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I recently made the jump from startups to bigger co. For me there were a few considerations: 1. We’re at the end of a bubble and doing a slow pop. Multiple c

by poof131 10y ago

I recently made the jump from startups to bigger co. For me there were a few considerations: 1. We’re at the end of a bubble and doing a slow pop. Multiple companies that have raised a lot of money don’t have the revenue or unit economics to be sustainable. Employees with compensation tied up in stock aren’t going to do well. Had a friend leave two companies within 6 months (didn’t bother vesting) that both raised over $100 million because the executive teams were celebrating $900 deals. 2. Startups don’t exit anymore. Waiting 8-10 years for an exit is unacceptable. It might be okay for founders who take a couple million off the table at the B round or VCs who keep the IRR on their books, but for employees it’s a fail. 3. Founders as rockstars. The narrative is hurting the industry. People I like and respected raise money and become narcissistic assholes. Last founder I worked for who I considered a friend told me “he was like Elon Musk or Larry Paige, a technical genius, and not to question his leadership”. This was after he fired his cofounder and chased off the one other employee of our seed stage startup. 4. Risk vs. Reward. As an employee with founders trying to keep 50% of the company to be like Zuck, companies never exiting, and no idea what the terms of later rounds are, working at a startup is becoming stupid. Saying it’s about the mission, it’s about learning not earning, when the VCs and founders are doing great is disingenuous. We’re at the end of the cycle. I’ve seen 3 now: 2001, 2008, 2016. Hopefully in the next round the powers that be will figure out how to better reward everyone who takes risk working at startups. Right now employees take almost as much risk as founders for much less reward.

ryandrake 10y ago
Wow, great comment. You've put to words a lot of what now keeps me away from start-ups. It's no longer "probably financially rewarding" to be employee number 30. Seems like in earlier cycles (1990s and before), the cream was spread much more evenly among the people taking the career risk, where now, it's almost entirely captured by founders and investors.
- sulam 10y ago
  The cream has never been evenly spread. It likely never will be, although it could be improved. In order to evenly spread it, you have to be able to measure contribution. Good luck with that. Previously VCs got most of the cream, founders got to ride out the public markets for their pay day, and early employees had to hope they were working at a Microsoft.
rubicon33 10y ago
> "It might be okay for founders who take a couple million off the table at the B round or VCs who keep the IRR on their books, but for employees it’s a fail." Does that actually happen? I've always wondered if founders walked away from failed startups having made a couple million off the funding rounds... How common is that?
- mahyarm 10y ago
  Way more common than you think. Founders do not talk or advertise this part of startups, and often hide it from the employees themselves. Often the only way you find out is if you have access to and read through the company documents. Another way is having a friend that works in finance and has visibility into this kind of stuff / you monitor SEC filings or other finance services or heard it through the rumor mill. The logic is to incentivize the founders to go for the big wins that the VC formula is set up for.
  - rubicon33 10y ago
    I've never been a founder of a startup, so my perspective as an employee is clearly somewhat biased. That said, I can't help but feel, that taking hundreds of thousands, if not millions of dollars, from a failing startup, should be considered fraud...
    - mahyarm 10y ago
      They don't do it when it's failing, because no investors would do it. It usually happens when the startup is on an upward trend. It's usually done as part of an investment round of some sort. It's not fraud, it just isn't obviously public.
- ci5er 10y ago
  It didn't used to much in the late-PC rah-rah of the 80s or the dot-com 90s, but I understand it's increasingly common now. Not wanting to be beholden to the VC's growth paradigm handcuffs[1], especially going into an economic downturn[2], and wanting to share a "taste" all the way around as we expand are two of the reasons I've been trying very hard to avoid VC this time to the party. [1] The VCs are bound to an business model and we who take their money are bound to support their outcomes. That's not a bad thing, but it constrains options. [2] I found out early on (this is about to be a conclusion based on extremely limited data) that any VC that hadn't himself been through three down-turns, two as a VC, were 1000% worse than useless on the board. You don't want to get stuck to the hip with a wet-behind-the-ears rockstar-wannabe VClet going into a downturn.
dkarapetyan 10y ago
The cycles will continue. The workforce is as much to blame for the mythos as the VCs. Everyone likes to think as you pointed out that they're the next Larry Paige or Elon Musk when in reality those people are as much a product of their times as they are a product of hard work and intelligence. That's a harder story to sell though and given a long enough time people forget why the last bubble went pop and start believing in all the same things that lead up to it.
trhway 10y ago
> Hopefully in the next round the powers that be will figure out how to better reward everyone who takes risk working at startups. Right now employees take almost as much risk as founders for much less reward. Like big companies started to do it last time around, the startup will have to start giving RSUs instead of options without too much unreasonable limitations on sale of those RSUs on the secondary market. That would allow to much more easily (and realistically) valuate and realize your actual compensation. Every time startup makes me an offer (and i almost don't interview with startups), a typical option loaded one, i always kind of wonder - "you wanna me forgo $50K+ in total in exchange for what? Shouldn't i get a stock like other investors? Because applying my time and skills at discounted rate is like investing the monetary value of that discount.". The only time when startup matched the total (of a concurrent offer from a public co.), several years ago and i should have taken it, it was a really early stage back then a unicorn of today. One can say being generous is a sign of unicorn :)
- pj_mukh 10y ago
  There's gotta be a good way to do the risk calculation. Take the the drop in salary most people take to join a startup subtract the payoff from a startups' exit event (usually more than big co's) multiply by the risk of a payoff while controlling for the stage you join (a 30 person company is much less likely to fail than a 5 person company etc.)
  - robhunter 10y ago
    Depending on the role, I also think considering velocity of career progression is important, depending on the individual and the role - moving from an entry-level role to a leadership role can happen a lot quicker at many startups than it can at big co, and it can have real financial implications even if the startup isn't successful.
figers 10y ago
How about working for a startup with good co-workers using technology you enjoy and making a good salary? If the huge exit is not there it can still be a good job with much more flexibility than a fortune 500's cubicle farm I've worked at in the past...
- redwards510 10y ago
  Except for the looooooooooooooooong hours and lack of work/life balance..
  - figers 10y ago
    I guess it depends on the startup, mine allows typical 8-5 unless something terrible occurs off hours (which is rare)
smallgovt 10y ago
As a founder of a series C startup, I agree that common stock options in startups are grossly over-valued right now. Based on my experience, the median offer for 1st engineers at an early stage startup is around $100K + 1%, vested over 4 years. My guess is that the same engineer's market rate at Big Co is $150K. It is nearly impossible that 1% is worth $50K /year. Most startups will try to convince you that you should price common shares according to the company's last valuation (or more), but by my estimation, this is off by at LEAST a multiple of 2. Here is why: - Common shares are worth ~25% less than preferred shares due to liquid preference - Inflation -- earnings from common stock are paid out on average 5 years from now. you should apply a 20% discount to the company's current valuation due to this. - Risk -- startups are inherently risky. unless you are already wealthy, you should be further discounting for this. Here is a spreadsheet that models out each of these discounts: https://docs.google.com/spreadsheets/d/1fA95D0YR9RWF7JGrP1W9wkeD_vjywi0lsHm8X4f5cSI/edit?usp=sharing https://docs.google.com/spreadsheets/d/1fA95D0YR9RWF7JGrP1W9... In reality, you should be pricing common shares at closer to half the company's last valuation. Unfortunately, in my experience, employees are willing to buy into the hype and are currently valuing their shares at TWICE the company's last valuation. Don't count on companies being an agent for change in this area -- employees just need to get smarter. Companies will follow suit by raising offers. Also, although I agree that common shares are overvalued, I don't buy the undertone of your message -- that employees ought to make more BECAUSE their founders are getting rich. How much founders make and how much employees make should have little to do with each other. The former is dictated by how good of a business the founder has built, and the latter is governed by how much your peers are willing to work for.
acedinlowball 10y ago
I have been the CTO of several very successful startup exits and I agree with everything in this post. Well said.

by poof131 10y ago

ryandrake 10y ago

Wow, great comment. You've put to words a lot of what now keeps me away from start-ups. It's no longer "probably financially rewarding" to be employee number 30. Seems like in earlier cycles (1990s and before), the cream was spread much more evenly among the people taking the career risk, where now, it's almost entirely captured by founders and investors.

sulam 10y ago
The cream has never been evenly spread. It likely never will be, although it could be improved. In order to evenly spread it, you have to be able to measure contribution. Good luck with that. Previously VCs got most of the cream, founders got to ride out the public markets for their pay day, and early employees had to hope they were working at a Microsoft.

rubicon33 10y ago

> "It might be okay for founders who take a couple million off the table at the B round or VCs who keep the IRR on their books, but for employees it’s a fail." Does that actually happen? I've always wondered if founders walked away from failed startups having made a couple million off the funding rounds... How common is that?

mahyarm 10y ago
Way more common than you think. Founders do not talk or advertise this part of startups, and often hide it from the employees themselves. Often the only way you find out is if you have access to and read through the company documents. Another way is having a friend that works in finance and has visibility into this kind of stuff / you monitor SEC filings or other finance services or heard it through the rumor mill. The logic is to incentivize the founders to go for the big wins that the VC formula is set up for.
- rubicon33 10y ago
  I've never been a founder of a startup, so my perspective as an employee is clearly somewhat biased. That said, I can't help but feel, that taking hundreds of thousands, if not millions of dollars, from a failing startup, should be considered fraud...
  - mahyarm 10y ago
    They don't do it when it's failing, because no investors would do it. It usually happens when the startup is on an upward trend. It's usually done as part of an investment round of some sort. It's not fraud, it just isn't obviously public.
ci5er 10y ago
It didn't used to much in the late-PC rah-rah of the 80s or the dot-com 90s, but I understand it's increasingly common now. Not wanting to be beholden to the VC's growth paradigm handcuffs[1], especially going into an economic downturn[2], and wanting to share a "taste" all the way around as we expand are two of the reasons I've been trying very hard to avoid VC this time to the party. [1] The VCs are bound to an business model and we who take their money are bound to support their outcomes. That's not a bad thing, but it constrains options. [2] I found out early on (this is about to be a conclusion based on extremely limited data) that any VC that hadn't himself been through three down-turns, two as a VC, were 1000% worse than useless on the board. You don't want to get stuck to the hip with a wet-behind-the-ears rockstar-wannabe VClet going into a downturn.

dkarapetyan 10y ago

The cycles will continue. The workforce is as much to blame for the mythos as the VCs. Everyone likes to think as you pointed out that they're the next Larry Paige or Elon Musk when in reality those people are as much a product of their times as they are a product of hard work and intelligence. That's a harder story to sell though and given a long enough time people forget why the last bubble went pop and start believing in all the same things that lead up to it.

trhway 10y ago

> Hopefully in the next round the powers that be will figure out how to better reward everyone who takes risk working at startups. Right now employees take almost as much risk as founders for much less reward. Like big companies started to do it last time around, the startup will have to start giving RSUs instead of options without too much unreasonable limitations on sale of those RSUs on the secondary market. That would allow to much more easily (and realistically) valuate and realize your actual compensation. Every time startup makes me an offer (and i almost don't interview with startups), a typical option loaded one, i always kind of wonder - "you wanna me forgo $50K+ in total in exchange for what? Shouldn't i get a stock like other investors? Because applying my time and skills at discounted rate is like investing the monetary value of that discount.". The only time when startup matched the total (of a concurrent offer from a public co.), several years ago and i should have taken it, it was a really early stage back then a unicorn of today. One can say being generous is a sign of unicorn :)

pj_mukh 10y ago
There's gotta be a good way to do the risk calculation. Take the the drop in salary most people take to join a startup subtract the payoff from a startups' exit event (usually more than big co's) multiply by the risk of a payoff while controlling for the stage you join (a 30 person company is much less likely to fail than a 5 person company etc.)
- robhunter 10y ago
  Depending on the role, I also think considering velocity of career progression is important, depending on the individual and the role - moving from an entry-level role to a leadership role can happen a lot quicker at many startups than it can at big co, and it can have real financial implications even if the startup isn't successful.

figers 10y ago

How about working for a startup with good co-workers using technology you enjoy and making a good salary? If the huge exit is not there it can still be a good job with much more flexibility than a fortune 500's cubicle farm I've worked at in the past...

redwards510 10y ago
Except for the looooooooooooooooong hours and lack of work/life balance..
- figers 10y ago
  I guess it depends on the startup, mine allows typical 8-5 unless something terrible occurs off hours (which is rare)

smallgovt 10y ago

As a founder of a series C startup, I agree that common stock options in startups are grossly over-valued right now. Based on my experience, the median offer for 1st engineers at an early stage startup is around $100K + 1%, vested over 4 years. My guess is that the same engineer's market rate at Big Co is $150K. It is nearly impossible that 1% is worth $50K /year. Most startups will try to convince you that you should price common shares according to the company's last valuation (or more), but by my estimation, this is off by at LEAST a multiple of 2. Here is why: - Common shares are worth ~25% less than preferred shares due to liquid preference - Inflation -- earnings from common stock are paid out on average 5 years from now. you should apply a 20% discount to the company's current valuation due to this. - Risk -- startups are inherently risky. unless you are already wealthy, you should be further discounting for this. Here is a spreadsheet that models out each of these discounts: https://docs.google.com/spreadsheets/d/1fA95D0YR9RWF7JGrP1W9wkeD_vjywi0lsHm8X4f5cSI/edit?usp=sharing https://docs.google.com/spreadsheets/d/1fA95D0YR9RWF7JGrP1W9... In reality, you should be pricing common shares at closer to half the company's last valuation. Unfortunately, in my experience, employees are willing to buy into the hype and are currently valuing their shares at TWICE the company's last valuation. Don't count on companies being an agent for change in this area -- employees just need to get smarter. Companies will follow suit by raising offers. Also, although I agree that common shares are overvalued, I don't buy the undertone of your message -- that employees ought to make more BECAUSE their founders are getting rich. How much founders make and how much employees make should have little to do with each other. The former is dictated by how good of a business the founder has built, and the latter is governed by how much your peers are willing to work for.

acedinlowball 10y ago

I have been the CTO of several very successful startup exits and I agree with everything in this post. Well said.