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That’s the point of options though - most of the time that “cash” doesn’t exist to be paid out in bonuses. Options are a bet that it will exist in the future.

That’s the point of options though - most of the time that “cash” doesn’t exist to be paid out in bonuses. Options are a bet that it will exist in the future. Why do startups pay lower salaries than Facebook? Because Facebook throws around $200-300k salaries and doesn’t care. Startups can’t do that, so it promises a piece of the pie if the company becomes big and successful instead.

mooreds 9y ago
Nor does the ability to "buy in" exist for normal employees unless the business is public or sets up some kind of ESOP.
eldavido 9y ago
I don't think this is true anymore. I think this is one of those funny vestigial things that evolved in a different era. If you think of a startup as a true "garage venture" with a few people toiling away trying to ship a product, maybe that's the right model. That isn't really the model for SV entrepreneurship anymore, though, even though we kinda pretend it is. How it works today is, $8 million-dollar "seed" rounds, downtown office space, early-stage companies paying $150k or more for talent, incubators and signaling, etc. Maybe one of those cases where the game has changed, but our mythos hasn't.
- mooreds 9y ago
  Maybe this is true in SV. My experience in other areas of the country is that startups, especially early stage ones, don't have that kind of cash.
- austenallred 9y ago
  That’s simply incorrect. I founded a company that raised a mammoth seed round in Silicon Valley (not $8m but more than $3m), and we do pay some high salaries, but Apple and Facebook still pay salaries that are much, much higher. Critical employees have joined us while taking $100,000/yr pay cuts, despite. Having a salary in the six figures. To think that startups can play that game of “equity doesn’t matter” is just wrong, even in an era of $8m seed rounds. I know HN likes to say “go for cash not stock,” which is a good way to negotiate if you want to avoid downside risk, but if you eliminate stock compensation there’s no way startups can play ball with incumbents. Full stop.
  - pascalxus 9y ago
    I don't think so. Why should employees make up such a large percentage of the money invested in the company? When you take a salary cut of 50K, it's like taking that money an investing it right then and there. Why should an employee be investing 50K of their own money into the company every single year? It's bad enough that someone would invest 50K in a single company: one that picked them, not the other way around, with all the information asymmetries that applies, but to add insult to injury: the risk is compounded by the fact that their investing all this money into the very same company they depend on for their paycheck. VCs are much much better equipped to do investing: both in terms of skill sets, experience and information. Employees should not be forced to become angel investors just because they work at a start up. VCs will always have enough money to invest in truely excellent opportunities. It just means, they'll need to invest more. And in this low interest rate world, I don't think the world is starving for cash is it?
    - austenallred 9y ago
      Maybe an employee believes in the company and wants to take part, deeming the risk is worth it for them? Clearly that's what's happening. It's certainly rational in some cases to take the risk of owning a portion of a company instead of taking the same amount of cash and putting it in the S&P 500. You're always investing your time and money, it's just a matter of where. And for what it's worth, if you're getting paid $250k at Apple, you can probably go back at almost any time.
      - s73ver_ 9y ago
        "Maybe an employee believes in the company and wants to take part, deeming the risk is worth it for them? Clearly that's what's happening." And that belief is abused, and the employees get fucked over when it comes time for an acquisition, as their shares get dilluted to hell and back.
        icebraining 9y ago
        Yes, that often happens and it's clearly unethical. What's your point?
- optimuspaul 9y ago
  Silicon Valley isn't the world. I think the reality is that a startup is often the "garage venture" or somewhere well below a well-funded startup. Most startups of the world don't have multi-million dollar seed funding, even many that do aren't paying 150k plus salaries.
oneshot908 9y ago
At this point, unless you're C-suite, most startups are a really bad bet compared to the BigCos paying out anywhere from $250K-$1M annually depending on your skill set and experience. What's happening now IMO is that the hot talent has figured this out and they have accepted positions at Tesla, Salesforce, Google, Facebook, Apple, or Amazon. That said, I know someone who walked away from a $10M package over 4 years to be the CTO of his startup. I wouldn't have, but everyone has to follow their path, right?
- austenallred 9y ago
  It all depends. It’s certainly hard to compete with a $500k/yr sure thing, but personally I’d rather have a $150k/yr salary with a chance to retire if the company does well than a sure $200k/yr. It just all depends. Risk-adjusted, the best way to get returns is probably to take an equity-heavy stake at a post-series-B startup with obvious growth and product market fit.
  - optimuspaul 9y ago
    I used to feel that way too until I tried it multiple times. All of the startups I've been involved with have been buried or purchased with deals that made my options worthless or effectively worthless (i.e. needing to come up with enough capital to execute the options for such a meager gains that it was hardly worth the effort).
    - austenallred 9y ago
      On the other hand I know hundreds of people that this kind of equity made millionaires.
- 3pt14159 9y ago
  The other problem is cryptocurrencies have created a ton of new companies that are paying big for talent. I actually think this is a good thing. Too many people were working on dumb startups back then. I want more engineers at Tesla.
s73ver_ 9y ago
Yeah, but all the risk of that bet is put on the employee. The employer faces none of it.

mooreds 9y ago

Nor does the ability to "buy in" exist for normal employees unless the business is public or sets up some kind of ESOP.

eldavido 9y ago

I don't think this is true anymore. I think this is one of those funny vestigial things that evolved in a different era. If you think of a startup as a true "garage venture" with a few people toiling away trying to ship a product, maybe that's the right model. That isn't really the model for SV entrepreneurship anymore, though, even though we kinda pretend it is. How it works today is, $8 million-dollar "seed" rounds, downtown office space, early-stage companies paying $150k or more for talent, incubators and signaling, etc. Maybe one of those cases where the game has changed, but our mythos hasn't.

mooreds 9y ago
Maybe this is true in SV. My experience in other areas of the country is that startups, especially early stage ones, don't have that kind of cash.
austenallred 9y ago
That’s simply incorrect. I founded a company that raised a mammoth seed round in Silicon Valley (not $8m but more than $3m), and we do pay some high salaries, but Apple and Facebook still pay salaries that are much, much higher. Critical employees have joined us while taking $100,000/yr pay cuts, despite. Having a salary in the six figures. To think that startups can play that game of “equity doesn’t matter” is just wrong, even in an era of $8m seed rounds. I know HN likes to say “go for cash not stock,” which is a good way to negotiate if you want to avoid downside risk, but if you eliminate stock compensation there’s no way startups can play ball with incumbents. Full stop.
- pascalxus 9y ago
  I don't think so. Why should employees make up such a large percentage of the money invested in the company? When you take a salary cut of 50K, it's like taking that money an investing it right then and there. Why should an employee be investing 50K of their own money into the company every single year? It's bad enough that someone would invest 50K in a single company: one that picked them, not the other way around, with all the information asymmetries that applies, but to add insult to injury: the risk is compounded by the fact that their investing all this money into the very same company they depend on for their paycheck. VCs are much much better equipped to do investing: both in terms of skill sets, experience and information. Employees should not be forced to become angel investors just because they work at a start up. VCs will always have enough money to invest in truely excellent opportunities. It just means, they'll need to invest more. And in this low interest rate world, I don't think the world is starving for cash is it?
  - austenallred 9y ago
    Maybe an employee believes in the company and wants to take part, deeming the risk is worth it for them? Clearly that's what's happening. It's certainly rational in some cases to take the risk of owning a portion of a company instead of taking the same amount of cash and putting it in the S&P 500. You're always investing your time and money, it's just a matter of where. And for what it's worth, if you're getting paid $250k at Apple, you can probably go back at almost any time.
    - s73ver_ 9y ago
      "Maybe an employee believes in the company and wants to take part, deeming the risk is worth it for them? Clearly that's what's happening." And that belief is abused, and the employees get fucked over when it comes time for an acquisition, as their shares get dilluted to hell and back.
      - icebraining 9y ago
        Yes, that often happens and it's clearly unethical. What's your point?
optimuspaul 9y ago
Silicon Valley isn't the world. I think the reality is that a startup is often the "garage venture" or somewhere well below a well-funded startup. Most startups of the world don't have multi-million dollar seed funding, even many that do aren't paying 150k plus salaries.

oneshot908 9y ago

At this point, unless you're C-suite, most startups are a really bad bet compared to the BigCos paying out anywhere from $250K-$1M annually depending on your skill set and experience. What's happening now IMO is that the hot talent has figured this out and they have accepted positions at Tesla, Salesforce, Google, Facebook, Apple, or Amazon. That said, I know someone who walked away from a $10M package over 4 years to be the CTO of his startup. I wouldn't have, but everyone has to follow their path, right?

austenallred 9y ago
It all depends. It’s certainly hard to compete with a $500k/yr sure thing, but personally I’d rather have a $150k/yr salary with a chance to retire if the company does well than a sure $200k/yr. It just all depends. Risk-adjusted, the best way to get returns is probably to take an equity-heavy stake at a post-series-B startup with obvious growth and product market fit.
- optimuspaul 9y ago
  I used to feel that way too until I tried it multiple times. All of the startups I've been involved with have been buried or purchased with deals that made my options worthless or effectively worthless (i.e. needing to come up with enough capital to execute the options for such a meager gains that it was hardly worth the effort).
  - austenallred 9y ago
    On the other hand I know hundreds of people that this kind of equity made millionaires.
3pt14159 9y ago
The other problem is cryptocurrencies have created a ton of new companies that are paying big for talent. I actually think this is a good thing. Too many people were working on dumb startups back then. I want more engineers at Tesla.

s73ver_ 9y ago

Yeah, but all the risk of that bet is put on the employee. The employer faces none of it.