5 ms·

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 e

by 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.
  - AstroChimpHam 11y ago
    Those founders working their asses off that first year making 0 money and paying for servers and other expenses out of pocket as they slowly watch their bank accounts dwindle aren't doing themselves any monetary favors. Life's great if it works out, but 90+% of the time it doesn't, and a year's time and salary is a pretty big bet.
    - x5n1 11y ago
      Many employees work very hard at startups juggling many different hats. I am sure it's possible to do a little bit of math to show that 1 year salary in a lifetime is not much risk at all, and in the end most employees take the same level of risk over a lifetime in terms of lost pay by joining startups or even companies that go bust, even if employees come later in the game; most startups fail. When they fail you have to find new employment which takes a few months. Add that over a lifetime, and employees that tend to work at startups easily lose a year or two of pay... had they instead worked for a large stable corporation with an actual career path. My point is not that founders don't deserve a pay out. My point is that if you get a huge payout, employees that made that happen deserve a good part of it. It's good for everyone involved and the economy at large. And the startup ecosystem. It keeps wealth from concentrating in a few hands who can then affect the masses adversely and the economy as well. More people with money is better than fewer people with money. Competition is what makes Capitalism work. And part of that competition comes from the fact that many people have wealth. Not just a few.
      - AstroChimpHam 11y ago
        Agree they deserve a good part of it. My qualm is mostly around what "good" is. Employee #50 making $350k off a success doesn't feel like like a tragedy to me. If employee #5 made that at Box, I'd be upset too. I disagree strongly about your characterization of risk. Long run losing of $10k for 10 years is nothing like losing salary completely for a year. Unless you've been very good with money, taking a year with no salary in the Bay Area means Ramen. That year is also the start-up's most risky and the one with the least support. Most of the time when I hear these arguments it's from employees who have never tried founding. People who've tried both and know how difficult it is to keep yourself going for a year making nothing and trying to convince someone to pay for what you made don't think the equity split is unfair anymore-- even when they go back to being employees.
- jordanb 11y ago
  The article says his salary was $95,000. It sounds like he was a manager and not just an engineer, but if we peg his market rate at, say $140,000 (the market rate of a good senior developer in San Francisco), then he paid $180,000 for these options.
  - nostrademons 11y ago
    Paying $180K for options worth $350K (over 4 years) isn't a terrible trade - that's about an 18% IRR annually, even ignoring that the $180K was a stream of $45K annually instead of a lump sum. He could've done better elsewhere in SV, but I guess this is why the article says it's enough to buy the world's smallest violin.
  - phamilton 11y ago
    But $140k is not actually market rate. If we are looking at opportunity cost, a good engineer at Google or Facebook will pull in over 200k.
    - deleted 11y ago
      [deleted]
  - encoderer 11y ago
    $140k is market rate for a Sr Engineer in 2012. More like $175-180k now in SF. Source: friends, hiring in this market, my own experiences

by wdewind 11y ago

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.
- AstroChimpHam 11y ago
  Those founders working their asses off that first year making 0 money and paying for servers and other expenses out of pocket as they slowly watch their bank accounts dwindle aren't doing themselves any monetary favors. Life's great if it works out, but 90+% of the time it doesn't, and a year's time and salary is a pretty big bet.
  - x5n1 11y ago
    Many employees work very hard at startups juggling many different hats. I am sure it's possible to do a little bit of math to show that 1 year salary in a lifetime is not much risk at all, and in the end most employees take the same level of risk over a lifetime in terms of lost pay by joining startups or even companies that go bust, even if employees come later in the game; most startups fail. When they fail you have to find new employment which takes a few months. Add that over a lifetime, and employees that tend to work at startups easily lose a year or two of pay... had they instead worked for a large stable corporation with an actual career path. My point is not that founders don't deserve a pay out. My point is that if you get a huge payout, employees that made that happen deserve a good part of it. It's good for everyone involved and the economy at large. And the startup ecosystem. It keeps wealth from concentrating in a few hands who can then affect the masses adversely and the economy as well. More people with money is better than fewer people with money. Competition is what makes Capitalism work. And part of that competition comes from the fact that many people have wealth. Not just a few.
    - AstroChimpHam 11y ago
      Agree they deserve a good part of it. My qualm is mostly around what "good" is. Employee #50 making $350k off a success doesn't feel like like a tragedy to me. If employee #5 made that at Box, I'd be upset too. I disagree strongly about your characterization of risk. Long run losing of $10k for 10 years is nothing like losing salary completely for a year. Unless you've been very good with money, taking a year with no salary in the Bay Area means Ramen. That year is also the start-up's most risky and the one with the least support. Most of the time when I hear these arguments it's from employees who have never tried founding. People who've tried both and know how difficult it is to keep yourself going for a year making nothing and trying to convince someone to pay for what you made don't think the equity split is unfair anymore-- even when they go back to being employees.
jordanb 11y ago
The article says his salary was $95,000. It sounds like he was a manager and not just an engineer, but if we peg his market rate at, say $140,000 (the market rate of a good senior developer in San Francisco), then he paid $180,000 for these options.
- nostrademons 11y ago
  Paying $180K for options worth $350K (over 4 years) isn't a terrible trade - that's about an 18% IRR annually, even ignoring that the $180K was a stream of $45K annually instead of a lump sum. He could've done better elsewhere in SV, but I guess this is why the article says it's enough to buy the world's smallest violin.
- phamilton 11y ago
  But $140k is not actually market rate. If we are looking at opportunity cost, a good engineer at Google or Facebook will pull in over 200k.
  - deleted 11y ago
    [deleted]
- encoderer 11y ago
  $140k is market rate for a Sr Engineer in 2012. More like $175-180k now in SF. Source: friends, hiring in this market, my own experiences