9 ms·

Big IPO, Tiny Payout for Many Startup Workers

134 points by t23 11y ago

Cymen 11y ago
The problem here is that the dream is dying for those of us coming to SF to work in startups. The harsh reality is that more and more of us are going to look towards the better deal at the bigger companies like Google, Facebook, Apple, Netflix, etc. Companies that provide both excellent salaries and benefits along with potentially as lucrative stock grants. It's time for the startup community to reevaluate the idea that your early employees (say pre 50) should get 0.05% of the company when they take the monetary risk of working for a startup. With such small ownership, it is starting to become a sucker bet. So for those coming here, keep your eyes open and know that right now it's only founders, management and investors making out and if you are not looking to hit the lottery, you'll do much better working at a bigger company, maxing out that 401k and investing the rest. Or go for lottery but be a founder -- sure, get the experience of working at a startup but keep a careful eye on your personal burn rate (in regards to your potential earnings). And if you're not learning and you still want to learn more, make the move to the next startup. The options just aren't worth the wait.
- zappo2938 11y ago
  All I want is to be able to write 500 to 1000 lines of code a day and not think about anything else while I do it. I just want to focus. I want to be prolific. Money is irrelevant if the thing a person wants to do doesn't require it. I can see how writing software can make someone a lot of money but if I was interested in money it is not how I would go about it. The people with wealth I know don't seem like they are doing it for the money -- they are passionate about making the deal. It is a game to them and the rules are simple, buy low and sell high.
  - hasenj 11y ago
    lol who writes 500-1000 lines of code per day?
    - danieltillett 11y ago
      To be generous to the grandparent if the problem you are working on is simple then it really is possible to churn out 1000 lines of crappy code a day. Why anyone would want to is another issue.
      - demallien 11y ago
        It's not so much the problem being simple, but more about it being a problem you have already solved. If you give me a blitter API and ask me to write a composited then yes, I can churn out the required quantity of code with ease each day. I know the problems, I know at least one solution, so I won't ever have to head up dead end alleys, stop and research options on the Internet, discover that I've chosen a really inefficient algorithm that requires a near complete rewrite to avoid, and so on. Ask me to patch an existing code base that I'm unfamiliar with to add a new option on a settings screen, and those 5 lines might take me two or more weeks to write, even though the task is simple.
    - zappo2938 11y ago
      At IBM in the 1980s, typical productivity would be 1,000 debugged, shipped lines of code per year. That was the metric that they used for their median employee. Where as, when we were shipping Half Life 1, one employee, Yahn Bernier, was shipping 4,000 lines of code per day.- Gabe Newell
      - hasenj 11y ago
        I remember downloading the source code for HL2 (via the official SDK) and somehow I counted the lines of code and the number of programmers and the number of days it took to program and my calculations came to about 1000 lines per day per programmer. But I thought I must've made a mistake somewhere.
    - pg_bot 11y ago
      Wait... what? I would consider 500-1000 lines of well tested code a slow day for me.
  - jacquesm 11y ago
    I believe your figure. But being prolific is not the only measure, there is such a thing as quality and it is more often than not the 500 lines of code that took you 3 months that will make the difference. And 500 lines of code require an about equally large chunk of documentation and most people that 'just code' and don't want to think about anything else skimp on the parts that they don't enjoy. As for people with wealth, yes, there are those that trade but there are also those that create wealth by adding value. All of those goods traded by others have to come from somewhere.
    - zappo2938 11y ago
      A cook can make the best soup in the world but if it takes him all day to do it, he will never make a living cooking it. If this line of thought carries over into coding it might be true that higher quality doesn't mean higher value. In the first season of the Apprentice the two teams had to renovate and flip an apartment. One team kept their apartment a three bedroom and the other team took out a wall and made theirs a two bedroom. The two bedroom apartment was a lot nicer but it was also worth less than the three bedroom and they ended up in the boardroom with someone getting fired. This is another example of something being higher quality but not necessarily higher value. Sure, there are a lot of people who create wealth by adding value, but the whole point of OP's article on Bloomberg is that the people who are adding value are not getting the share of that wealth. While there are lots of people earning $127,000 a year and getting $350,000 a year or two after their startup's IPO, they are not making the type of wealth people with 10s and 100s of million dollars are. Do you think Larry Page and Sergey Brin are writing code right now? Probably not. Most likely they are looking for companies for sale that are under valued or added to the Alphabet family will increase the value. I was just pointing out that the state of mind of people making deals when they wake up in the morning isn't motivated by the money, they are motivated by making the the best deal and money is just a side effect. Fundamentally, they are allocating resources, they might not necessarily be creating value. They value is already present in the product or company, they just gain an edge at the game when they understand that product or company is, interestingly enough, under valued. If people are not passionate about what they are doing, they are just wasting their time. And, my experience is people who are worth 10s and 100s of millions of dollars are passionate about making deals because that is all they do all day. People shouldn't write code because it will make them a millionaire. If people really want to be a millionaire they should make deals, even then they still have to be passionate about that game.
- manigandham 11y ago
  There's still a massive difference between founder and early employee. There are also plenty of startups that pay market rates. It's far more complicated than just startup or big company.
AstroChimpHam 11y ago
There's this obsession now about how everything in tech needs to be worth it strictly monetarily without paying attention to anything else. Personally, I think that attitude is toxic. Teachers don't teach because of how much they'll get paid. Nurses don't become nurses because of how much they'll get paid. Same for fire-fighters, non-profit workers, artists, and everyone else doing jobs they find particularly fulfilling. The same ought to be true of start-ups. Sure, you can make more expected money working at Facebook redesigning their like button, or whatever. But, at a start-up, you can have a huge hand in building something much bigger than yourself from scratch. You get to be a jack-of-all-trades, learning a bit of everything, making something hundreds of thousands of people will use go 0 to 1. You get to be incredibly important to the company and have a say in just about every decision if you want it. That role is still romantic to me, and that's why I've worked and continue to work at start-ups. I know I can make more money somewhere else. I don't care. And I want to work with other people who don't care either. If your motivation is just money, there are plenty of big faceless companies doing fun stuff like ad-tech that will be happy to pay you, and you'll be doing your start-up coworkers a favor by leaving.
- AstroChimpHam 11y ago
  Dustin Moscovitz makes this argument about what the only good reason is to start a company. (http://startupclass.samaltman.com/courses/lec01/ http://startupclass.samaltman.com/courses/lec01/). IMO, it should apply to the first ~20 employees too.
- Cymen 11y ago
  There is nothing wrong with being motivated by both doing excellent work and being well compensated for it. If the motivation is purely money, sure, I see a problem. But you're painting both sets with the same brush.
  - AstroChimpHam 11y ago
    There's no problem either way. If you want that big paycheck, enjoy ad tech or high-frequency trading. I'm not judging you. But if you come into a start-up, both the founder and the employee should be clear that more money can be made elsewhere. The start-up is for someone who wants that romantic lifestyle. They still will earn plenty of money, but no, it won't be as much as you'll make at [insert-huge-company-here], and that's OK. It sounds like Box dude from the story had a very cool experience building a company from 50 people to 1,000. I'm sorry all he thinks he got out of it are his stock options.
rdl 11y ago
Box wasn't a particularly successful IPO, nor was Square. Successful that they got to IPO, sure, but the IPOs themselves were not. (They might be successful products and companies in time; the IPO isn't the end, it's just a transition in the middle.) It's not unreasonable that employees didn't do well during those IPOs.
brudgers 11y ago
Underlying those expectations is the pre-internet Microsoft IPO when more than 10,000 people became millionaires. It's the outlier in reality that creates the myth that rank and file startup employees are likely to get wealthy. Even the millionaire cohort containing the Google chef was only about half the size. I don't think anything has come near as close since.
- scurvy 11y ago
  Don't forget about David Choe, the artist who graffiti'd Facebook for almost $500M in stock compensation. To quote the (not great) movie "Boiler Room", "you see stuff like that and it just plants seeds." Was Choe's comp worth near $500M? Hell no. Is he laughing to the bank? Of course. Is life fair? Hell no. Were other early employees screwed by the Choe's comp? Probably but they made out more than OK. I don't hear Taner complaining. Roll the dice. Make your decisions. Live with them. In 2004 I turned down a job offer from Google. On paper, I'd be worth lotsa millions. In reality, I would have gained zero. Why? Because the team I interviewed with was full of jerks, and I would have quit before my 1 year cliff had I accepted the offer. Instead, I stayed and worked at my then current job. I made a lot of good professional contacts and have never looked back. Would my life have been different if I accepted the Google offer and hit the IPO payday lottery? Possibly. I'm not sure. I don't think about it at all. I moved on over a decade ago. I'm quite happy with my life. There's more to life than being a "early XYZ employee" or "pre-IPO employee". Notorious BIG had it wrong. You don't have to slang rock or have a good jump shot. You can live nicely and happily making assists.
dchichkov 11y ago
I've asked Sam Altman (President of Y Combinator) if they are going to do anything about it. That is "shouldn't early employees, investing their under-market salary/time receive the same conditions/protection of their investments as VCs?" He had said - "Yes!" See: https://news.ycombinator.com/item?id=10361451 https://news.ycombinator.com/item?id=10361451 I hope that any under-the-market-salary investments from employees would start getting the same treatment as any other investors money (e.g. dilution cap, not vesting cliff).
- danieltillett 11y ago
  While I think this is a good idea, what advantage is there for a business to issue equity like this. They would be better off taking more cash from the VCs and just paying higher salaries.
  - stanleydrew 11y ago
    Incentive alignment.
    - danieltillett 11y ago
      Wouldn’t a high salary align interests too? Given how much people discount the future it should actually be cheaper. Interesting when I first started my business I paid well over the industry norms. I later tried moving to a model where employees (voluntarily) were able to trade in this high salary for a normal salary and a significant equity share (between 2% and 5% without vesting or a cliff). None of my employees wanted the trade. In the long run it worked out well for me, but I was surprised at the time.
      - stanleydrew 11y ago
        High salary doesn't align interests. If I'm the board of directors, I care about profit. I care about dividends on equity. If I'm an employee working for cash, I care about cash. Yes you can argue that smart employees will realize that revenue and ultimately profit leads to more available cash which leads to continued employment and salary, but that's an indirect effect. Of course you can also say that most employees don't understand equity or why they should care about it, so granting equity alone doesn't align incentives. Arguments can be made in both directions. I think it's an interesting debate actually. I've come down on the side of granting equity and encouraging employees to understand their grants so that (hopefully) incentives are more aligned than at the average company. An alternative way to get a similar result is to give a bonus based on company performance I think.
danieltillett 11y ago
If you want to invest in a startup get a high paying job at an established company and just become an angel investor. On the other hand if you want to work at a startup because of the lifestyle or mission then don’t expect to make any (well not much) money if the company succeeds. The sooner everyone wakes up to this reality the better.
- dangrossman 11y ago
  > just become an angel investor Most people are not rich, even software developers. Only the rich can be angel investors, because it's illegal to issue securities to non-accredited investors. Being an accredited investor requires a net worth of $1M excluding your house, or a steady job with $200K/year pay ($300K if married), and 2 years at that pay level before you can start investing. There's no net worth or income requirement to work at a startup and get equity that way.
  - morgante 11y ago
    Take a developer job at a top tech company and you'll be an accredited investor quickly enough.
  - danieltillett 11y ago
    If you are not able to earn $200,000 a year as a senior developer in the valley working at one of the established companies then you are not really the sort of person that would be an early hire by a first class startup. Joining a second rate start up is even a worse idea than working for an established company - you will end up with less pay and worthless options. Edit. Wow this comment hit a nerve with some people here.
    - narrowrail 11y ago
      I think the problem is most people (even VCs) can't tell the difference between a "first class startup" and a "second rate start up." Your comment has a ring of elitism to it, not to mention a lack of consistency in phrasings that bothers us pedants.
55555 11y ago
I really enjoyed this sentence: "He made about $350,000 before taxes on his Box stock, more than enough to buy the world’s smallest violin."
- tomcam 11y ago
  Agreed. Wasn't sure how to interpret...
- bpodgursky 11y ago
  It plays well to the audience, but it's effectively less than two years of salary, when you consider the high marginal taxes (depending a bit on whether they were ISO/NSO, etc). Given he was significantly under-market for four years, it's not a particularly good payout. Remember that everyone who joined early was taking a gamble on a high risk, high reward company. You see an OK payout for him, but you don't see the 0 payouts for the people who bet on the wrong horse. So if joining a startup as an early employee is changing from high-risk high-reward gamble to instead high-risk OK-reward, that's a problem.
  - Cymen 11y ago
    Well said and I think that is the exact problem. It's also coupled with a 10-11 year to IPO duration. In the past, it was much shorter. The equity game doesn't make sense anymore. You can see it in how hard it is to hire in SF as a startup and as more people see it, it is only going to get harder unless things change.
rm_-rf_slash 11y ago
The implication is that workers get screwed by less-than-stellar IPOs, but who demands unreasonable valuations? Investors and VCs. The ones who actually make real money. All in all, the Silicon Valley we-can-all-be-unicorns model is a pretty raw deal. So what if as an early employee you make $350,000 at the IPO? That's what, a down payment for a house in the Bay Area? Just don't let yourself get priced out by millionaires getting priced out by billionaires. And considering that any early employee is expected to pretty much always be working, that's basically overtime, with a tip. People only put up with this pathetic excuse for an American Dream because they allow it.
- nostrademons 11y ago
  The really effective deal in the Bay Area is location arbitrage. Move there in your 20s, take a job at either a big company or a fast-grower that'll IPO within 4-5 years. Have no life. Bank a million bucks. Then move someplace with a lower cost of living to raise a family. You'll be able to buy a house free-and-clear, and you often get a salary boost coming out of a brand-name Silicon Valley company.
  - morgante 11y ago
    > raise a family That's assuming that you somehow find time amidst 100-hour weeks to get a mate.
  - rm_-rf_slash 11y ago
    You're forgetting something: the toll it takes on you as a person. Those long nights, long commutes (if you don't live a block away), they can all wear you down. You're pressured into working more and you have less time to spend with friends and family (work IS your friends and family! :')), less time for dating (and let's be honest: if you're a single man in the Valley, you're not getting laid). It just sucks. Is that worth it?
    - dd36 11y ago
      It's the new Wall Street.
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- rm_-rf_slash 11y ago
  I don't mean to sound belligerent but you have the exact tone of a founder trying to swindle me into being the 15th employee for a paltry .5% in options with a 4 year vesting schedule.
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  - x0x0 11y ago
    Yeah clearing 350k pretax, 40% tax, for four years is $52k/year. Is that what we're calling a "win" now? In the land of (no longer just million dollar homes but million dollar condos) that's a 20p down payment. It doesn't even get you into conforming loan territory. As (I think potatolicious) said on here the real scandal isn't the shit odds of a win, its how little many people come away from a win with. (Paraphrased)
    - chubot 11y ago
      Yeah, you're guaranteed significantly more than $52k/year in stock working as an engineer at Google. When you adjust for risk, the $52k/year from a startup is probably more like $5k/year, or even less. I think people have said over and over again that you shouldn't work at a startup for the money. I hope all the 20-somethings moving to the Bay Area are listening. It's a pretty bad deal for the money, to the point that VCs are writing about it [1]. It's good to optimize for learning early in you career, to be exposed to different problems, etc. A sweet spot is to work at a bigger company with quality people (that part is very important), and to also make sure you are launching things, moving around, and learning things. [1] http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity
    - 11y ago
lkrubner 11y ago
For the last 16 years, I've mostly worked with startups. Most of them have offered me stock options. I've never made a penny from stock options. I don't take stock options seriously. If the goal is to find a way to give me an incentive to work hard, then stock options don't work for me, because I don't believe in them. They lack enough believability for me to get emotionally amped about them. And yet, that kind of excitement is suppose to be the point, yes? The startup that hires me has the option of simply paying me a salary in exchange for my professional services. But they want me to be excited enough that I'll work lots of 60 and 70 hour weeks. So they want to give me an extra incentive. So they offer stock options, but as I said, for me personally, stocks options fail completely as an incentive. I could also write a long comment about how often I get into negotiations that take the form of "We'd like to offer you less salary, but more stock options". Ha ha ha, if I was that dumb, why would you want to hire me? The problem is, there are too many things that can go wrong with stock options. The biggest, of course, is that most startups fail, and therefore most stock options have zero value. Or as Paul Graham once said, the median long-term value for any startup in any startup investment fund is $0 -- and that implies the median value of any startup stock option is $0. The article lists many other things that can go wrong with stock options -- dilutions, side deals, etc. I can think of some incentives that would actually motivate me. They would be expensive, but that is the point -- they would put real money in play, which would make them worse from the point of view of the company, but would make them real to me. They could then work as an actual incentive. One such incentive would be for the company to agree to commit a percentage of gross revenue to the workers. Say, 2%, or 4%. Then lets say, for every dollar we are paid from our salary, we get 1 royalty point, and the gross revenue fund is divided up on the basis of how many royalty points we all have. As much as I laugh at the line "We'd like to offer you less salary, but more stock options", if I seriously believed that a startup was going to do well, then hell yes I would take a salary cut now in exchange for a percent of a pot that is guaranteed to get a committed amount of gross revenue. I'll point out that Hollywood has been a trailblazer in this regard. It used to be an industry joke that actors were promised a percent of the "profits", but then with creative accounting, even very successful films could be shown to lack any profits, and therefore nothing needed to be paid to the actors. Because of the unfairness of those deals, Hollywood has moved toward royalty payments that are increasingly based on something like gross revenue.
wdewind 11y ago
I think when you are saying "early" employees are getting screwed you have to be really specific. Joining Box etc. a few months before an IPO is not an early employee. You're joining at a point where the company is pretty thoroughly derisked, so you're taking very little personal risk yourself. You're probably not taking a pay cut (may even be getting a raise). So yeah: don't join a company 6 years in, get your ~10k shares with a price of $12 and a projected IPO price of $16 and expect to get rich.
- prostoalex 11y ago
  The sweet spot seems to be some time after series A (or, since there's no precise definition, after the company has raised a $3-5 million round) - it's good reasonable growth for venture backers to step in, there's an appearance of professional management and planning for growth. Joining a company after C round is likely to be a solid financial decision, but not significantly life-changing. Joining a unicorn who got to that valuation by taking a few late-stage financing rounds is almost a losing bet from math standpoint - that entity has so many ratchet conditions, side letters, and so much dilution you might just as well start distributing those shares on soft paper in 24-packs.
- nostrademons 11y ago
  The article said he was there for 4 years, joining in 2011, and watched it grow from 50 employees to 1000+. So not a total early employee, but also not a few months before IPO. You also need to consider what equivalent returns would be at competing companies. Someone who joined Google or Apple in 2011 with a decade of experience could easily have made $350K in stock compensation alone, but with a higher base salary and even less risk.
  - x5n1 11y ago
    American corporate structure Shareholders + Founders + Upper Management. --- Peons & serfs. Much like it's always been. Peons and serfs get enough to get buy, and a little more to see them through the hard times. To make sure they keep working until they are of old age. Don't want to be adding too many to the upper middle class. They don't deserve it because they don't take the risk, you know of costing billionaires a few million... who would probably not be billionaires if not for other serfs and peons.
jheriko 11y ago
i'm still convinced this whole philosophy of investing/cashing out is the wrong one for building successful businesses. still the comment about the smallest violin hits this on the head. what could have been with different decisions is fine, but if you made $350k you did not get screwed over. plenty of companies like this fail outright and never even float.
- Cymen 11y ago
  That is the issue: $350k is not enough of a reward for the risk when most fail. It's like going to the bookies and finding the favorite horse is paying 1:1.0001. What's the point of betting?
free2rhyme214 11y ago
Oh QQ the Box and now Instacart employee made $350k before taxes. How is this a surprise to anyone? All you have to do is ask other employees of startup IPO's to see how much they made and the answer is obvious: Founders and investors make MOST of the money. It has and always will be that way. If you want to change this dynamic, become a founder or a VC. It's pretty straightforward. This nonsense about "getting screwed" as a startup employee is delusional ignorance. If you work for someone else at a startup, of course you're not going to make as much as someone at a more established company. I only know this because I have relatives who work for a public company that IPO'd that everyone uses to search for restaurants so this surprises me not one iota. Last comment on employees who make millions from IPO's - how often does that occur? As often as Uber, Google, Facebook and the like are created. Which I'd say is once every 6-8 years. The odds are terribly stacked against you if you think you'll pick the right company in the beginning. I mean I remember when Dropbox was super popular and then Uber just absolutely blew it out of the water. Who would've thought a taxi dispatch company would be the next Google/Facebook? It's certainly not impossible to make money, but temper your expectations and don't believe everything your founders & investors tell you until you see the real numbers. The devil is in the details.
- x0x0 11y ago
  I'm having trouble understanding your post because you go from "How is this a surprise" to "I only know this because [I have inside knowledge from either yelp or opentable]".
lpolovets 11y ago
I think what articles like this accurately capture is that stock options are a crapshoot. What they don't accurately capture is that if your only goal is to maximize expected earnings over the next 4 years, then startups are unlikely to be the best strategy. I think an analogous mistake would be interviewing someone at Google who says they hoped to advance their career and learn a lot about common software frameworks and programming languages, and instead they only got promoted once or twice and mostly learned things that are unavailable and unheard of outside of Google. That doesn't mean Google is a bad place to work, but it does mean that it wasn't the right place for the person given their initial goals. Some of the things startups are good for: 1) Higher potential earnings. EV might be higher or lower depending on the startup. At Google, you get a $175k salary and a $300k stock grant over 4 years. The stock might double or triple but won't 10x or 30x. If you joined a company like Pinterest or Uber 3-4 years ago, you might've gotten $100k salary and a S300k stock grant over 4 years, but that stock has gone up 10x or 30x and is now worth $3m or $10m (at least on paper). 2) Better shot of quickly shooting up the career ladder, having a lot of responsibility, and so on. 3) Great opportunity to learn things outside of your current comfort zone. Startups are not good for: maximizing steady salary + predictable equity, blending into the crowd and having more free time outside of work, going really deep on one area instead of working on a lot of different areas, and so on. Finally, I think using Box in the article is potentially misleading. By the end of 2011, according to https://equityzen.com/blog/box-path-to-ipo/ https://equityzen.com/blog/box-path-to-ipo/, Box was already valued at $600m. The current valuation is only 3x that, despite the company having 20x more employees. There are other startups with a similar trajectory, like Etsy. However, there are also companies like LendingClub or Lyft or Uber, where joining 4 years ago would've provided a 10x or even 50x for an employee. 10x or 50x on a $200k or $300k initial grant is huge.
soham 11y ago
Ex-Box employee here. I was at Box a little longer than Sutton. I have worked with him for all his 4 years there. He is a good, competent, typical startup guy who fits better at an early stage. But I think that the way he is (and many others in the valley are) measuring payout is flawed. I hope this audience doesn't generalize and extrapolate Jeff's observations. Especially in the context of Box. For those who have never worked at Box, it's very hard to describe how special that place is. The culture is (or at least was) hands down one of the best I've experienced. The bar to entry is high, both culturally and technically. Everyone has a drive to do the right thing for the customer, and has had a meaningful opportunity to contribute. All of us there have built amazing relationships and grown (tremendously) professionally over the years. Many of us have even gone on to build successful businesses, on the strength of those relationships (e.g. http://interviewkickstart.com http://interviewkickstart.com). THAT is the payout. The fact that Sutton can now hop from one good startup to another in the valley is the payout. The fact that companies look at his resume and trust him to help their IT infra grow from 40 to 1000, is the payout. The fact that he can proudly recount to his friends, that he worked at Box early, is the payout. The fact that he can call upon any relationship from those years and they pickup his phone, is the payout. The fact that he is not worried about his next startup job in the valley anymore, is the payout (that wouldn't have happened had he stayed at IBM). The fact that he can put down payment to a house and raise a family in a decent part of Bay Area, is the payout. And btw, the fact that his IT management helped 1000 of us serve a million+ customers to organize and secure their data, is also the payout. In a startup, you value people and an opportunity to do meaningful things, above everything else. You want to be a part of that small group, that moves the needle in this massively morbid and unpredictable world. Anything else, is bonus.
- jacquesm 11y ago
  The box gig proved that he could do this, but he already could do this beforehand so that's their gain, not his. And a down payment so you can raise a family is the pay-off? That's a little thin, in most other locations the downpayment on a house would not cost you several years of your life, for that kind of money you could buy the house free of debt. It becomes a pretty hollow proof when you look at it like that.

134 points by t23 11y ago

Cymen 11y ago

The problem here is that the dream is dying for those of us coming to SF to work in startups. The harsh reality is that more and more of us are going to look towards the better deal at the bigger companies like Google, Facebook, Apple, Netflix, etc. Companies that provide both excellent salaries and benefits along with potentially as lucrative stock grants. It's time for the startup community to reevaluate the idea that your early employees (say pre 50) should get 0.05% of the company when they take the monetary risk of working for a startup. With such small ownership, it is starting to become a sucker bet. So for those coming here, keep your eyes open and know that right now it's only founders, management and investors making out and if you are not looking to hit the lottery, you'll do much better working at a bigger company, maxing out that 401k and investing the rest. Or go for lottery but be a founder -- sure, get the experience of working at a startup but keep a careful eye on your personal burn rate (in regards to your potential earnings). And if you're not learning and you still want to learn more, make the move to the next startup. The options just aren't worth the wait.

zappo2938 11y ago
All I want is to be able to write 500 to 1000 lines of code a day and not think about anything else while I do it. I just want to focus. I want to be prolific. Money is irrelevant if the thing a person wants to do doesn't require it. I can see how writing software can make someone a lot of money but if I was interested in money it is not how I would go about it. The people with wealth I know don't seem like they are doing it for the money -- they are passionate about making the deal. It is a game to them and the rules are simple, buy low and sell high.
- hasenj 11y ago
  lol who writes 500-1000 lines of code per day?
  - danieltillett 11y ago
    To be generous to the grandparent if the problem you are working on is simple then it really is possible to churn out 1000 lines of crappy code a day. Why anyone would want to is another issue.
    - demallien 11y ago
      It's not so much the problem being simple, but more about it being a problem you have already solved. If you give me a blitter API and ask me to write a composited then yes, I can churn out the required quantity of code with ease each day. I know the problems, I know at least one solution, so I won't ever have to head up dead end alleys, stop and research options on the Internet, discover that I've chosen a really inefficient algorithm that requires a near complete rewrite to avoid, and so on. Ask me to patch an existing code base that I'm unfamiliar with to add a new option on a settings screen, and those 5 lines might take me two or more weeks to write, even though the task is simple.
  - zappo2938 11y ago
    At IBM in the 1980s, typical productivity would be 1,000 debugged, shipped lines of code per year. That was the metric that they used for their median employee. Where as, when we were shipping Half Life 1, one employee, Yahn Bernier, was shipping 4,000 lines of code per day.- Gabe Newell
    - hasenj 11y ago
      I remember downloading the source code for HL2 (via the official SDK) and somehow I counted the lines of code and the number of programmers and the number of days it took to program and my calculations came to about 1000 lines per day per programmer. But I thought I must've made a mistake somewhere.
  - pg_bot 11y ago
    Wait... what? I would consider 500-1000 lines of well tested code a slow day for me.
- jacquesm 11y ago
  I believe your figure. But being prolific is not the only measure, there is such a thing as quality and it is more often than not the 500 lines of code that took you 3 months that will make the difference. And 500 lines of code require an about equally large chunk of documentation and most people that 'just code' and don't want to think about anything else skimp on the parts that they don't enjoy. As for people with wealth, yes, there are those that trade but there are also those that create wealth by adding value. All of those goods traded by others have to come from somewhere.
  - zappo2938 11y ago
    A cook can make the best soup in the world but if it takes him all day to do it, he will never make a living cooking it. If this line of thought carries over into coding it might be true that higher quality doesn't mean higher value. In the first season of the Apprentice the two teams had to renovate and flip an apartment. One team kept their apartment a three bedroom and the other team took out a wall and made theirs a two bedroom. The two bedroom apartment was a lot nicer but it was also worth less than the three bedroom and they ended up in the boardroom with someone getting fired. This is another example of something being higher quality but not necessarily higher value. Sure, there are a lot of people who create wealth by adding value, but the whole point of OP's article on Bloomberg is that the people who are adding value are not getting the share of that wealth. While there are lots of people earning $127,000 a year and getting $350,000 a year or two after their startup's IPO, they are not making the type of wealth people with 10s and 100s of million dollars are. Do you think Larry Page and Sergey Brin are writing code right now? Probably not. Most likely they are looking for companies for sale that are under valued or added to the Alphabet family will increase the value. I was just pointing out that the state of mind of people making deals when they wake up in the morning isn't motivated by the money, they are motivated by making the the best deal and money is just a side effect. Fundamentally, they are allocating resources, they might not necessarily be creating value. They value is already present in the product or company, they just gain an edge at the game when they understand that product or company is, interestingly enough, under valued. If people are not passionate about what they are doing, they are just wasting their time. And, my experience is people who are worth 10s and 100s of millions of dollars are passionate about making deals because that is all they do all day. People shouldn't write code because it will make them a millionaire. If people really want to be a millionaire they should make deals, even then they still have to be passionate about that game.
manigandham 11y ago
There's still a massive difference between founder and early employee. There are also plenty of startups that pay market rates. It's far more complicated than just startup or big company.

AstroChimpHam 11y ago

There's this obsession now about how everything in tech needs to be worth it strictly monetarily without paying attention to anything else. Personally, I think that attitude is toxic. Teachers don't teach because of how much they'll get paid. Nurses don't become nurses because of how much they'll get paid. Same for fire-fighters, non-profit workers, artists, and everyone else doing jobs they find particularly fulfilling. The same ought to be true of start-ups. Sure, you can make more expected money working at Facebook redesigning their like button, or whatever. But, at a start-up, you can have a huge hand in building something much bigger than yourself from scratch. You get to be a jack-of-all-trades, learning a bit of everything, making something hundreds of thousands of people will use go 0 to 1. You get to be incredibly important to the company and have a say in just about every decision if you want it. That role is still romantic to me, and that's why I've worked and continue to work at start-ups. I know I can make more money somewhere else. I don't care. And I want to work with other people who don't care either. If your motivation is just money, there are plenty of big faceless companies doing fun stuff like ad-tech that will be happy to pay you, and you'll be doing your start-up coworkers a favor by leaving.

AstroChimpHam 11y ago
Dustin Moscovitz makes this argument about what the only good reason is to start a company. (http://startupclass.samaltman.com/courses/lec01/ http://startupclass.samaltman.com/courses/lec01/). IMO, it should apply to the first ~20 employees too.
Cymen 11y ago
There is nothing wrong with being motivated by both doing excellent work and being well compensated for it. If the motivation is purely money, sure, I see a problem. But you're painting both sets with the same brush.
- AstroChimpHam 11y ago
  There's no problem either way. If you want that big paycheck, enjoy ad tech or high-frequency trading. I'm not judging you. But if you come into a start-up, both the founder and the employee should be clear that more money can be made elsewhere. The start-up is for someone who wants that romantic lifestyle. They still will earn plenty of money, but no, it won't be as much as you'll make at [insert-huge-company-here], and that's OK. It sounds like Box dude from the story had a very cool experience building a company from 50 people to 1,000. I'm sorry all he thinks he got out of it are his stock options.

rdl 11y ago

Box wasn't a particularly successful IPO, nor was Square. Successful that they got to IPO, sure, but the IPOs themselves were not. (They might be successful products and companies in time; the IPO isn't the end, it's just a transition in the middle.) It's not unreasonable that employees didn't do well during those IPOs.

brudgers 11y ago

Underlying those expectations is the pre-internet Microsoft IPO when more than 10,000 people became millionaires. It's the outlier in reality that creates the myth that rank and file startup employees are likely to get wealthy. Even the millionaire cohort containing the Google chef was only about half the size. I don't think anything has come near as close since.

scurvy 11y ago
Don't forget about David Choe, the artist who graffiti'd Facebook for almost $500M in stock compensation. To quote the (not great) movie "Boiler Room", "you see stuff like that and it just plants seeds." Was Choe's comp worth near $500M? Hell no. Is he laughing to the bank? Of course. Is life fair? Hell no. Were other early employees screwed by the Choe's comp? Probably but they made out more than OK. I don't hear Taner complaining. Roll the dice. Make your decisions. Live with them. In 2004 I turned down a job offer from Google. On paper, I'd be worth lotsa millions. In reality, I would have gained zero. Why? Because the team I interviewed with was full of jerks, and I would have quit before my 1 year cliff had I accepted the offer. Instead, I stayed and worked at my then current job. I made a lot of good professional contacts and have never looked back. Would my life have been different if I accepted the Google offer and hit the IPO payday lottery? Possibly. I'm not sure. I don't think about it at all. I moved on over a decade ago. I'm quite happy with my life. There's more to life than being a "early XYZ employee" or "pre-IPO employee". Notorious BIG had it wrong. You don't have to slang rock or have a good jump shot. You can live nicely and happily making assists.

dchichkov 11y ago

I've asked Sam Altman (President of Y Combinator) if they are going to do anything about it. That is "shouldn't early employees, investing their under-market salary/time receive the same conditions/protection of their investments as VCs?" He had said - "Yes!" See: https://news.ycombinator.com/item?id=10361451 https://news.ycombinator.com/item?id=10361451 I hope that any under-the-market-salary investments from employees would start getting the same treatment as any other investors money (e.g. dilution cap, not vesting cliff).

danieltillett 11y ago
While I think this is a good idea, what advantage is there for a business to issue equity like this. They would be better off taking more cash from the VCs and just paying higher salaries.
- stanleydrew 11y ago
  Incentive alignment.
  - danieltillett 11y ago
    Wouldn’t a high salary align interests too? Given how much people discount the future it should actually be cheaper. Interesting when I first started my business I paid well over the industry norms. I later tried moving to a model where employees (voluntarily) were able to trade in this high salary for a normal salary and a significant equity share (between 2% and 5% without vesting or a cliff). None of my employees wanted the trade. In the long run it worked out well for me, but I was surprised at the time.
    - stanleydrew 11y ago
      High salary doesn't align interests. If I'm the board of directors, I care about profit. I care about dividends on equity. If I'm an employee working for cash, I care about cash. Yes you can argue that smart employees will realize that revenue and ultimately profit leads to more available cash which leads to continued employment and salary, but that's an indirect effect. Of course you can also say that most employees don't understand equity or why they should care about it, so granting equity alone doesn't align incentives. Arguments can be made in both directions. I think it's an interesting debate actually. I've come down on the side of granting equity and encouraging employees to understand their grants so that (hopefully) incentives are more aligned than at the average company. An alternative way to get a similar result is to give a bonus based on company performance I think.

danieltillett 11y ago

If you want to invest in a startup get a high paying job at an established company and just become an angel investor. On the other hand if you want to work at a startup because of the lifestyle or mission then don’t expect to make any (well not much) money if the company succeeds. The sooner everyone wakes up to this reality the better.

dangrossman 11y ago
> just become an angel investor Most people are not rich, even software developers. Only the rich can be angel investors, because it's illegal to issue securities to non-accredited investors. Being an accredited investor requires a net worth of $1M excluding your house, or a steady job with $200K/year pay ($300K if married), and 2 years at that pay level before you can start investing. There's no net worth or income requirement to work at a startup and get equity that way.
- morgante 11y ago
  Take a developer job at a top tech company and you'll be an accredited investor quickly enough.
- danieltillett 11y ago
  If you are not able to earn $200,000 a year as a senior developer in the valley working at one of the established companies then you are not really the sort of person that would be an early hire by a first class startup. Joining a second rate start up is even a worse idea than working for an established company - you will end up with less pay and worthless options. Edit. Wow this comment hit a nerve with some people here.
  - narrowrail 11y ago
    I think the problem is most people (even VCs) can't tell the difference between a "first class startup" and a "second rate start up." Your comment has a ring of elitism to it, not to mention a lack of consistency in phrasings that bothers us pedants.

55555 11y ago

I really enjoyed this sentence: "He made about $350,000 before taxes on his Box stock, more than enough to buy the world’s smallest violin."

tomcam 11y ago
Agreed. Wasn't sure how to interpret...
bpodgursky 11y ago
It plays well to the audience, but it's effectively less than two years of salary, when you consider the high marginal taxes (depending a bit on whether they were ISO/NSO, etc). Given he was significantly under-market for four years, it's not a particularly good payout. Remember that everyone who joined early was taking a gamble on a high risk, high reward company. You see an OK payout for him, but you don't see the 0 payouts for the people who bet on the wrong horse. So if joining a startup as an early employee is changing from high-risk high-reward gamble to instead high-risk OK-reward, that's a problem.
- Cymen 11y ago
  Well said and I think that is the exact problem. It's also coupled with a 10-11 year to IPO duration. In the past, it was much shorter. The equity game doesn't make sense anymore. You can see it in how hard it is to hire in SF as a startup and as more people see it, it is only going to get harder unless things change.

rm_-rf_slash 11y ago

The implication is that workers get screwed by less-than-stellar IPOs, but who demands unreasonable valuations? Investors and VCs. The ones who actually make real money. All in all, the Silicon Valley we-can-all-be-unicorns model is a pretty raw deal. So what if as an early employee you make $350,000 at the IPO? That's what, a down payment for a house in the Bay Area? Just don't let yourself get priced out by millionaires getting priced out by billionaires. And considering that any early employee is expected to pretty much always be working, that's basically overtime, with a tip. People only put up with this pathetic excuse for an American Dream because they allow it.

nostrademons 11y ago
The really effective deal in the Bay Area is location arbitrage. Move there in your 20s, take a job at either a big company or a fast-grower that'll IPO within 4-5 years. Have no life. Bank a million bucks. Then move someplace with a lower cost of living to raise a family. You'll be able to buy a house free-and-clear, and you often get a salary boost coming out of a brand-name Silicon Valley company.
- morgante 11y ago
  > raise a family That's assuming that you somehow find time amidst 100-hour weeks to get a mate.
- rm_-rf_slash 11y ago
  You're forgetting something: the toll it takes on you as a person. Those long nights, long commutes (if you don't live a block away), they can all wear you down. You're pressured into working more and you have less time to spend with friends and family (work IS your friends and family! :')), less time for dating (and let's be honest: if you're a single man in the Valley, you're not getting laid). It just sucks. Is that worth it?
  - dd36 11y ago
    It's the new Wall Street.

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rm_-rf_slash 11y ago
I don't mean to sound belligerent but you have the exact tone of a founder trying to swindle me into being the 15th employee for a paltry .5% in options with a 4 year vesting schedule.
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- x0x0 11y ago
  Yeah clearing 350k pretax, 40% tax, for four years is $52k/year. Is that what we're calling a "win" now? In the land of (no longer just million dollar homes but million dollar condos) that's a 20p down payment. It doesn't even get you into conforming loan territory. As (I think potatolicious) said on here the real scandal isn't the shit odds of a win, its how little many people come away from a win with. (Paraphrased)
  - chubot 11y ago
    Yeah, you're guaranteed significantly more than $52k/year in stock working as an engineer at Google. When you adjust for risk, the $52k/year from a startup is probably more like $5k/year, or even less. I think people have said over and over again that you shouldn't work at a startup for the money. I hope all the 20-somethings moving to the Bay Area are listening. It's a pretty bad deal for the money, to the point that VCs are writing about it [1]. It's good to optimize for learning early in you career, to be exposed to different problems, etc. A sweet spot is to work at a bigger company with quality people (that part is very important), and to also make sure you are launching things, moving around, and learning things. [1] http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity
  - 11y ago

lkrubner 11y ago

For the last 16 years, I've mostly worked with startups. Most of them have offered me stock options. I've never made a penny from stock options. I don't take stock options seriously. If the goal is to find a way to give me an incentive to work hard, then stock options don't work for me, because I don't believe in them. They lack enough believability for me to get emotionally amped about them. And yet, that kind of excitement is suppose to be the point, yes? The startup that hires me has the option of simply paying me a salary in exchange for my professional services. But they want me to be excited enough that I'll work lots of 60 and 70 hour weeks. So they want to give me an extra incentive. So they offer stock options, but as I said, for me personally, stocks options fail completely as an incentive. I could also write a long comment about how often I get into negotiations that take the form of "We'd like to offer you less salary, but more stock options". Ha ha ha, if I was that dumb, why would you want to hire me? The problem is, there are too many things that can go wrong with stock options. The biggest, of course, is that most startups fail, and therefore most stock options have zero value. Or as Paul Graham once said, the median long-term value for any startup in any startup investment fund is $0 -- and that implies the median value of any startup stock option is $0. The article lists many other things that can go wrong with stock options -- dilutions, side deals, etc. I can think of some incentives that would actually motivate me. They would be expensive, but that is the point -- they would put real money in play, which would make them worse from the point of view of the company, but would make them real to me. They could then work as an actual incentive. One such incentive would be for the company to agree to commit a percentage of gross revenue to the workers. Say, 2%, or 4%. Then lets say, for every dollar we are paid from our salary, we get 1 royalty point, and the gross revenue fund is divided up on the basis of how many royalty points we all have. As much as I laugh at the line "We'd like to offer you less salary, but more stock options", if I seriously believed that a startup was going to do well, then hell yes I would take a salary cut now in exchange for a percent of a pot that is guaranteed to get a committed amount of gross revenue. I'll point out that Hollywood has been a trailblazer in this regard. It used to be an industry joke that actors were promised a percent of the "profits", but then with creative accounting, even very successful films could be shown to lack any profits, and therefore nothing needed to be paid to the actors. Because of the unfairness of those deals, Hollywood has moved toward royalty payments that are increasingly based on something like gross revenue.

wdewind 11y ago

I think when you are saying "early" employees are getting screwed you have to be really specific. Joining Box etc. a few months before an IPO is not an early employee. You're joining at a point where the company is pretty thoroughly derisked, so you're taking very little personal risk yourself. You're probably not taking a pay cut (may even be getting a raise). So yeah: don't join a company 6 years in, get your ~10k shares with a price of $12 and a projected IPO price of $16 and expect to get rich.

prostoalex 11y ago
The sweet spot seems to be some time after series A (or, since there's no precise definition, after the company has raised a $3-5 million round) - it's good reasonable growth for venture backers to step in, there's an appearance of professional management and planning for growth. Joining a company after C round is likely to be a solid financial decision, but not significantly life-changing. Joining a unicorn who got to that valuation by taking a few late-stage financing rounds is almost a losing bet from math standpoint - that entity has so many ratchet conditions, side letters, and so much dilution you might just as well start distributing those shares on soft paper in 24-packs.
nostrademons 11y ago
The article said he was there for 4 years, joining in 2011, and watched it grow from 50 employees to 1000+. So not a total early employee, but also not a few months before IPO. You also need to consider what equivalent returns would be at competing companies. Someone who joined Google or Apple in 2011 with a decade of experience could easily have made $350K in stock compensation alone, but with a higher base salary and even less risk.
- x5n1 11y ago
  American corporate structure Shareholders + Founders + Upper Management. --- Peons & serfs. Much like it's always been. Peons and serfs get enough to get buy, and a little more to see them through the hard times. To make sure they keep working until they are of old age. Don't want to be adding too many to the upper middle class. They don't deserve it because they don't take the risk, you know of costing billionaires a few million... who would probably not be billionaires if not for other serfs and peons.

jheriko 11y ago

i'm still convinced this whole philosophy of investing/cashing out is the wrong one for building successful businesses. still the comment about the smallest violin hits this on the head. what could have been with different decisions is fine, but if you made $350k you did not get screwed over. plenty of companies like this fail outright and never even float.

Cymen 11y ago
That is the issue: $350k is not enough of a reward for the risk when most fail. It's like going to the bookies and finding the favorite horse is paying 1:1.0001. What's the point of betting?

free2rhyme214 11y ago

Oh QQ the Box and now Instacart employee made $350k before taxes. How is this a surprise to anyone? All you have to do is ask other employees of startup IPO's to see how much they made and the answer is obvious: Founders and investors make MOST of the money. It has and always will be that way. If you want to change this dynamic, become a founder or a VC. It's pretty straightforward. This nonsense about "getting screwed" as a startup employee is delusional ignorance. If you work for someone else at a startup, of course you're not going to make as much as someone at a more established company. I only know this because I have relatives who work for a public company that IPO'd that everyone uses to search for restaurants so this surprises me not one iota. Last comment on employees who make millions from IPO's - how often does that occur? As often as Uber, Google, Facebook and the like are created. Which I'd say is once every 6-8 years. The odds are terribly stacked against you if you think you'll pick the right company in the beginning. I mean I remember when Dropbox was super popular and then Uber just absolutely blew it out of the water. Who would've thought a taxi dispatch company would be the next Google/Facebook? It's certainly not impossible to make money, but temper your expectations and don't believe everything your founders & investors tell you until you see the real numbers. The devil is in the details.

x0x0 11y ago
I'm having trouble understanding your post because you go from "How is this a surprise" to "I only know this because [I have inside knowledge from either yelp or opentable]".

lpolovets 11y ago

I think what articles like this accurately capture is that stock options are a crapshoot. What they don't accurately capture is that if your only goal is to maximize expected earnings over the next 4 years, then startups are unlikely to be the best strategy. I think an analogous mistake would be interviewing someone at Google who says they hoped to advance their career and learn a lot about common software frameworks and programming languages, and instead they only got promoted once or twice and mostly learned things that are unavailable and unheard of outside of Google. That doesn't mean Google is a bad place to work, but it does mean that it wasn't the right place for the person given their initial goals. Some of the things startups are good for: 1) Higher potential earnings. EV might be higher or lower depending on the startup. At Google, you get a $175k salary and a $300k stock grant over 4 years. The stock might double or triple but won't 10x or 30x. If you joined a company like Pinterest or Uber 3-4 years ago, you might've gotten $100k salary and a S300k stock grant over 4 years, but that stock has gone up 10x or 30x and is now worth $3m or $10m (at least on paper). 2) Better shot of quickly shooting up the career ladder, having a lot of responsibility, and so on. 3) Great opportunity to learn things outside of your current comfort zone. Startups are not good for: maximizing steady salary + predictable equity, blending into the crowd and having more free time outside of work, going really deep on one area instead of working on a lot of different areas, and so on. Finally, I think using Box in the article is potentially misleading. By the end of 2011, according to https://equityzen.com/blog/box-path-to-ipo/ https://equityzen.com/blog/box-path-to-ipo/, Box was already valued at $600m. The current valuation is only 3x that, despite the company having 20x more employees. There are other startups with a similar trajectory, like Etsy. However, there are also companies like LendingClub or Lyft or Uber, where joining 4 years ago would've provided a 10x or even 50x for an employee. 10x or 50x on a $200k or $300k initial grant is huge.

soham 11y ago

Ex-Box employee here. I was at Box a little longer than Sutton. I have worked with him for all his 4 years there. He is a good, competent, typical startup guy who fits better at an early stage. But I think that the way he is (and many others in the valley are) measuring payout is flawed. I hope this audience doesn't generalize and extrapolate Jeff's observations. Especially in the context of Box. For those who have never worked at Box, it's very hard to describe how special that place is. The culture is (or at least was) hands down one of the best I've experienced. The bar to entry is high, both culturally and technically. Everyone has a drive to do the right thing for the customer, and has had a meaningful opportunity to contribute. All of us there have built amazing relationships and grown (tremendously) professionally over the years. Many of us have even gone on to build successful businesses, on the strength of those relationships (e.g. http://interviewkickstart.com http://interviewkickstart.com). THAT is the payout. The fact that Sutton can now hop from one good startup to another in the valley is the payout. The fact that companies look at his resume and trust him to help their IT infra grow from 40 to 1000, is the payout. The fact that he can proudly recount to his friends, that he worked at Box early, is the payout. The fact that he can call upon any relationship from those years and they pickup his phone, is the payout. The fact that he is not worried about his next startup job in the valley anymore, is the payout (that wouldn't have happened had he stayed at IBM). The fact that he can put down payment to a house and raise a family in a decent part of Bay Area, is the payout. And btw, the fact that his IT management helped 1000 of us serve a million+ customers to organize and secure their data, is also the payout. In a startup, you value people and an opportunity to do meaningful things, above everything else. You want to be a part of that small group, that moves the needle in this massively morbid and unpredictable world. Anything else, is bonus.

jacquesm 11y ago
The box gig proved that he could do this, but he already could do this beforehand so that's their gain, not his. And a down payment so you can raise a family is the pay-off? That's a little thin, in most other locations the downpayment on a house would not cost you several years of your life, for that kind of money you could buy the house free of debt. It becomes a pretty hollow proof when you look at it like that.