Cash vs Equity compensations(swombat.com)
swombat.com
Cash vs Equity compensations
http://swombat.com/2011/2/21/cash-vs-equity-compensations
8 comments
Just sounds like it was a bad deal for you all around, not all start-ups are out to "sucker" employees. If you are making a disgracefully low salary, you should of been asking for sizable percentage of equity. And you really should have been insanely excited to work there, and not "slaving" away. I've been fortunate enough to work for some great start-ups. One paid me about 20% lower than market, but a couple years later I was able make 10x off my stock options. At another, I was able to cash out on some of my equity within a year, while making above market. Even if my options ended up being worth nothing, it was a very good decision for me. As an employee, the wealth of experience I gained from working at start-ups has actually doubled my market value within a very short time period.
I too share a similar story. I worked at an appealing start-up with solid angel funding as employee 1, and eventually got promised x% in options upon exit.
("Upon Exit" is essentially a giant carrot on a stick.)
Whilst I had fun working there, later it became apparent that even if the company sold for 30m, in 3 years, I could earn that same amount in the contract market.
When risk/reward is taken into acount, it was a pretty easy decision to leave.
Money talks, bullshit walks
Whilst I had fun working there, later it became apparent that even if the company sold for 30m, in 3 years, I could earn that same amount in the contract market.
When risk/reward is taken into acount, it was a pretty easy decision to leave.
Money talks, bullshit walks
If you aspire to apply for YC one day then the network and connections there offer enormous value.
goodweeds' HN profile:
But in all seriousness, a lifestyle of "friends, family, outdoor exploration, and ganja" may not be wholly compatible with the intensity required to build a successful startup.
Given the gaudy valuations and acquisition prices of many YC startups, it might be useful for someone to estimate what the average, median, and max ROIs are for engineers joining YC startups before 10, 20, and 50 employees. Would not be surprised to see mean north of $200k, and median slightly lower. That's the risk profile people are looking for when they join a startup.
Only pg could really do this calculation of course.
An old sysadmin going through a career change, spending
most of my time learning Ruby, Rails and developing small
niche websites as a way to fund my lifestyle of friends,
family, outdoor exploration, and ganja.
Disclosure: I suffer from Ultra-Radian Cycling Bi-Polar
Disorder, and have a tendency to post stupid comments
during swings that I later regret. I'm not quite sure how
to fix this with software, yet.
But in all seriousness, a lifestyle of "friends, family, outdoor exploration, and ganja" may not be wholly compatible with the intensity required to build a successful startup.
Given the gaudy valuations and acquisition prices of many YC startups, it might be useful for someone to estimate what the average, median, and max ROIs are for engineers joining YC startups before 10, 20, and 50 employees. Would not be surprised to see mean north of $200k, and median slightly lower. That's the risk profile people are looking for when they join a startup.
Only pg could really do this calculation of course.
You're half right. I'm more than happy to work myself for the bone, but I'm not willing to do it when I hold all the risk and others hold all of the upside. The thing about today's startups is that the founders hold zero risk, they get paid good salaries and they keep the lion's share of the company for themselves while asking their engineers to bleed for them in exchange for their table scraps. All in the name of "interesting projects" and "fun, exciting environments".
I've sold one company, failed another, and am working on a third. Between consulting and full-time employment I've worked directly wit about 50 start-ups over the past 12 years. I know dozens of founders who are now millionaires, even two who are now hundred millionaires.
Except for the fluke of associates I know who went through Google's IPO, and through Youtube's acquisitions, I only know about a handful of engineers who have become millionaires working for a startup.
I've sold one company, failed another, and am working on a third. Between consulting and full-time employment I've worked directly wit about 50 start-ups over the past 12 years. I know dozens of founders who are now millionaires, even two who are now hundred millionaires.
Except for the fluke of associates I know who went through Google's IPO, and through Youtube's acquisitions, I only know about a handful of engineers who have become millionaires working for a startup.
> the founders hold zero risk
There is zero evidence for this claim.
There is zero evidence for this claim.
one small hole in this is that startups are not just "a market job". They're significantly more interesting, you learn more, you get more introductions to interesting people, etc. Startup jobs are inherently more valuable than "market jobs" working at a mindless corporation.
About that, I'll just say that, like much everything, it depends.
Sure, you might do more interesting stuff, meet more interesting people, etc. but you also might work on a project that nobody will remember or even hear about, that will go offline in a few short months so that you can't even point at what you did, etc. While another "regular" job will possibly bring you a scale and reach that you would likely never get working at a startup.
Considering the other sacrifices of extra hours worked (typically), more pressure, less job safety and benefits, and so on, I don't think the discount you're talking about is necessary.
About that, I'll just say that, like much everything, it depends.
Sure, you might do more interesting stuff, meet more interesting people, etc. but you also might work on a project that nobody will remember or even hear about, that will go offline in a few short months so that you can't even point at what you did, etc. While another "regular" job will possibly bring you a scale and reach that you would likely never get working at a startup.
Considering the other sacrifices of extra hours worked (typically), more pressure, less job safety and benefits, and so on, I don't think the discount you're talking about is necessary.
[deleted]
What most people forget is that equity is awarded over time for value provided over that period.
For simplicity's sake, imagine a startup with two people: a founding CEO and their first development hire. At the beginning, their contribution to the company may be equal, or even tilted towards the developer providing more value.
As the company grows, there is still just a single CEO, but now there are multiple developers. Several years on, the CEO is still responsible for all their own duties, but engineering might encompass dozens or even hundreds of people.
Over time, the relative value of the first program is diluted, while the CEO's remains fairly constant. This is why there is great inequity between founder and early hire option grants.
For simplicity's sake, imagine a startup with two people: a founding CEO and their first development hire. At the beginning, their contribution to the company may be equal, or even tilted towards the developer providing more value.
As the company grows, there is still just a single CEO, but now there are multiple developers. Several years on, the CEO is still responsible for all their own duties, but engineering might encompass dozens or even hundreds of people.
Over time, the relative value of the first program is diluted, while the CEO's remains fairly constant. This is why there is great inequity between founder and early hire option grants.
And who built that team? Who hired and managed those dozens of devs? Often times its engineer #1. Also, who picked the stack?
You're selling technology short on HN of all places.
You're selling technology short on HN of all places.
No offense, but you appear to be acting deliberately obtuse. I am not denigrating the role of developers.
In most cases engineer #1 is the founding CTO and has commensurate equity. The first hired developer, like the first hired sales guy, marketing guy or customer service guy, is the first person in an eventual team of people, all performing similar duties in parallel.
In most cases engineer #1 is the founding CTO and has commensurate equity. The first hired developer, like the first hired sales guy, marketing guy or customer service guy, is the first person in an eventual team of people, all performing similar duties in parallel.
Your post only mentions two people a CEO and a developer. No CTO or technical founder is mentioned.
To be fair, at an extremely early-stage startup, no one really knows who will eventually fill the executive roles. There is a good chance that the founding "CEO" will no longer serve in the CEO role a few years down the line (particularly if the company has taken a significant VC infusion). It is relatively difficult to know how much "contribution" each team member will make over the long-term.
Therefore, I would say that your argument makes little sense. The reason why the founder gets more than developer #1 is that the founder takes on the risk of starting the company, while employee #1 is making a salary of some sort (if not, he should be considered a founder and take a significant equity stake).
Therefore, I would say that your argument makes little sense. The reason why the founder gets more than developer #1 is that the founder takes on the risk of starting the company, while employee #1 is making a salary of some sort (if not, he should be considered a founder and take a significant equity stake).
Are you thinking of working for a start up? (2005):
http://weblog.raganwald.com/2005/03/are-you-thinking-of-work...
http://weblog.raganwald.com/2005/03/are-you-thinking-of-work...
Job security can push it back in the other direction though, if I'm at a start up with say 6 months cash in the bank I can't be to certain that I'll still have a job there for me after that. If anything the salary should be market rate on the equity for the extra responsibility/ effort of being in a small team.
As much as some startups advertise a good work/ life balance I'm sure it's not going to fly working your normal hours if overnight or over the weekend the service has a major problem.
As much as some startups advertise a good work/ life balance I'm sure it's not going to fly working your normal hours if overnight or over the weekend the service has a major problem.
Isn't this a moot point? Any type of employment whether corporate or startup will start with a yes or no and move on to negotiations. During negotiations is when the startup and the potential hire figure out compensation. So the real question is: how well can you negotiate? (applies to both sides)
Problem is most early investment is convertible debt hence the angels don't know what they're getting either.
You could also argue in the other direction: the substantial risk that stock in a startup may pay nothing at all should require paying a premium in stock options to make the expected value line up.
The point the author is trying to make is to price that risk according to how Angel investors and VCs price that risk.
One reason you may want to take a discount is that you are in partial control of its success. I also think that if you are going to join a start up you should believe that the VCs and Angels priced it incorrectly and that the chance of success is far greater.
One reason you may want to take a discount is that you are in partial control of its success. I also think that if you are going to join a start up you should believe that the VCs and Angels priced it incorrectly and that the chance of success is far greater.
But investors get to spread their risk around. You are forced to keep all your eggs in one basket. The marginal utility of their cash investment is likely lower than that of your time investment.
You have some control of its success, yes, but does it really compensate for the previous paragraph?
You have some control of its success, yes, but does it really compensate for the previous paragraph?
You can certainly argue it many ways. The key point is, this approach provides a starting point to agree from.
At my last full-time job I fought hard for 2% of the YC2010 company and exchanged a disgracefully low salary for it. At some point I got tired of slaving away so that the "founders" of this start-up would become millionaires. That time was when I did the math and realized nothing anybody could do would make this company see more than a $20m exit meant I had a one in ten-thousand chance of seeing $400k after 4 years. So I quit and I expect to gross $200k over the next year while working roughly 1,200 hours.
To work for a start-up is to be a sucker.