city.
I've seen this firsthand at a major venture startup (but wasn't involved in it myself) - a fiancee/employee decides to leave an officer for one of the other officers of the company. Disastrous for the company.
Anyway, it's their company, and I respect that they can do whatever they want - I only raised this issue because it happens fairly often in the startup world that a very tiny company wants to hire someone in a relationship with an existing employee, and there's a lot of issues you bring on board when you do that.
Yes. Maybe a whole separate blog post coming on that :)
On a similar note, I would have preferred if she had posted something like this on a personal blog and not the company blog, because I think it looks tacky (especially when you are sharing your actual salary).
I thought the analysis was generally quite good though and she seems to be quite intelligent. Please don't take my critique to mean that I thought the point she was making was incorrect.
I thought the analysis was generally quite good though and she seems to be quite intelligent. Please don't take my critique to mean that I thought the point she was making was incorrect.
No really, this article was total nutso. "Another thing that made this situation complicated was that Kyle and I are recently engaged" was almost at the half way point. After reading about how she had received an email from "Kyle", one of the Keen founders, to meet for coffee or beer to discuss an offer, I had to assume they were both recently engaged to other people.
I finally realized that, no, in fact they are engaged to each other, but that was after she'd started referring to herself in the third person:
I finally realized that, no, in fact they are engaged to each other, but that was after she'd started referring to herself in the third person:
Michelle: “What should I do? ..."
hopefully I cleared up the confusion with the intro I added to the entry.
I think Michelle's methodology here is great, except for the fact that she applied it without a goal number; in other words, she took the offer number and tried to "reconcile" it to the model. The mechanic of running your offer through a model to justify a counteroffer is a great one that more nerds should adopt, but she's missing an input: what does she want the model to say? Your goal as a prospective employee is to maximize the number.
The offer side of this post makes my head hurt though.
Later:
Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.
Also:
Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.
What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.
The offer side of this post makes my head hurt though.
70k with .5% equity or
60k with 1% equity or
50k with 1.5% equity or
40k with 2% equity
Later:
Inputs:
- Employee’s market salary
(I used my current salary, plus bonuses)
- Salary offered by the startup
(I used my offer, plus benefits like rent subsidy)
- Company’s valuation
(I used $5M, the cap for Keen’s seed note)
Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.
Also:
Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.
What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.
re: CEO just told you it's $2MM, yes, but perhaps he'll instead tell you it's actually $5MM but he wants to incent you to take a larger equity stake (the other options trading off expected reward for additional financial security).
I thought she mentioned it was a 4 year vesting for that equity, which means 1% = $80k. But then that values the company at $8M, which also doesn't match the asserted $5M.
I'm not following how you're drawing a 4x valuation from vesting, but I'll admit that my head is in an SSL3 negotiation bug I'm grappling with while posting, so maybe I'm crazy.
$20k/year over 4 years = $80k
Technically, it'd be $20k/year over 4 years, discounted at some reasonable rate, say...crap. So, $80k.
It's pretty common to subsidize employee equity because employees having equity are incented to work, and because common generally is discounted to preferred by a larger factor very early in the formation of the company. It's reasonable to simultaneously treat employee equity as $2mm valuation and investor equity at $5mm valuation, especially with a note.
In this case, though, I think the way to win the negotiation is to walk. A competent engineer is more like $150-200k total comp in the bay area, and doing that as $100k + 100k of equity/yr in a real company is pretty plausible.
A more plausible story is offering $50-100k and then equity levels which ramp up rapidly as you go down to $50k. Someone taking $50k vs. $60k should get more than $10k x 4 of extra equity. Maybe something like 100/0.10 90/0.15 80/0.25 70/0.40 60/0.6 50/1. Then, if you need to prioritize candidates, absent other factors, the 50/1 people have a plus mark.
In this case, though, I think the way to win the negotiation is to walk. A competent engineer is more like $150-200k total comp in the bay area, and doing that as $100k + 100k of equity/yr in a real company is pretty plausible.
A more plausible story is offering $50-100k and then equity levels which ramp up rapidly as you go down to $50k. Someone taking $50k vs. $60k should get more than $10k x 4 of extra equity. Maybe something like 100/0.10 90/0.15 80/0.25 70/0.40 60/0.6 50/1. Then, if you need to prioritize candidates, absent other factors, the 50/1 people have a plus mark.
I'll admit: my issue here comes down to hating sliding equity/salary scales like this one. The rough amount of skin you want a team member to have in the game should be a part of the role definition, not a detail of the comp plan.
There have to be better ways to account for sub-market salary than a salary/equity scale multiple percentage points long. Ick.
There have to be better ways to account for sub-market salary than a salary/equity scale multiple percentage points long. Ick.
I'd probably have a range for the req (based on budget), and make an offer with two points (specific to the employee). The market is weird enough now that if you wanted to hire an SSL protocol expert, you might end up hiring someone with 2-3 years of general security and dev experience who has read the book, or someone who is EAY, and even the first option might be better than no one in many roles.
I've heard Palantir does three offers, and taking the top cash one is a bad signal.
Also, I think employees undervalue equity, and there's a weird signaling/etc. effect where shitty companies give out equity freely, good companies don't. Cash is cash, though.
I've heard Palantir does three offers, and taking the top cash one is a bad signal.
Also, I think employees undervalue equity, and there's a weird signaling/etc. effect where shitty companies give out equity freely, good companies don't. Cash is cash, though.
I strongly agree with the last part of your comment; I think that nails my uneasiness about this particular offer.
You think that if a company offers a sizable equity percentage as part of their comp it signals something negative about that company?
Yes, if the founders of a company, who have the best visibility into the company, don't value their equity, it's a waving red flag on fire. Either they are idiots (inexperienced at best, incompetent more likely), or company = doomed.
Obviously offering tptacek 5% in a company isn't bad, but offering an office admin 5% is.
Obviously offering tptacek 5% in a company isn't bad, but offering an office admin 5% is.
This person isn't an office admin. I don't know where that notion is coming from (elsewhere on the thread, I assume), but it's a little disturbing.
I didn't read the comment as referring to the author as an admin, it was just offering a lowly position stand-in in the current hypothetical.
Yeah, that was that I intended -- a general example. Given her previous salary of $116k+, she was obviously in some kind of professional/technical IC or low level manager role before.
(Couldn't reply directly to you, rdl, sorry.)
I agree that offering an office manager 5% is silly and offering a founder-level person 5% could make sense. I guess I was more curious to see what you think the right ranges are.
I agree that offering an office manager 5% is silly and offering a founder-level person 5% could make sense. I guess I was more curious to see what you think the right ranges are.
In a company which is post accelerator and has raised $1-2mm, without being an absurd success or abject failure, I value equity for employees using a valuation of 0.5-0.75x the cap on convertible debt if you were to issue the debt right now. I have no idea how to handle this at Series A or beyond; a bridge I will burn when I come to it. You may adjust this based on whether you view investor money as particularly cheap (which varies by segment), how long since you raised, etc. The main thing is it should be consistent across employees at a given time.
(So, e.g., a $10mm cap note company which has raised $2mm would treat each 1% of employee equity as $50-$75k. So giving up $25k in cash salary should get you, as a 4 year grant, 2% to 1.3% equity. That is in line with the 0.5-1% for a seed stage 5-7y experience strong individual contributor equity, which is a slightly low amount; generally I've seen 0.1-0.25% for 3-5y experience Series A hires, on say a $20-30mm valuation, which also is in line with this.)
The annoying thing is a company wants to discount equity to employees at 0.5-0.75x. Engineers often discount it to 0.1, especially people who have been burned in the past (90% of people in the first bubble, ex-Zynga people, etc. If you're negotiating with someone who irrationally discounts equity, just pay him more cash and pocket the difference).
A Google SSE or Staff Eng is about $200-225k on the market (total comp), a 3-5 year guy is more like 125-150k, and a very junior person is 75-100k. You can allocate that among perks, equity, bonus, %, and base in various ways.
There is basically no way to use just above-market salary to hire good people, but lack of market salary can get people to rule you out. I've worked at companies where ~everyone got $150k cash + strong equity (0.25-1%), and it ended up just being mercenary people who worked there and remained, due to other defects in corporate culture. (I've also worked in a 200-500k cash-comp-only environment, and the quality of people was inferior to any startup I've ever seen.)
You can probably get people to sacrifice 0-25% of total comp (and maybe up to 50% for short periods of time, like 3-6mo until financing). They are only willing to do that if they think it is "fair", which means they have good odds of doing well on the deal, and others in the company, particularly founders, make similar sacrifices. If a founder is paying himself $150k/yr, and is trying to negotiate a $225k Staff Engineer hire to take $50k cash + $50k equity, you'll probably only get the most self-sacrificing and useless person to join. If a founder is paying himself $30k and is trying to get a $225k SE to take $70k/yr until Series A (6mo), then $120k, plus $50k of equity, and some other perks ("not being at Google of 2012" seems like a serious perk for a lot of the people I've talked to), you'd have a shot.
The best way to allocate equity that I've seen was the 'allocate by cohort' strategy (I forget who proposed this...maybe hn user joshu? or suster or feld or someone). Basically all of your hires at seed stage get x%. All of your hires from Series A to Series B get x% also. But your first pool is split across 5 people, and your second pool is split across 25 people. It is way easier for me to understand the relative importance of the 5 people hired during seed stage vs. figuring out their time/risk weighted importance in a company all the way to IPO.
(So, e.g., a $10mm cap note company which has raised $2mm would treat each 1% of employee equity as $50-$75k. So giving up $25k in cash salary should get you, as a 4 year grant, 2% to 1.3% equity. That is in line with the 0.5-1% for a seed stage 5-7y experience strong individual contributor equity, which is a slightly low amount; generally I've seen 0.1-0.25% for 3-5y experience Series A hires, on say a $20-30mm valuation, which also is in line with this.)
The annoying thing is a company wants to discount equity to employees at 0.5-0.75x. Engineers often discount it to 0.1, especially people who have been burned in the past (90% of people in the first bubble, ex-Zynga people, etc. If you're negotiating with someone who irrationally discounts equity, just pay him more cash and pocket the difference).
A Google SSE or Staff Eng is about $200-225k on the market (total comp), a 3-5 year guy is more like 125-150k, and a very junior person is 75-100k. You can allocate that among perks, equity, bonus, %, and base in various ways.
There is basically no way to use just above-market salary to hire good people, but lack of market salary can get people to rule you out. I've worked at companies where ~everyone got $150k cash + strong equity (0.25-1%), and it ended up just being mercenary people who worked there and remained, due to other defects in corporate culture. (I've also worked in a 200-500k cash-comp-only environment, and the quality of people was inferior to any startup I've ever seen.)
You can probably get people to sacrifice 0-25% of total comp (and maybe up to 50% for short periods of time, like 3-6mo until financing). They are only willing to do that if they think it is "fair", which means they have good odds of doing well on the deal, and others in the company, particularly founders, make similar sacrifices. If a founder is paying himself $150k/yr, and is trying to negotiate a $225k Staff Engineer hire to take $50k cash + $50k equity, you'll probably only get the most self-sacrificing and useless person to join. If a founder is paying himself $30k and is trying to get a $225k SE to take $70k/yr until Series A (6mo), then $120k, plus $50k of equity, and some other perks ("not being at Google of 2012" seems like a serious perk for a lot of the people I've talked to), you'd have a shot.
The best way to allocate equity that I've seen was the 'allocate by cohort' strategy (I forget who proposed this...maybe hn user joshu? or suster or feld or someone). Basically all of your hires at seed stage get x%. All of your hires from Series A to Series B get x% also. But your first pool is split across 5 people, and your second pool is split across 25 people. It is way easier for me to understand the relative importance of the 5 people hired during seed stage vs. figuring out their time/risk weighted importance in a company all the way to IPO.
Not me, sorry.
Btw my return across all angel investments starting as convertible notes is rougghly .9x. Whether I am any good at allocating funds long term remains to be seen.
For my own startup, we allocate equity per a model we built based on historical allocations. And then we beat it by a fair bit.
Btw my return across all angel investments starting as convertible notes is rougghly .9x. Whether I am any good at allocating funds long term remains to be seen.
For my own startup, we allocate equity per a model we built based on historical allocations. And then we beat it by a fair bit.
Until you're profitable (i.e. while you're still dependent on venture funding), my thinking is that equity is cash: the two are convertible quantities, with the conversion rate being based on our company's likely next valuation or cap.
If, as a founder, you give up so much equity that your option pool is totally depleted at the next funding round, then 10-20% will need to go to an option pool top-of -- and there's that much less equity to sell to the new investors, meaning less cash can flow into the coffers. Spending equity costs the company cash.
Meanwhile, if you spend double the cash of another startup in the same stage, your runway depletes doubly fast, and you need to raise sooner. Spending cash costs the company equity.
If, as a founder, you give up so much equity that your option pool is totally depleted at the next funding round, then 10-20% will need to go to an option pool top-of -- and there's that much less equity to sell to the new investors, meaning less cash can flow into the coffers. Spending equity costs the company cash.
Meanwhile, if you spend double the cash of another startup in the same stage, your runway depletes doubly fast, and you need to raise sooner. Spending cash costs the company equity.
Interesting. Do you know what happens to the folks who take all cash vs. one of the other offers?
I know of no employees who took the mostly-cash offer, but that may be a selection bias on my part; I've never worked for Palantir, and am just friends/hang out with people who particularly care about their job (independent of where they work), don't have children or other major cash obligations, and are libertarian tax-minimizers. Those people are highly likely to shoot for highest EV (vs. low risk) and pushing as much income to capital gains as possible.
I think that 50k/1% should be considered only as a 'hobby occupation'. Or, if one is trying to change a field of work.
Because this early employee 1% is a) going to get diluted; b) it is over 4 years; c) most likely will result in $0 - $5000 cash-wise. And 50k (without benefits I assume) is.. well nothing.
Because this early employee 1% is a) going to get diluted; b) it is over 4 years; c) most likely will result in $0 - $5000 cash-wise. And 50k (without benefits I assume) is.. well nothing.
If you're already well-off enough to not need income, or have a rich doctor as a spouse, it's quite reasonable to trade salary for equity.
Also, I'd love to take $50k/yr + 1% equity in an already successful startup. Say, Facebook.
Also, I'd love to take $50k/yr + 1% equity in an already successful startup. Say, Facebook.
> "If you're already well-off enough to not need income, or have a rich doctor as a spouse, it's quite reasonable to trade salary for equity."
It is never reasonable to trade your skills at substantially below-market compensation - regardless of if you can afford to do so. I have a lot of savings, but that doesn't make it reasonable for me to start lighting cigars with $20 bills.
Equity is a form of compensation, in this case dchichkov worked it out to be a expected value of $5K (or thereabouts) - how does one justify taking a haircut substantially more than this? (in this case, the haircut is on the order of $50-100K depending on the person).
It is never reasonable to trade your skills at substantially below-market compensation - regardless of if you can afford to do so. I have a lot of savings, but that doesn't make it reasonable for me to start lighting cigars with $20 bills.
Equity is a form of compensation, in this case dchichkov worked it out to be a expected value of $5K (or thereabouts) - how does one justify taking a haircut substantially more than this? (in this case, the haircut is on the order of $50-100K depending on the person).
Unless lighting cigars with $20 bills could give you more money, I don't see that as an applicable analogy. If anything, it's a version of gambling.
Taking a significant paycut can be worth it if the options offered proportionately compensated the salary disparity IF the startup exits AND at a number that you estimate it could potentially hit.
If one isn't willing to take that risk then they should opt for less equity/no equity but a fairer market value.
Taking a significant paycut can be worth it if the options offered proportionately compensated the salary disparity IF the startup exits AND at a number that you estimate it could potentially hit.
If one isn't willing to take that risk then they should opt for less equity/no equity but a fairer market value.
At a very early stage startup, being a late founder means $50k cash salary (I get $30k as a founder, and if we did a late founder, I'd push for the same salary) vs. $100k+ for employee #1, but huge equity (5-50% instead of 0.5-5%, depending on person, size of team, how late, etc.). If you don't view founder-level equity as being worth $50-100k less cash comp, you probably shouldn't work there.
If you are already well-off, then 50k/yr wouldn't make any difference for you. And you probably have connections and can bring in a lot of value. So, if you are serious enough about it, ask no salary and a late co-founder status. Would serve you a lot better. And wouldn't allow other founders tell you, that they are paying you "salary".
Yeah, and I'd take $20k/yr + a winning Powerball ticket.
Higher equity is always the most rewarding option in the best possible outcome. But it's hard to leave safe money on the table. Four years from now the company could be worth way more than the current $5mm, then those $20k/year would look like scraps.
I agree with tptacek; 100/0.1 and 50/1 suit very different persons, the company should decide which type it's going after and limit that range.
I agree with tptacek; 100/0.1 and 50/1 suit very different persons, the company should decide which type it's going after and limit that range.
At 50/1 for a company just out of of an accelerator you would have to think that you would be better off jut starting your own company.
Also depends on which company, and who you are. There are companies that go into accelerators after raising money, with great traction, etc. If you're just out of school or bigco and NOT a potential founder right now, doing 50/1 for 2 years to build great experience might be worthwhile, although pushing for higher cash comp once the company raises >$1mm or so might be reasonable.
From what I've seen of YC W12 and S12 companies, there are >10 where I would have done $50-70k + 1% to work there for 2-4y, back when I was 25, and absolutely after leaving school.
From what I've seen of YC W12 and S12 companies, there are >10 where I would have done $50-70k + 1% to work there for 2-4y, back when I was 25, and absolutely after leaving school.
Thanks for the thoughtful response! (I wrote the post)
I tried to take the approach you recommended and arrive at some numbers completely independent of the offer. I don't think I made that clear in the post, though.
Calculating the company's worth based on the offer is a cool idea, wish I would have thought of it at the time.
A big Series A is important because we discussed adjusting salaries to market value in the event of a Series A.
I tried to take the approach you recommended and arrive at some numbers completely independent of the offer. I don't think I made that clear in the post, though.
Calculating the company's worth based on the offer is a cool idea, wish I would have thought of it at the time.
A big Series A is important because we discussed adjusting salaries to market value in the event of a Series A.
To be fair, it's actually like saying 1% equity converts to roughly $20k per year, since salary is annual.
But one year is about the horizon time most of these startups are looking at. At that point either they'll get real funding and the salaries will get rescaled to market values or they'll fail. Either way they're looking at saving about $20k total in the immediate term.
I'd like to hear more about the insanely vague "Health Insurance" on both sides of that spreadsheet. Looks like a complete match and no problem, right?
I went from an established company that offered an awesome family PPO plan ($0 monthly premiums, 95/5 coverage, $750 family deductible, paid vision/dental) to a startup that offers a way worse one: ($780 monthly premiums, 90/10 coverage, $3000 family deductible, no vision/dental).
You can list "Health care! Woo!" on both sides of that offer, but I bet it's way more detailed than that or completely missed in the equation altogether. My personal difference in line items is over $14,000 annually.
I went from an established company that offered an awesome family PPO plan ($0 monthly premiums, 95/5 coverage, $750 family deductible, paid vision/dental) to a startup that offers a way worse one: ($780 monthly premiums, 90/10 coverage, $3000 family deductible, no vision/dental).
You can list "Health care! Woo!" on both sides of that offer, but I bet it's way more detailed than that or completely missed in the equation altogether. My personal difference in line items is over $14,000 annually.
I authored the post and you're absolutely right. It was a lazy approximation. My healthcare in the startup isn't quite as good now, but I'm also very fortunate in that I don't have any healthcare-related expenses.
Thank you for bringing it up here, it could be a significant differentiator for some folks.
Thank you for bringing it up here, it could be a significant differentiator for some folks.
The relevance of health care in this negotiation is contextual. For young, healthy, child-less people, their usage of health care is going to be minimal at best - and really amounts of catastrophic insurance against accidents or major illnesses.
This changes dramatically if the individual has children, chronic illnesses, or other persistent conditions that will require regular use of the medical system.
And also, ouch, $780 monthly premiums - is the company any of your premiums?!
This changes dramatically if the individual has children, chronic illnesses, or other persistent conditions that will require regular use of the medical system.
And also, ouch, $780 monthly premiums - is the company any of your premiums?!
Yeah, they're fronting the other $1400 of the premium. We're a very small company and getting completely dicked by Blue Cross / Blue Shield. Doesn't help that most of the principals are senior people with families. I also chose the PPO over the HMO and FSA plans. I've btdt with those two and will never go back.
Which brings me back to your first point. Yes, the healthcare aspect (especially in the US) is contextual. Which means startups can favor younger/inexperienced/childless early employees over older experienced/family people.
And remember, anyone's situation can change on a dime. Doesn't matter where or when you work.
Which brings me back to your first point. Yes, the healthcare aspect (especially in the US) is contextual. Which means startups can favor younger/inexperienced/childless early employees over older experienced/family people.
And remember, anyone's situation can change on a dime. Doesn't matter where or when you work.
$2180 a month, $3000 deductible. Did your founders meet at a cancer remission support group? Or is it just that hard to negotiate for a small group policy where you are?
He's quoting what sounds like a market small-group PPO normal-deductible rate for family coverage in the US.
You can get the rates down by opting for an HSA-qualified HDHP plan (the deductibles for those plans in IL are in the range of $5k/$10k-family). I'm not sure how much lower the rate is, but normal-deductible insurance is not a good deal for most people.
If his founders met at a cancer remission support group --- or, for that matter, the support group for any of a list of hundreds of self-evidently nonfatal medical conditions, most of them affecting women --- he would not be able to get insurance at any price. At any price. He would not get "dicked over with worse rates"; he simply would be unable to set up small-group health insurance for that group at all, under any circumstances, unless he excluded members of his group (or fired them). People with those conditions, which (it should not surprise you) are very common, and which very rarely implicate expensive treatment demands down the road†, can obtain insurance only by accepting jobs at companies with large group health plans.
It is sad for me to have to call this comment out for being naive, because is naive in the face of a terrible injustice that also happens to be a thorn in the corneas of many startup founders, but it's naive.
I know several very smart startup founders that have families who are opposed to guaranteed-issue health insurance, but I cannot personally for the life of me fathom how they arrived at that opinion, having myself had to go through the shitshow that is securing family health insurance coverage on the private market.
† But actuarially incur high costs enough to fuck over multiple percentage point-sized swaths of the whole US population
You can get the rates down by opting for an HSA-qualified HDHP plan (the deductibles for those plans in IL are in the range of $5k/$10k-family). I'm not sure how much lower the rate is, but normal-deductible insurance is not a good deal for most people.
If his founders met at a cancer remission support group --- or, for that matter, the support group for any of a list of hundreds of self-evidently nonfatal medical conditions, most of them affecting women --- he would not be able to get insurance at any price. At any price. He would not get "dicked over with worse rates"; he simply would be unable to set up small-group health insurance for that group at all, under any circumstances, unless he excluded members of his group (or fired them). People with those conditions, which (it should not surprise you) are very common, and which very rarely implicate expensive treatment demands down the road†, can obtain insurance only by accepting jobs at companies with large group health plans.
It is sad for me to have to call this comment out for being naive, because is naive in the face of a terrible injustice that also happens to be a thorn in the corneas of many startup founders, but it's naive.
I know several very smart startup founders that have families who are opposed to guaranteed-issue health insurance, but I cannot personally for the life of me fathom how they arrived at that opinion, having myself had to go through the shitshow that is securing family health insurance coverage on the private market.
† But actuarially incur high costs enough to fuck over multiple percentage point-sized swaths of the whole US population
Thanks for the backup. Tom is totally on the mark.
Every time I encounter a conversation about healthcare in the US, all I do now is ask if the other party has ever tried to purchase private coverage for their family on the open market. You have no standing to discuss the true situation in this country until you have.
I did it 7 years ago and it was hell. Absolute hell. I can only imagine it's gotten worse since then.
To add a data point, I dug out the medical rate information from my offer package three years ago. The Family PPO premium was $17,000 annually, of which I paid $9600. The Family PPO with $5K HSA was $12,500 to my employer, $5000 of which I would have had to pay. At the time I was easily consuming $5K+ of services for my children, and I had awful experiences with a previous HSA, so the normal PPO was my choice. The rates have jumped 30% since then, and my employer has absorbed most of the jump.
Every time I encounter a conversation about healthcare in the US, all I do now is ask if the other party has ever tried to purchase private coverage for their family on the open market. You have no standing to discuss the true situation in this country until you have.
I did it 7 years ago and it was hell. Absolute hell. I can only imagine it's gotten worse since then.
To add a data point, I dug out the medical rate information from my offer package three years ago. The Family PPO premium was $17,000 annually, of which I paid $9600. The Family PPO with $5K HSA was $12,500 to my employer, $5000 of which I would have had to pay. At the time I was easily consuming $5K+ of services for my children, and I had awful experiences with a previous HSA, so the normal PPO was my choice. The rates have jumped 30% since then, and my employer has absorbed most of the jump.
Pretty much the latter. A few in our group also had kids over the last few years. That's a guaranteed premium hike right there.
This is actually lower that what it cost me as a one-person company. Fortunately, my C-corp enables me to deduct health care costs (so long as the benefit is given to all employees). It is rather outrageous.
It must be very strange negotiating salary with your fiance.
1) Supposing they low-balled you, and you found out. Awkward..
2) Presumably at some stage, your finances will be joint, or at least interlinked. Does that not mean it is in your fiance's best interest to make sure you get as much as possible? Is that not a conflict with what's best for the company?
//edit// Not being mean, btw, I hope they do really well and make millions. It just seems a bit.. strange.
1) Supposing they low-balled you, and you found out. Awkward..
2) Presumably at some stage, your finances will be joint, or at least interlinked. Does that not mean it is in your fiance's best interest to make sure you get as much as possible? Is that not a conflict with what's best for the company?
//edit// Not being mean, btw, I hope they do really well and make millions. It just seems a bit.. strange.
Totally strange. I did most of the negotiation with Dan, our CTO, though Kyle (my fiance) is the person who gave everyone the first verbal offers. I just updated the blog post to make that more clear.
I think in the end being friends made the negotiation much easier. I am confident we all wanted what was fair for the business and each individual, and were able to talk at length about that until everyone felt comfortable.
I think in the end being friends made the negotiation much easier. I am confident we all wanted what was fair for the business and each individual, and were able to talk at length about that until everyone felt comfortable.
I too find it incredibly strange and most importantly dangerous.
1) You are intertwining your MARRIAGE with work. Rule #1 is don't shit where you eat.
2) You make matters worse because your husband is your boss. This will screw up the relationship dynamic, and that's not necessarily a guess, Im 99% certain it will be hard to separate, especially with longer start-up hours. Good luck, you'll need it.
3) You are putting all of your eggs in one basket. Sure its convienent, but if the start up fails, you are BOTH out of work.
4) Putting all of this on the company blog, with screenshots of e-mail correspondence and even prices is very strange, and either you don't know what you're compromising by doing this or it is a veiled attempt at advertising compensation packages on HN.
Generally, I don't think you or your husband's strategy will play well for either one of you in the long run. Others have said your finances will be joint, so why does it even matter what you get?
Seriously, this is really weird. I'm sure you're confident it will work, but I know first hand that mixing friendship (and in your case MARRIAGE, jesus) with work is dangerous and rarely ends well.
Good luck. My opinion is you both have made a very big mistake.
1) You are intertwining your MARRIAGE with work. Rule #1 is don't shit where you eat.
2) You make matters worse because your husband is your boss. This will screw up the relationship dynamic, and that's not necessarily a guess, Im 99% certain it will be hard to separate, especially with longer start-up hours. Good luck, you'll need it.
3) You are putting all of your eggs in one basket. Sure its convienent, but if the start up fails, you are BOTH out of work.
4) Putting all of this on the company blog, with screenshots of e-mail correspondence and even prices is very strange, and either you don't know what you're compromising by doing this or it is a veiled attempt at advertising compensation packages on HN.
Generally, I don't think you or your husband's strategy will play well for either one of you in the long run. Others have said your finances will be joint, so why does it even matter what you get?
Seriously, this is really weird. I'm sure you're confident it will work, but I know first hand that mixing friendship (and in your case MARRIAGE, jesus) with work is dangerous and rarely ends well.
Good luck. My opinion is you both have made a very big mistake.
I find your response to be a bit dramatic and troll-y, but you do raise some valid, common concerns which I will address now for the sake of others who might be curious:
[don't shit where you eat] If things start to get uncomfortable, for whatever reason, I can get another job. I'm smart enough not to be 100% confident things will work perfectly. However, I have lived with Kyle and the other founders for 8 years. We have a long and stable history.
[your husband is your boss] Kyle is a leader, but he's not my boss. We are a six person company and no one here has a boss. We treat each other as peers. So far it is working great. If we need to establish a hierarchy at some point, I trust we are capable of architecting it wisely. We are kind of obsessed with the organizational design of the company.
[two eggs, one basket] I'm not too worried about either of us being able to find a job. We have valuable skill sets which are in high demand. Plus, I have savings from my previous job.
[why did you blog this??] I put this on the blog because I thought it would be helpful to other people. It has received overwhelming appreciation.
Keen allowed it on the blog because we support a culture of transparency and because we think maintaining a blog that is useful to the tech community is helpful for our business. So far, it has worked very well.
[your finances will be joint, so why does it even matter what you get?] I'm offended by this question. I have always been the high earner in this relationship, and I still am. My salary matters a lot to me. The only way your question makes sense to me is if you think Kyle is rich (he's not), if you think he makes all the salary decisions in the company (he doesn't), or if you are speaking in the context of antiquated gender roles.
[you're weird] Thank you.
[don't shit where you eat] If things start to get uncomfortable, for whatever reason, I can get another job. I'm smart enough not to be 100% confident things will work perfectly. However, I have lived with Kyle and the other founders for 8 years. We have a long and stable history.
[your husband is your boss] Kyle is a leader, but he's not my boss. We are a six person company and no one here has a boss. We treat each other as peers. So far it is working great. If we need to establish a hierarchy at some point, I trust we are capable of architecting it wisely. We are kind of obsessed with the organizational design of the company.
[two eggs, one basket] I'm not too worried about either of us being able to find a job. We have valuable skill sets which are in high demand. Plus, I have savings from my previous job.
[why did you blog this??] I put this on the blog because I thought it would be helpful to other people. It has received overwhelming appreciation.
Keen allowed it on the blog because we support a culture of transparency and because we think maintaining a blog that is useful to the tech community is helpful for our business. So far, it has worked very well.
[your finances will be joint, so why does it even matter what you get?] I'm offended by this question. I have always been the high earner in this relationship, and I still am. My salary matters a lot to me. The only way your question makes sense to me is if you think Kyle is rich (he's not), if you think he makes all the salary decisions in the company (he doesn't), or if you are speaking in the context of antiquated gender roles.
[you're weird] Thank you.
I'm sorry you feel I have "trolled" you. Not my intention. This was simply far enough away from what I normally encounter to justify voicing my opinion, not that my expectation would be that you would reconsider.
For clarification I never called you weird, ad hominem isn't really my thing.
And there is of course room for me to be completely wrong. I'm sure you're educated enough to avoid the most common pit-falls. It is simply my preference that given the opportunity, I wouldn't have made the same decisions.
Given the statistical risk of problems arising from this configuration, I can't imagine what the payoff would be that would justify the exposure.
For clarification I never called you weird, ad hominem isn't really my thing.
And there is of course room for me to be completely wrong. I'm sure you're educated enough to avoid the most common pit-falls. It is simply my preference that given the opportunity, I wouldn't have made the same decisions.
Given the statistical risk of problems arising from this configuration, I can't imagine what the payoff would be that would justify the exposure.
> You are intertwining your marriage with work. Rule #1 is don't shit where you eat.
If shit is a good metaphor for either the marriage or the job, then something was very badly wrong from well before this story began.
If shit is a good metaphor for either the marriage or the job, then something was very badly wrong from well before this story began.
Fair enough. Good luck to you both!
Rent subsidy makes no sense to me. It's a fully taxable fringe benefit (at least in the US, if it's not for the benefit of the employer like at a mine), and basically the same as salary, but people don't include it in the salary calculation. It's just stupid for the employer to offer it instead of the same amount of extra income.
I'd like to clarify a bit here. Inside Keen (I'm the CEO), our name for this (what Michelle's spreadsheet terms "rent subsidy") is the "proximate living bonus". To qualify, you have to be within a short commute of the office.
Our reasoning:
All else being equal, people often choose a longer daily commute, usually to save money. But, as research* has shown time and time again, once basic needs are met by compensation, the factor which correlates most strongly and consistently with unhappiness is commute time.
What we're attempting to do with the proximate living bonus, then, is to incentivize happiness: We're intentionally designing our bonus structure to incentivize the better decision, which employees might otherwise neglect for a number of (irrational) reasons.
*Here's a good intro into the research on this topic: http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese...
Our reasoning:
All else being equal, people often choose a longer daily commute, usually to save money. But, as research* has shown time and time again, once basic needs are met by compensation, the factor which correlates most strongly and consistently with unhappiness is commute time.
What we're attempting to do with the proximate living bonus, then, is to incentivize happiness: We're intentionally designing our bonus structure to incentivize the better decision, which employees might otherwise neglect for a number of (irrational) reasons.
*Here's a good intro into the research on this topic: http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese...
In this case, numerous things in the article seem to imply that Keen was/is working out of the house, and that the author was living with the CEO (and possibly other founders?).
Given that, it seems like the most straight-forward way this "rent subsidy" is working is that Keen is paying for the house where they live/work out of company money, and that's probably where the different category comes from, at least conceptually. (apologies for assuming if that's not correct)
Given that, it seems like the most straight-forward way this "rent subsidy" is working is that Keen is paying for the house where they live/work out of company money, and that's probably where the different category comes from, at least conceptually. (apologies for assuming if that's not correct)
Disclosure: I'm one of the founders of Keen.
With respect to the housing subsidy, you've got part of it right. We do work out of a big house that some of us live in. But the rent subsidy was put in place for one main reason: one of the main drivers of employee happiness is commute time. They're inversely related, and the rent subsidy is our way of incentivizing employees to live close to the office.
With respect to the housing subsidy, you've got part of it right. We do work out of a big house that some of us live in. But the rent subsidy was put in place for one main reason: one of the main drivers of employee happiness is commute time. They're inversely related, and the rent subsidy is our way of incentivizing employees to live close to the office.
That's hella creepy.
What if I think I'll be happier living closer to friends or family and that happens to be far from your office? All of a sudden you're going to pay me less? Since when are you a better judge of what will make me happy than I am? Since when is that even your job?
What if I think I'll be happier living closer to friends or family and that happens to be far from your office? All of a sudden you're going to pay me less? Since when are you a better judge of what will make me happy than I am? Since when is that even your job?
Every company incentivizes its employees to behave in certain ways, and one of the main ways to incentivize is through monetary reward. We're big believers in keeping our employees happy. And research* shows there's a big correlation between commute time and employee happiness. So we've made the decision to try to encourage, through a bonus, all of us to stay close to the office.
I see it as similar to the way FullContact is trying out a program to encourage its employees to take real vacation time - paid, paid vacation. They believe (and we do too, actually), that people SHOULD take time off work to go cool places. But they often don't. But if you give them money to do it, maybe they will.
Of course, you don't have to agree. And maybe it means we wouldn't be a good culture fit for you. Sounds like you're okay with that?
* http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese... http://www.fullcontact.com/2012/07/10/paid-paid-vacation/
I see it as similar to the way FullContact is trying out a program to encourage its employees to take real vacation time - paid, paid vacation. They believe (and we do too, actually), that people SHOULD take time off work to go cool places. But they often don't. But if you give them money to do it, maybe they will.
Of course, you don't have to agree. And maybe it means we wouldn't be a good culture fit for you. Sounds like you're okay with that?
* http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese... http://www.fullcontact.com/2012/07/10/paid-paid-vacation/
It's different in SF than NYC: we have a totally dysfunctional transit system AND shitty traffic (on purpose, due to "transit first"; they just forgot to actually use the pressure against cars to build a transit system people who can afford cars otherwise would want to use).
Facebook did the $500/mo rent subsidy in downtown PA thing for a while (2008?), but this just had the effect of raising all rents in downtown SF (within a 1 mile radius) $500. Which I hated, since I didn't work for FB.
I think it's reasonable to encourage people to have a short commute. It helps the company -- people are more likely to put in longer hours, or irregular hours, if they don't have an hour long commute through traffic to look forward to every time (my current commute takes between 40 minutes and 2h, depending on exactly when I leave. A 0900 VC meeting on sand hill basically means I need to wake up at 0500, whereas an 1100 meeting means I could theoretically sleep until 0930.)
The difference was FB was paying market+ salary, so the housing subsidy was an extra perk. In the case of offering $70k salary + $12k, I'd really just do $82k; $70k is enough below market that you don't get considered by some people.
For really early stage companies, I do like the rent house and live/work there, for 6mo. That's one of the things I regret about current startup, not doing that. (we actually live in oakland, sf, and south san jose, with an office in mountain view; it means driving 40k miles/yr each, which is stupid.)
Facebook did the $500/mo rent subsidy in downtown PA thing for a while (2008?), but this just had the effect of raising all rents in downtown SF (within a 1 mile radius) $500. Which I hated, since I didn't work for FB.
I think it's reasonable to encourage people to have a short commute. It helps the company -- people are more likely to put in longer hours, or irregular hours, if they don't have an hour long commute through traffic to look forward to every time (my current commute takes between 40 minutes and 2h, depending on exactly when I leave. A 0900 VC meeting on sand hill basically means I need to wake up at 0500, whereas an 1100 meeting means I could theoretically sleep until 0930.)
The difference was FB was paying market+ salary, so the housing subsidy was an extra perk. In the case of offering $70k salary + $12k, I'd really just do $82k; $70k is enough below market that you don't get considered by some people.
For really early stage companies, I do like the rent house and live/work there, for 6mo. That's one of the things I regret about current startup, not doing that. (we actually live in oakland, sf, and south san jose, with an office in mountain view; it means driving 40k miles/yr each, which is stupid.)
Why aren't you renting a house for your office now?
Cofounder T owns a house and lives with his wife in SF. Cofounder E lives with GF in South San Jose. All of us are in 30s, and while I think "rent house for office and move there for 3 months" is viable, it's not viable for longer (the other two, especially, have a lot of stuff).
We still might rent a house as an office eventually, and cofounder T is moving to LAH, and I'm moving to Menlo Park, later this year. But at that point I'd rather get a light industrial building ($1-1.50/ft2) in Mountain View or Menlo or EPA or similar, build it out to spec, and use that as the office. A wall, roller gate, parking, onsite generator(s), RF tower, etc. would be awesome, along with 3-phase power, and being a bit more legitimate than using a house, long-term.
We had some confusion about SF vs. Peninsula for startups, but the "the lower on the stack you are, the closer to San Jose you should be" seems true, even in 2012 -- all the great people we've talked to are in PA or more south (all the way to Cupertino).
We still might rent a house as an office eventually, and cofounder T is moving to LAH, and I'm moving to Menlo Park, later this year. But at that point I'd rather get a light industrial building ($1-1.50/ft2) in Mountain View or Menlo or EPA or similar, build it out to spec, and use that as the office. A wall, roller gate, parking, onsite generator(s), RF tower, etc. would be awesome, along with 3-phase power, and being a bit more legitimate than using a house, long-term.
We had some confusion about SF vs. Peninsula for startups, but the "the lower on the stack you are, the closer to San Jose you should be" seems true, even in 2012 -- all the great people we've talked to are in PA or more south (all the way to Cupertino).
Agreed. My theory is that people irrationally value free stuff. I spend about 3,000 dollars a year on work-time food (250 work days * 12 dollars for lunch/an afternoon snack). The way people talk about free food at some tech companies you'd think it's worth way more than a few percent of a typical developer's post-tax income.
Food onsite is a special case. It's tax-advantaged for the employer (if offering meals onsite is "for the convenience of the employer, and for a business purpose"), and food has a high search/storage/etc. cost. Similarly, I'd value a 30" monitor at about $1k/yr salary.
> Food onsite is a special case. It's tax-advantaged for the employer (if offering meals onsite is "for the convenience of the employer, and for a business purpose"),
Interesting, I read somewhere that Google pays taxes on their free food. How do they argue the free food is for their convenience when their employees can just go out and purchase food and eat at their desk? Especially non-essential foods like snacks, smoothies, etc? Either way, I still think people overvalue free food.
>Similarly, I'd value a 30" monitor at about $1k/yr salary.
Why? Buy a 30 inch monitor for 1200 dollars with your own money, write it off on your taxes, and you've spent less than 1000 dollars of income on a one-time payment. And now you own a 30 inch monitor!
Interesting, I read somewhere that Google pays taxes on their free food. How do they argue the free food is for their convenience when their employees can just go out and purchase food and eat at their desk? Especially non-essential foods like snacks, smoothies, etc? Either way, I still think people overvalue free food.
>Similarly, I'd value a 30" monitor at about $1k/yr salary.
Why? Buy a 30 inch monitor for 1200 dollars with your own money, write it off on your taxes, and you've spent less than 1000 dollars of income on a one-time payment. And now you own a 30 inch monitor!
One thing worth noting: You have to hit the so-called minimum deduction (9K last I checked) to benefit from this sort of write off, whereas a company can do it regardless of absolute annual business expenditure.
The lunches I used to get were usually worth more than $12 (though the company paid quite a bit more than that). But there's more to it than money. There's not having to decide, which is something you can't buy as an individual. There are other cultural benefits, which I'd argue both the company and individual benefit from.
Wait, this line confused me:
> Another thing that made this situation complicated was that Kyle and I are recently engaged.
So, your fiance is Kyle, who is the guy you're doing negotiations with for her salary?
The methodology is extremely useful, but I feel like that makes this story extremely specific. Like you said,
> I told him that, if I got this offer from any other company, he’d be the first person I would ask for help.
> Another thing that made this situation complicated was that Kyle and I are recently engaged.
So, your fiance is Kyle, who is the guy you're doing negotiations with for her salary?
The methodology is extremely useful, but I feel like that makes this story extremely specific. Like you said,
> I told him that, if I got this offer from any other company, he’d be the first person I would ask for help.
OP here. You're right - it was confusing! I tried to evaluate my offer objectively and wanted to share the tools I used to do that (as well as get feedback on the approach). My relationships with the founders were a key part of the story that I didn't mention until late in the post. I added an intro which hopefully makes it more readable now.
Another idea: Contract for $200 an hour for 6 months and make $200,000. Invest that into the company, get 5 - 10%, and join as an employee to influence the outcome of your investment.
Even better idea: Do the same but invest it into your own company. Keep 99% and convince someone else to take 1% + pocket change to work for you for a few years.
Even better idea: Do the same but invest it into your own company. Keep 99% and convince someone else to take 1% + pocket change to work for you for a few years.
Go read about investor qualification and why taking on an unqualified investor at an early stage can hurt your company.
You're right, you'd have to wait 2 years:
have made at least $200,000 each year for the last two years (or $300,000 together with his or her spouse if married) and have the expectation to make the same amount this year."[1] This rule came into effect in 1933 by way of the Securities Act of 1933.[citation needed]
You wouldn't for my "even better" option.
have made at least $200,000 each year for the last two years (or $300,000 together with his or her spouse if married) and have the expectation to make the same amount this year."[1] This rule came into effect in 1933 by way of the Securities Act of 1933.[citation needed]
You wouldn't for my "even better" option.
It's different if you're actively involved in the business, vs. soliciting people for investment. It's fine for someone who makes $25k/yr as your security guard, who inherits $50k and doesn't know what to do with it, to buy an extra $5k of equity if he wants. (this is not legal advice, I am not a lawyer)
It's different if you're actively involved in the business, vs. soliciting people for investment. It's fine for someone who makes $25k/yr as your security guard, who inherits $50k and doesn't know what to do with it, to buy an extra $5k of equity if he wants.
>"Another thing that made this situation complicated was that Kyle and I are recently engaged"
Even if she got double (or even four times) the equity, does nobody else think this is a disaster waiting to happen?
Even if she got double (or even four times) the equity, does nobody else think this is a disaster waiting to happen?
Sorry, but I just can't take this article seriously. It's all fine and dandy that all of them try to act professionally, but they all live in the same home-office-appartment, are close friends, some of them in serious relation or engaged, and then they all pretend that they are doing some real negotiations based solely on numbers? I mean, negotiating salary and equity with future husband. That's not negotiation, especially not in business sense.
I don't want to underestimate their competence, or prospects of their startup success, but this is not how negotiating in the real world works. Next time someone apply for a startup, you can't expect that your roommates are there, that startup is located next to your kitchen, and that your fianacee will negotiate about salary with you.
I don't want to underestimate their competence, or prospects of their startup success, but this is not how negotiating in the real world works. Next time someone apply for a startup, you can't expect that your roommates are there, that startup is located next to your kitchen, and that your fianacee will negotiate about salary with you.
Another thing that made this situation complicated was
that Kyle and I are recently engaged.
I wrote this article because I wished it existed when I was going through this. Even something as simple as an example of a early employee's salary at a seed-funded startup is helpful. I also think the links I shared are pretty good. I'm shocked that my post got over 150 tweets today -- many of them saying "read this if you're considering joining a startup" or "great read". I thought some people might take interest in the story, but I'm completely surprised by how many did. There have been over 16k unique visitors since I posted it this morning.
I think that regardless of how much influence your friendships and relationship had on the process, your analysis was thorough and very interesting, so I personally got value out of reading it. Thanks!
Does 1.25% seem ridiculously low to anyone else? It seems to me like she should have negotiated to be a co-founder instead of employee #1.
It just occurred to me that I should have posted this on HN before finishing the negotiation. Would have been great to get this input then.
Shit, that's what I got as a first employee at a company that has <$1m in VC/angel investment. Market-rate engineering salary, too.
Keen also has <$1M in investment. My salary isn't quite market-rate for an engineer, but it's not too far off when you include perks (proximate living bonus, lunches, healthcare, etc). If we do raise series A (or become profitable quickly), we plan to adjust salaries toward market rate.
I agree... no-one wants to be the first employee, instead push for last co-founder.
It is an interesting insight to what some startups get away with though - a way below average salary and a tiny speck of equity.
She must truly believe the company will sell for hundreds of millions of dollars (unlikely) in order to see a decent return.
It feels like her role is an auxiliary function, like Office Manager or QA, so I think her generic analysis works. If her role was central to the business, then I don't think she would be valuing her contribution with a one-liner like 'Employee’s value-add to the company (I used 15%, which I think is pretty low!)'. Instead the question of her value-add would be the starting/central point of the negotiation.
Huh? Nobody offers .5% equity to an "office manager" or "QA". She says in the post her role is "Director".
Michelle is an enterprise software consultant with an engineering background.
Michelle is an enterprise software consultant with an engineering background.
Her twitter account says she's an engineer. What makes you think her role is Office Manager or QA?
It'd be pretty strange for a startup's first hire to be an office manager ;-)
If you're receiving a W-2 salary that's in the ballpark for your field, absent some other contribution (marketability of your name, unique and non-substitutable skills or rolodex) you're not a cofounder.
Interesting post, though $70k to live in San Francisco? That's going to be pretty tough, honestly it's crazy expensive here.
Honestly not that hard, especially if you live in a shared apartment. Plus if you look at his benefits, it looks like they cover some living, food, internet, and gym expenses. I grew up with friends who lived in NYC earning less than 35k a year with no such benefits. Now THAT was tough.
NYC may have been high then, but it isn't near SF now.
http://www.wallstreetoasis.com/forums/nyc-cost-of-living-is-...
http://www.wallstreetoasis.com/forums/nyc-cost-of-living-is-...
That guys' definition of acceptable area must be 3 blocks. I just hunted for a one bedroom place last month and was finding wonderful places for ~$2,200 to $2,300; that's the equivalent of a 2 bedroom just under $3,00.
There is no way that San Francisco has higher rent than Manhattan: http://www.huffingtonpost.com/2012/06/08/rent-manhattan-may-... Those numbers blow away San Francisco.
There is no way that San Francisco has higher rent than Manhattan: http://www.huffingtonpost.com/2012/06/08/rent-manhattan-may-... Those numbers blow away San Francisco.
Everything I've seen has shown NYC is still slightly higher than SF. Do you have any sources other than this one guy's personal experience?
Even so, she is getting rent subsidy which rounds out to be $1,000 per month ($12,000 for the year).
With that in mind, it's not hard to find a shared apartment for less than $2000 in SF/Oakland/Peninsula. Now if she wants her own 2BR or 1BR, sure she'll have to shell out more.
With that in mind, it's not hard to find a shared apartment for less than $2000 in SF/Oakland/Peninsula. Now if she wants her own 2BR or 1BR, sure she'll have to shell out more.
I was thinking the same thing. The negotiation was interesting, but 70K in the city, even with a rent subsidy from the company is tough.
Hopefully they don't have a lot of overhead beyond eating.
Hopefully they don't have a lot of overhead beyond eating.
Did you miss the rent subsidy part? It was listed at $12K, so $1K/month. But lets step back from that for a moment.
$70K gross income. Lets say you put $2K into an IRA (no 401k) so $68K after that. Estimated federal tax is $10,592 [1], Another 6.2% goes to Social security so $4,340 [2], estimated state income tax (CA) is about $3,922 so rolling that up, $68K - $18,854 in taxes thats not quite $50K left over ($49,146) so that is about $4095 a month.
So if you're living on $4095 a month you're looking at spending $2K on a studio apartment [4] minus the rental subsidy of $1k making it $1k on the Apartment. Call it $500/month on food, $250 / month on subscription services (cable / phone / internet) and maybe $75 /month on rental insurance so maybe half your monthly on recurring costs. Leaving you $2K/month for dynamic costs. If you don't own a car (and I wouldn't recommend it) then you're basically able to move what is left around for things like the occasional furniture or clothing purchase. Going out to eat occasionally and saving for a rainy day. It should be possible to put away $500/month of that into savings on typical month.
The bottom line is I don't see $70K/month as 'pretty tough' :-) but I can certainly see it not giving you a luxurious lifestyle.
[1] http://www.calcxml.com/calculators/federal-income-tax-estima...
[2] https://www.socialsecurity.gov/OACT/COLA/cbb.html#Series
[3] https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_E...
[4] http://www.mynewplace.com/city/san-francisco-apartments-for-...
$70K gross income. Lets say you put $2K into an IRA (no 401k) so $68K after that. Estimated federal tax is $10,592 [1], Another 6.2% goes to Social security so $4,340 [2], estimated state income tax (CA) is about $3,922 so rolling that up, $68K - $18,854 in taxes thats not quite $50K left over ($49,146) so that is about $4095 a month.
So if you're living on $4095 a month you're looking at spending $2K on a studio apartment [4] minus the rental subsidy of $1k making it $1k on the Apartment. Call it $500/month on food, $250 / month on subscription services (cable / phone / internet) and maybe $75 /month on rental insurance so maybe half your monthly on recurring costs. Leaving you $2K/month for dynamic costs. If you don't own a car (and I wouldn't recommend it) then you're basically able to move what is left around for things like the occasional furniture or clothing purchase. Going out to eat occasionally and saving for a rainy day. It should be possible to put away $500/month of that into savings on typical month.
The bottom line is I don't see $70K/month as 'pretty tough' :-) but I can certainly see it not giving you a luxurious lifestyle.
[1] http://www.calcxml.com/calculators/federal-income-tax-estima...
[2] https://www.socialsecurity.gov/OACT/COLA/cbb.html#Series
[3] https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_E...
[4] http://www.mynewplace.com/city/san-francisco-apartments-for-...
Honestly, I missed the rent subsidy part which makes it a bit easier. Still, thanks for the breakdown! I guess I waste a lot of money or something because I somehow manage to spend a lot more here!
Although saying that, I prefer to put a lot more away towards savings and retirement and like to travel a lot too.
This.
Frictionless spending is your enemy. Oh that is a great book, click click click, $10 just whooshed out of your wallet into your kindle. There are so many good movies out this summer, blam blam blam another $50 - $60 GONE. Oh god I can't start my day without some caffiene pick up a vente latte half and half for me would you? Another $6 gone. It goes on and on. And it adds up.
Frictionless spending is your enemy. Oh that is a great book, click click click, $10 just whooshed out of your wallet into your kindle. There are so many good movies out this summer, blam blam blam another $50 - $60 GONE. Oh god I can't start my day without some caffiene pick up a vente latte half and half for me would you? Another $6 gone. It goes on and on. And it adds up.
I've gotten more careful with this since moving here because you're right, it can disappear so quickly. It's especially bad at my workplace because everyone goes to lunch together every day and that'll set you back $7-10 a day easily.
I started using mint.com to track my spending and the main issue in SF is rent. Followed closely by food costs. I was living in the mid-west briefly, earning only a few $K less than here yet saved so much more money and never had to worry about the minor spending adding up.
I started using mint.com to track my spending and the main issue in SF is rent. Followed closely by food costs. I was living in the mid-west briefly, earning only a few $K less than here yet saved so much more money and never had to worry about the minor spending adding up.
While I agree with your sentiment about frugal living, in the spirit of being realitic, $500 a month for food is awfully low.
At 3 meals a day, that's $5 a meal.
No easy feat unless you go for processed, preserved and packaged, which is hardly a good way to live and eat.
At 3 meals a day, that's $5 a meal.
No easy feat unless you go for processed, preserved and packaged, which is hardly a good way to live and eat.
Actually for one person $500/month is pretty generous if you don't go out to eat, fortunately I think we can get really really good data here since Safeway [1] lets you browse their products online. I typed in the zip code for Redwood City where they deliver (94065) that gave me access to their products and prices and then put together a shopping list that would provide 3 meals a day for me for approximately 30 days [2]. I didn't use any coupons or sale items, I included eating steak as well as chicken, but I do assume that cooking a whole chicken would equate to the meat item for three meals, the initial one, the left over one, and then perhaps any remaining chicken chopped up and put into a salad. I included condiments although generally you won't use all of a condiment 'unit' in a month, and I included a 5 dollar allotment for 'spices' since you buy one thing of salt (0.99) and it lasts you for 6 months.
You can see that for breakfast I'm eating either cereal, eggs, or maybe pancakes, for lunch its generally sandwiches with soup and a salad, and for dinners its a meat (chicken or beef) a vegetable, and a starch (either rice or potatoes). I didn't go 'all organic' or anything which could raise your prices. I also included a half gallon of ben & jerry's ice cream, tea as the 'non water' beverage, and Oreos (my all time favorite cookie). All totaled its $443. Under my $500 budget.
[1] http://www.safeway.com/IFL/Grocery/Home
[2] https://docs.google.com/spreadsheet/ccc?key=0Atwe7dq6iPQHdDU...
You can see that for breakfast I'm eating either cereal, eggs, or maybe pancakes, for lunch its generally sandwiches with soup and a salad, and for dinners its a meat (chicken or beef) a vegetable, and a starch (either rice or potatoes). I didn't go 'all organic' or anything which could raise your prices. I also included a half gallon of ben & jerry's ice cream, tea as the 'non water' beverage, and Oreos (my all time favorite cookie). All totaled its $443. Under my $500 budget.
[1] http://www.safeway.com/IFL/Grocery/Home
[2] https://docs.google.com/spreadsheet/ccc?key=0Atwe7dq6iPQHdDU...
Clearly you spent some time on that in the interest of a good discussion so that's fantastic and helpful. It's eye openening to see what some people consider normal costs. For example, I couldn't imagine spending just $5 on EVOO. Even the cheap-but-good labels are more than twice that.
But the spirit of my comment comes from this:
After years of trying, I finally learned how to budget when I was about 25. One of the most important lessons I learned then is that budgets are often a time when people imagine the life they want and try to prescribe it to themselves instead of taking an honest look at the reality of their behavior.
While you included steak and chicken, you didn't include any higher-end proteins (including good steak), nor any luxury items at all really. Nor, of course, any dining. And while it's possible that a person can live to your budget quite happily, it is, I think, more likely that the budget as-is wouldn't be followed. That developer, whose friends easily make in the $120-150k range in SF, are going to want to go to dinner with them. To meet them for lunch. To have a dinner party.
Sure, there are exceptions. But I'm interested in the mean. What do you think?
But the spirit of my comment comes from this:
After years of trying, I finally learned how to budget when I was about 25. One of the most important lessons I learned then is that budgets are often a time when people imagine the life they want and try to prescribe it to themselves instead of taking an honest look at the reality of their behavior.
While you included steak and chicken, you didn't include any higher-end proteins (including good steak), nor any luxury items at all really. Nor, of course, any dining. And while it's possible that a person can live to your budget quite happily, it is, I think, more likely that the budget as-is wouldn't be followed. That developer, whose friends easily make in the $120-150k range in SF, are going to want to go to dinner with them. To meet them for lunch. To have a dinner party.
Sure, there are exceptions. But I'm interested in the mean. What do you think?
"After years of trying, I finally learned how to budget when I was about 25. One of the most important lessons I learned then is that budgets are often a time when people imagine the life they want and try to prescribe it to themselves instead of taking an honest look at the reality of their behavior."
Excellent. There are two parts to budgeting, you mention the first one which is understanding where your money is going, the second part is prioritizing where your money should be going. Part of the latter is understanding what is (and what is not) withing your means.
So if you are making $70K and you're hanging out socially with people making twice that, you are going to be at a disadvantage in 'expensive' activities. Someone with $100K in income which is taking home over $1K/month more than you after taxes, might decide they are going to spend $500 a month on track time at the local race track (driving fast is very fun of course) that is way too expensive for someone who is only making $70K. As a person budgeting you always ask "Is this valuable, or is it expensive?" [1] understanding the difference can really help clarify what you want to spend money on.
But lets think about the social aspects for a minute. Young people especially (although it is present across age groups) have a tendency to 'brag' either subtly or not so subtly using money. Called 'conspicuous consumption' back in the day, you can recognize these people right away, they always have the latest tech gadget, or a car that is less than 2 yrs old, or this seasons fashion accessories, etc. Why they are like that varies but how it affects you the $70K earner, and more importantly your budget, is key. You have to resist giving into that way of validating yourself and your friendships and instead actively pursue other paths. So if you're budget is being warped by those kinds of influences you might seek out ways to avoid them. It is tough since nobody likes to say "I can't afford to do that stuff that you are doing every day" even when its the truth. However good friends will figure it out and adapt.
Under no circumstances pretend you are something you aren't, I knew a guy in the dot com days who was pretending to be a lot more well off than he was in order to 'hang out' with some actually wealthy people. He got the bar tab once at one of their events, it was a bit over $12,000. He had to call AmEx to get them to approve it. I personally would not think the access was worth that sort of shock to the budget but recognize different people value different things way more differently than I.
[1] One of the engineers here at the office who has a background in economics introduced me to that phrase and it really captures the essence of budget prioritization.
Excellent. There are two parts to budgeting, you mention the first one which is understanding where your money is going, the second part is prioritizing where your money should be going. Part of the latter is understanding what is (and what is not) withing your means.
So if you are making $70K and you're hanging out socially with people making twice that, you are going to be at a disadvantage in 'expensive' activities. Someone with $100K in income which is taking home over $1K/month more than you after taxes, might decide they are going to spend $500 a month on track time at the local race track (driving fast is very fun of course) that is way too expensive for someone who is only making $70K. As a person budgeting you always ask "Is this valuable, or is it expensive?" [1] understanding the difference can really help clarify what you want to spend money on.
But lets think about the social aspects for a minute. Young people especially (although it is present across age groups) have a tendency to 'brag' either subtly or not so subtly using money. Called 'conspicuous consumption' back in the day, you can recognize these people right away, they always have the latest tech gadget, or a car that is less than 2 yrs old, or this seasons fashion accessories, etc. Why they are like that varies but how it affects you the $70K earner, and more importantly your budget, is key. You have to resist giving into that way of validating yourself and your friendships and instead actively pursue other paths. So if you're budget is being warped by those kinds of influences you might seek out ways to avoid them. It is tough since nobody likes to say "I can't afford to do that stuff that you are doing every day" even when its the truth. However good friends will figure it out and adapt.
Under no circumstances pretend you are something you aren't, I knew a guy in the dot com days who was pretending to be a lot more well off than he was in order to 'hang out' with some actually wealthy people. He got the bar tab once at one of their events, it was a bit over $12,000. He had to call AmEx to get them to approve it. I personally would not think the access was worth that sort of shock to the budget but recognize different people value different things way more differently than I.
[1] One of the engineers here at the office who has a background in economics introduced me to that phrase and it really captures the essence of budget prioritization.
Where do you live?!?!
I spend around $200/mo on food, $250 tops, in Manhattan. Mostly yummy healthy stuff from Trader Joe's.
Or did you mean $500/mo for two people?
I spend around $200/mo on food, $250 tops, in Manhattan. Mostly yummy healthy stuff from Trader Joe's.
Or did you mean $500/mo for two people?
That's about $8/day. I probably spend close to 10x that on food living in Manhattan. Granted I go out a lot and that's including drinks at dinner, but even not going out to eat at all and fasting every other day I have no idea how I'd only spend that much.
I can see it if you go out a lot, but for groceries it's fairly hard for me to spend more than $200/mo. I don't have a car, so just physically carrying $500/mo of groceries to my apartment would be quite an effort! I can't imagine how I'd do that unless I bought mainly stuff with a really high price:weight ratio, like steak or something, which I do occasionally, but don't eat as a staple food.
Today, for example, I carried what seemed like an uncomfortably heavy set of bags, yet it only came out to about $30, and will probably last me the rest of the week: 2 lbs pork tenderloin (2x $5), 5 lbs potatoes ($3), 2 lbs tomatoes ($4), 1 lb lentils ($3), 2 lbs onions ($2), 1 head broccoli ($1), 12x eggs ($3), 2 lbs nectarines ($3).
I think I more often run into the problem of buying way more than I can carry/eat, and it still doesn't cost much. I mean, I like nectarines, but 2 pounds of nectarines is a lot to finish before they get overripe, so some of that might get wasted. But since they cost me damn near nothing, that's alright.
Today, for example, I carried what seemed like an uncomfortably heavy set of bags, yet it only came out to about $30, and will probably last me the rest of the week: 2 lbs pork tenderloin (2x $5), 5 lbs potatoes ($3), 2 lbs tomatoes ($4), 1 lb lentils ($3), 2 lbs onions ($2), 1 head broccoli ($1), 12x eggs ($3), 2 lbs nectarines ($3).
I think I more often run into the problem of buying way more than I can carry/eat, and it still doesn't cost much. I mean, I like nectarines, but 2 pounds of nectarines is a lot to finish before they get overripe, so some of that might get wasted. But since they cost me damn near nothing, that's alright.
I feel comfortable, looking at average household food costs, in saying you're an outlier if it's "fairly hard" to spend more than $6.67 a day in the United States (let alone Manhattan) on groceries.
While the way we eat is certainly an outlier (and I know it), I'm equally as sure that you are too.
While the way we eat is certainly an outlier (and I know it), I'm equally as sure that you are too.
I agree here. I get my meals for free and I still spend almost that much on edibles.
I live in San Francisco. I can go to any of the nearby markets in Chinatown and buy more produce than I could possibly eat in a day for under $10. I like to cook soup-based dishes which would be a pain to take to an office, but a sandwich and a piece of fruit is pretty doable. I believe my great grandfather did that for decades.
Honestly, I think going with what old people ate while you were a kid will be easier on the pocketbook and the health.
Honestly, I think going with what old people ate while you were a kid will be easier on the pocketbook and the health.
Well, $500 a month is on the lower side if you eat out all the time (as I do) - with that behavior you'll tend tp hit $600 or $700/month.
On the bright side, $2,000 is really high for housing (want to easily cut $800+ off that? get some roommates), so the conclusion that living off 70k shouldn't be so bad (or even $60k!) stands.
On the bright side, $2,000 is really high for housing (want to easily cut $800+ off that? get some roommates), so the conclusion that living off 70k shouldn't be so bad (or even $60k!) stands.
For one person? $500 should be fine. We feed our family of 5 on less than $800 a month, and we don't do anything processed/preserved/packaged. There are economies of scale at play, but home cooking for one doesn't need to be over $500 unless you want it to be.
You could easily spend $5/meal eating rice and beans with some vegetables thrown in.
Really? The girlfriend and I shop at Costco, eat very healthy meals and it runs us about $400-500/month for the both of us.
Back when I was poor I could eat pretty healthy for about $150/month.
Back when I was poor I could eat pretty healthy for about $150/month.
Its 2 people sharing an apartment(Im assuming from them being engaged), so that is easier). Also rental insurance is fraction of what you mentioned, especially if its part of your auto insurance coverage.
The rent subsidy is ~$600/month after tax.
Did not realize the tax implications of the proximate living bonus when doing the analysis, but found out later. Thanks for pointing it out.
OP also mentions $12k worth of rent subsidy. Not bad, I think.
I believe there's an implicit "keep up with the Jones" factor here. Surely there are plenty of non-programmers living with less than $70k in San Francisco.
In Japanese companies, you need to get to senior level (implying at least team lead but more likely project manager) to earn $70k a year. And it's not like Tokyo is a cheap place to live. I told a Japanese coworker that in the US new grads get U$70k right out of the school and he thought that was crazy.
I believe there's an implicit "keep up with the Jones" factor here. Surely there are plenty of non-programmers living with less than $70k in San Francisco.
In Japanese companies, you need to get to senior level (implying at least team lead but more likely project manager) to earn $70k a year. And it's not like Tokyo is a cheap place to live. I told a Japanese coworker that in the US new grads get U$70k right out of the school and he thought that was crazy.
"rent subsidy"?
Are you kidding? Man, I must be living in the wrong town. In Florida, the fact that we offer medical insurance and matching 401k sets us apart from most business here.
Though we do have a few other perks.. you cell service is covered by the company. Also everyone gets an ipad (it's yours once you past 6 months). But really though, these "perks" help us (the company) more.
But this just proves, bubbles exist.
Are you kidding? Man, I must be living in the wrong town. In Florida, the fact that we offer medical insurance and matching 401k sets us apart from most business here.
Though we do have a few other perks.. you cell service is covered by the company. Also everyone gets an ipad (it's yours once you past 6 months). But really though, these "perks" help us (the company) more.
But this just proves, bubbles exist.
"But this just proves, bubbles exist."
No, it just proves that the market for tech talent is stronger in the Bay Area than it is for Florida.
No, it just proves that the market for tech talent is stronger in the Bay Area than it is for Florida.
I'd also imagine the average talent level is higher in the Bay (by quite a bit).
Surprisingly you would find this isn't necessarily true. The reasoning goes like this:
Pool of available jobs is smaller, so the competition is fiercer, so the mediocre talent takes itself out of the game and all your are left with are the stars who don't want to move. I know lots of engineers in N. Carolina around the Research Triangle Park area who are way more talented than some folks in the Bay Area but they don't abide the culture that is Silicon Valley and so they don't move here.
Pool of available jobs is smaller, so the competition is fiercer, so the mediocre talent takes itself out of the game and all your are left with are the stars who don't want to move. I know lots of engineers in N. Carolina around the Research Triangle Park area who are way more talented than some folks in the Bay Area but they don't abide the culture that is Silicon Valley and so they don't move here.
Typical myopic "bubble" comment. We have talent in South Florida.
The problem we have, is it's a small community. Poaching is out of the question. Cause word does get around. So we interview hoping we nail someone good before someone else does.
But being South Florida no one considers us tech heavy. Even though we are a "banking" & medical center and wealth is everywhere.
I was complaining about this to some state senator a while back. There was talk about creating a tech area in Miami/Fort Lauderdale (they talk about it every year). He told me, "You take care of your yacht here; your computers in New York".
And that sums up Florida's tech problem.
The problem we have, is it's a small community. Poaching is out of the question. Cause word does get around. So we interview hoping we nail someone good before someone else does.
But being South Florida no one considers us tech heavy. Even though we are a "banking" & medical center and wealth is everywhere.
I was complaining about this to some state senator a while back. There was talk about creating a tech area in Miami/Fort Lauderdale (they talk about it every year). He told me, "You take care of your yacht here; your computers in New York".
And that sums up Florida's tech problem.
Sometimes even more. I know of recent graduate engineers at some of the bigger giants (like Facebook, Google) who get large stock options, signing bonuses, and a six digit salary... right off the bat.
As someone else mentioned there was a $12k housing subsidy. Since she disclosed that she's engaged to the co-founder, and assuming they are living together, and assuming that he's getting a similar subsidy, they would have $2k a month which is doable for a 1 bedroom apartment. She's also got some expenses (food, internet, gym) taken care of so it is very possible.
That's almost exactly the median household income for the city, so it's pretty normal to live in SF on that salary. Mostly among people not in tech or finance, though, so may depend on one's social circles (it's easier to live more cheaply if your friends aren't making six figures).
Is this in line with expected salaries/equity for a #4-6 employee of a pre-series A startup in SF? What about NYC? For some reason I thought equity would be a bit higher for the first few employees.
That's about right. One of the biggest surprises to me as I learned more about how startup equity works was the HUGE dropoff between cofounders and employee #1 in terms of equity.
I wrote a tool a while ago to do this math:
http://options-vs-salary.com
I actually just accepted an offer at a startup, and like the idea of a tool like this because I had to approximate it. However, it's simply incorrect to compare your startup job with an VC investment, and the numbers given by your tool would create a situation where you would turn down almost any realistic startup opportunity.
For example - let's play with the offer given in the article: 1.25% + $85k salary (I'm including all extras in both salaries). Given that the author made ~$142k before, the tool says that if she expects a valuation of $100M on cash out with a 1% stake (after dilution), she should have been offered $117k. That's simply not money you'll get at a 5 person startup under any circumstance, even given the very generous valuation estimate for a startup with $800k funding.
Alternately, if you join as employee #15 or so, you're probably getting closer to .1% of the company, and the calculator says that you should take a $3k deduction off market rates on a $100MM expected valuation. That's also not even close to what really happens.
The problem lies in the comparison to a VC investment. Because for a job seeker, the real comparison is "take a job with standard salary". Your calculator claims that if you could make $600k over four years at a "normal" job and $400k over four years at a startup, you would be upset at a $1MM stock payout because it wasn't 10x the $200k "investment". That is just totally asinine.
In reality, a rational decision would take any salary/equity combo that has an expected value (in the statistical sense) of $1 more than the market rate. There is no multiplier.
For example - let's play with the offer given in the article: 1.25% + $85k salary (I'm including all extras in both salaries). Given that the author made ~$142k before, the tool says that if she expects a valuation of $100M on cash out with a 1% stake (after dilution), she should have been offered $117k. That's simply not money you'll get at a 5 person startup under any circumstance, even given the very generous valuation estimate for a startup with $800k funding.
Alternately, if you join as employee #15 or so, you're probably getting closer to .1% of the company, and the calculator says that you should take a $3k deduction off market rates on a $100MM expected valuation. That's also not even close to what really happens.
The problem lies in the comparison to a VC investment. Because for a job seeker, the real comparison is "take a job with standard salary". Your calculator claims that if you could make $600k over four years at a "normal" job and $400k over four years at a startup, you would be upset at a $1MM stock payout because it wasn't 10x the $200k "investment". That is just totally asinine.
In reality, a rational decision would take any salary/equity combo that has an expected value (in the statistical sense) of $1 more than the market rate. There is no multiplier.
Cool tool, but unfortunately it doesn't always autoupdate when I change numbers. I'm using Chrome on Mac.
I'm going through this right now, sorta, tho I decided I need to be paid more at the start-up I work for. I'm paying for health out of pocket so my left-column is more like $80k. I'm basically looking for a raise to market value+ to cover out of pocket health costs. In my case, I feel like the stock options exist in lieu of company-paid health insurance and a bonus.
I know a few people that cashed out at successful but sanely-priced acquisitions (nowhere near silicon valley levels), and those vested options are never more than low-to-mid 5-figures. In other words, 4-5 years worth of bonuses at a consulting firm or agency.
The reality of a profitable acquisition is slim. You're better off getting paid market rate and treating the options for what they are: just a really good perk.
I know a few people that cashed out at successful but sanely-priced acquisitions (nowhere near silicon valley levels), and those vested options are never more than low-to-mid 5-figures. In other words, 4-5 years worth of bonuses at a consulting firm or agency.
The reality of a profitable acquisition is slim. You're better off getting paid market rate and treating the options for what they are: just a really good perk.
Call me crazy, but I think people should not be compensated better because they're good negotiators.
I don't think you're crazy.
Learning about salary/equity disparity can be very demoralizing, spreading bad team chemistry like a virus. This is especially true in cases where people who happen to be good negotiators earned more money than the workhorses who provided some of the biggest benefits to the company.
Learning about salary/equity disparity can be very demoralizing, spreading bad team chemistry like a virus. This is especially true in cases where people who happen to be good negotiators earned more money than the workhorses who provided some of the biggest benefits to the company.
Salary negotiations are [partly] about knowing the value you'll bring to the company. If you aren't able to explain your value how are they supposed to compensate accordingly?
I'm actually surprised she gave up her 141K gig to go to a startup. If there's one thing I've learned, you need to make your money when you can.
I don't know I would take a 50K reduction in salary as well additional benefits to go to a startup.
I don't know I would take a 50K reduction in salary as well additional benefits to go to a startup.
Thanks for reading my post :)
I wrote about my decision to make the jump in a previous blog post:
http://blog.keen.io/post/26096112831/why-i-left-consulting-a...
Some things to consider: 1. Consulting work is still there if I need to return to a higher salary. 2. My salary in the startup will be adjusted if the startup does well. 70k will not work out long term in SF, but it's ok for a year or so.
Some things to consider: 1. Consulting work is still there if I need to return to a higher salary. 2. My salary in the startup will be adjusted if the startup does well. 70k will not work out long term in SF, but it's ok for a year or so.
'1. Consulting work is still there if I need to return to a higher salary.'
Couldn't you technically do that same consulting work at your old job, specifically after work or on the weekends?
I agree with your second point though.
Couldn't you technically do that same consulting work at your old job, specifically after work or on the weekends?
I agree with your second point though.
Not really, because I was managing large scale tech implementations. That's a full time job and then some. I don't have the dev chops to little projects for $XXX/hr. Maybe one day :)
Some great advice I got when someone comes back to you and says "We'll give you 16,000 shares" is essentially to ask "shares of what?"
One of the best questions to ask is "What percentage of the total outstanding shares does this represent?" Since 16,000 shares could be out of 100K, 1M, etc.
One of the best questions to ask is "What percentage of the total outstanding shares does this represent?" Since 16,000 shares could be out of 100K, 1M, etc.
I read that in the article (she mentioned learning that same lesson), and can't believe anyone would ever not do this. Would you really not have thought of finding that out had you not been given this advice?
(Full Disclosure: I'm Kyle, the CEO mentioned in the OP)
I actually had this issue bite me in the ass at my first startup, where I was offered a flat # of shares.
I was pretty much fresh out of college, but for the record, I did realize it was important to find out what percentage I was actually getting. When I asked what the total # of shares outstanding was, the company snaked its way out of answering the question directly. The job had a lot of perks (a big title, very respectable pay, work-from-home, greenfield development), so I took the offer rather than press the issue.
Eight months later, we were acquired. I was the only engineer. You could say I was a bit peeved to learn how little of the company I really owned.
I actually had this issue bite me in the ass at my first startup, where I was offered a flat # of shares.
I was pretty much fresh out of college, but for the record, I did realize it was important to find out what percentage I was actually getting. When I asked what the total # of shares outstanding was, the company snaked its way out of answering the question directly. The job had a lot of perks (a big title, very respectable pay, work-from-home, greenfield development), so I took the offer rather than press the issue.
Eight months later, we were acquired. I was the only engineer. You could say I was a bit peeved to learn how little of the company I really owned.
She forgot to factor in the dealbreaker; the fact that engaging in a startup (or any other intensive work if you ask me) with your significant other is a major risk in itself, and a bet where not only your career is at stake, but also your relationship.
I love this. Congrats Kyle, Michelle and the whole team for:
a) Going through these types of negotiations with your loved ones (not just close friends) and trying not to water it down - or give favors. There are many people, that I imagine, might want to get an extra few pts of equity just because you both are going to be married soon. So Kudos on keeping it professional.
b) Making this entire transaction as transparent as you did. I am shocked at all the details you guys laid out.
The only thing I would have loved to know is what Michelle was being hired to do.
Is she a developer, business development, graphics person, what?
a) Going through these types of negotiations with your loved ones (not just close friends) and trying not to water it down - or give favors. There are many people, that I imagine, might want to get an extra few pts of equity just because you both are going to be married soon. So Kudos on keeping it professional.
b) Making this entire transaction as transparent as you did. I am shocked at all the details you guys laid out.
The only thing I would have loved to know is what Michelle was being hired to do.
Is she a developer, business development, graphics person, what?
Thank you!!
I describe myself as "hard-working generalist". I'm good at coordinating teams and getting things done. I've been working on short and long term goal planning, customer dev, testing, documentation, and I wrote a rails dashboard that uses our API. I'm also involved in our design and strategy discussions. Lots of early startup stuff :)
Nice!
The way this was played out at arms length and in an open style was very smart considering the relationship between the two negotiating parties and the rest of the team. The primary goal should and seemed to be making sure those relationships could sustain, doing so by being fair and reasonable.
The discussion around hedging the risk and cash returns between the fiancées was a good start. I would suggest that the idea of a contract (a series of emails at least) between the 2 would be good to agree and record expectations.
Good fortune
The discussion around hedging the risk and cash returns between the fiancées was a good start. I would suggest that the idea of a contract (a series of emails at least) between the 2 would be good to agree and record expectations.
Good fortune
Despite strangely subtle mention of the fact that the CEO and author are engaged, I think it's worth noting that has a material impact on a common sense analysis. In the likely event that this start-up fizzles out, it's reassuring that your spouse has a stable corporate job. Sure, engineers are in very high demand RIGHT NOW, but in a few years the bubble could burst and your family could be in trouble. Do you really want to put all your eggs in a single, very risky basket?
Actually, we did that split for the last 5 years (I'm the CEO from the post).
If you're curious about Michelle's reasoning, check out one of her other posts, "Why I Left Consulting and Joined a Startup": http://blog.keen.io/post/26096112831/why-i-left-consulting-a...
If you're curious about Michelle's reasoning, check out one of her other posts, "Why I Left Consulting and Joined a Startup": http://blog.keen.io/post/26096112831/why-i-left-consulting-a...
Great point. To sum it up briefly: we have no kids, no debt, and some savings. Now is the best opportunity to try and do this together. It's something we've talked about for a long time.
I'm pretty sure consulting work will still be there if the startup doesn't work out. I have SAP and Salesforce.com experience; both are widely implemented across the US.
I'm pretty sure consulting work will still be there if the startup doesn't work out. I have SAP and Salesforce.com experience; both are widely implemented across the US.
Interesting post and thought process. In the experience of HN readers, what's the typical salary/options/benefits package you've seen given to first employees of SF startups?
Most of this didn't make sense to me, what resources could I use to get a better idea of the topics discussed in the post? Book recommendations?
Submarine. Sunken submarine.
Everybody will discuss about the author and the CEO being engaged and nobody will remember the startup's name.
Everybody will discuss about the author and the CEO being engaged and nobody will remember the startup's name.
Luckily, HN comment sections are not the alpha and the omega.
A lot of people merely clicked the "up" arrow and refrained from comment, and so far about 3000 of the post's readers have clicked through to our main site ;)
A lot of people merely clicked the "up" arrow and refrained from comment, and so far about 3000 of the post's readers have clicked through to our main site ;)
I somehow can't take people serious who still think it's a good idea to use 'here' as a link text.
You might enjoy reading this. http://www.dustincurtis.com/you_should_follow_me_on_twitter....
Oh no... noooo... don't let that be true. Now I have nightmares.
“I think there are some pieces missing from your calculations. What’s the value of the experience you’re going to get from building a company? And you’re underestimating the value of the relationships you’re going to build, and the mentorship you’ll have through our investor network. And if it doesn’t work out, your experience here will make you even more valuable to the Amazons, Facebooks, and Googles of the world. I’m confident this is the best move you can make for your career.” -- Kyle (CEO)
If I had $1 for every time I heard that about a startup, I'd actually have a lot of real money instead of the worthless monopoly "money" a company offers you as equity. At least you didn't get common stock so it could be diluted to nothing later when the VCs and angels come in and eat up the company.
Then again, if you're sleeping with the CEO, you actually get that option. You also get the option to create a place full of nepotism that's doomed to fail. Just my experience.
If I had $1 for every time I heard that about a startup, I'd actually have a lot of real money instead of the worthless monopoly "money" a company offers you as equity. At least you didn't get common stock so it could be diluted to nothing later when the VCs and angels come in and eat up the company.
Then again, if you're sleeping with the CEO, you actually get that option. You also get the option to create a place full of nepotism that's doomed to fail. Just my experience.
Then again, if you're sleeping with the CEO, you actually get that option. You also get the option to create a place full of nepotism that's doomed to fail. Just my experience.
It doesn't seem fair to insinuate that the author's offer was a result of her sleeping with the CEO, or that their relationship will doom the company. What are you basing that on? Honestly it sounds like sour grapes from some experience you've had.
It doesn't seem fair to insinuate that the author's offer was a result of her sleeping with the CEO, or that their relationship will doom the company. What are you basing that on? Honestly it sounds like sour grapes from some experience you've had.
Because the tech industry is so heterosexual male-dominated, when I read that the author was engaged to the CEO, I first assumed I had misunderstood, then I thought the author was a gay man. Only upon reading further did I find that the author was a woman.
That confusion could've been cleared up in the first paragraph in which Michelle writes, "I’ve picked up quite a bit just by being around our CEO, Kyle, for the past few years." Why not tell us here why she's "been around" Kyle for so long? Further confusing the point, she mentions later that she's "friends with all of the founders." And engaged to the CEO might've been a helpful addition.
This kind of information completely changes the context of the advice – negotiating with a stranger is a completely different dynamic than negotiating with someone you (I assume) share a bed with.