5 ms·

>And yet we treat it like something that is non negotiable, Sometimes, it's non-negotiable because there's no money to pay Google-style $300k salaries + benef

by jasode 9y ago

>And yet we treat it like something that is non negotiable, Sometimes, it's non-negotiable because there's no money to pay Google-style $300k salaries + benefits. Fred doesn't make it clear whether he's talking about young startups with very little money in the bank or a mature 8-year old "startup" like Uber that raised $22 billion from investors with $6 billion in revenue. If it's a young 2-person startup that just got a modest $120k investment from YCombinator, a "3rd employee" will not be able to get a $300k salary. The only monetary recruitment tool left is equity. Fred is also leaving out the game theory aspects of the equity as a deliberate filtering mechanism to attract employees aligned with the founder's vision. Yes, many workers are definitely cynical of startups' self-aggrandizing "we're going to change the world" so they only see one (and only one) way to compensate employees: pure 100% cash and fuck off with your options. An employee certainly has every right to stay rigid to that point of view. However, it still doesn't change the psychology of founders wanting to filter out the candidates with a "mercenary" mindset. They often have no money to pay the mercenaries anyway so they have no choice.

rhizome 9y ago
If it's a young 2-person startup that just got a modest $120k investment from YCombinator I didn't know it was a thing that anybody should be hired from YC seed. I thought it was just to support the existing team.
pja 9y ago
I think at least some of the cynicism comes from founders offering salaries that are 30-40% of the rate they might get from 'bigcorp of choice' and then offering derisory amounts of equity in compensation. If the equity you offer is just about enough to make up for the employees loss of income if you get both a minimum $100million+ exit and no future dilution, then your offer isn’t going to be very enticing to jaded potential employees who have been round this particular block once or twice before.
- auxym 9y ago
  I inteviewed for a startup once (I don't live in a big startup hub). I was offered a 40% drop of my current salary, no benefits, no equity and no options. I was also sternly warned during the interview that they were looking for someone highly engaged in making the company grow. I cannot begin the understand the reasoning of the founders on that one.
  - lr4444lr 9y ago
    A lot in this industry begins to make sense once I accepted that a lot of very otherwise intelligent and capable people are simply delusional.
    - toomuchtodo 9y ago
      Or suffering from dangerous levels of hubris.
      - giglamesh 9y ago
        I think of hubris as a form of delusion.
  - arethuza 9y ago
    A few years back I was approached by a recruiter for an investment bank who seemed to think I should be delighted to take a lower salary and bonus and much fewer holidays (I think I was on 38 days a year) for the pleasure of working in what they described as a very "high pressure" environment. That actually got annoyed when I laughed and questioned why I'd want to work for them.
  - snarf21 9y ago
    It is surely delusional but the founders tell themselves they are going to exit for 1B. So the chump options you would get for 1% worth is still going to net you 10M, which would be quite nice. Obviously, they are going to have to take more money and you are going to be diluted to nothing and you'll be lucky if the whole company exits for 10M. Equity seems only to have value as golden handcuffs, keeping early valuable employees at the company since they lose everything if they leave and can't afford to exercise 400K of options plus face the tax implications.
- solatic 9y ago
  Exactly. If you're a founder, you're looking for investors. Some investors pay with money. Some investors pay with time and talent. If you succeed, all of your investors deserve to share in your success. If you're not willing to share your success with those who are investing their time and talent, why should they be willing to invest with you?
saas_co_de 9y ago
> "mercenary" mindset a.k.a. "professionals" I agree with your assessment that what it really comes down to in most cases is that companies don't have the money and so they are trying to hustle something on the cheap. The other factor is that unless a startup happens to have some very talented technical co-founders (very rare, even though they all think they do) they aren't going to be able to identify or attract real talent anyway. If they were paying premium salaries the money would most likely be wasted.
- patrickmay 9y ago
  > a.k.a. "professionals" Exactly. A salesman I used to work with said "Everyone is coin operated." You might be able to go 5-10% either way for intangibles like the stack being used or interest in the product, but at the end of the day everyone has to make the mortgage.
  - uauaayauuauaa 9y ago
    Unless you live in a van, or in a low cost of living situation, which admittedly 99.999% of programmers choose not to do thanks to the power of "lifestyle inflation".
    - CameronBanga 9y ago
      I'm not sure owning a house or reasonable apartment should be considered "lifestyle inflation", when working in an industry that continually creates some of the richest people in the world.
Yizahi 9y ago
Well if there is no money then pay with "fair" equity. I.e. you give a person 0.5% of a company and they have that same 0.5% in the next 5, 10, 20 years etc. No preferential share classes, no dilution, no golden parachutes for corporate investors, have predefined IPO date (e.g. no later than in 10 years or something like that), no any of the popular ways to screw employees with equity/options out of their shares.
- jasode 9y ago
  >Well if there is no money [...] No preferential share classes You're creating a circular contradiction about the money flow. A founder has no money. He gets interest from a VC like Sequoia Capital to invest $10 million. The standard and non negotiable terms of the deal means Sequoia gets "preferential shares" as a condition of writing a check for $10 million. One of my potential employees (Yizahi) I'm trying to recruit insists on "no preferential shares!". Sequoia then says, "Ok, no $10 million deal then. Bye!" As a result, both the founders and the employees have no working capital to build a more valuable company. We can't just shout out "no preferential shares" and "no dilution" without understanding the full ramifications of what that actually means.
  - bitwize 9y ago
    I wish more people would understand this. It generalizes. We say "no DRM on the Web!" Hollywood says "Okay, no cross-platform movies on the web then, either. Bye!"
  - tibbetts 9y ago
    Right. People often fail to recognize that without preferential shares startups would just raise at a lot worse valuations. If Sequoia is offering $10m at a $40m post money, how do you think that would change if they weren’t getting control and a guarantee they get paid first? Because without preference the founder incentive is a quick low risk liquidation at a price notably lower than $40m as soon as possible, because they’ve got 50% of the equity. This is another way in which financing valuations are an optimistic fiction.
anthony_barker 9y ago
2 comments: Check out ICOs... They are a bit scammy but deal with liquidity and resell. Second I would say is allow share purchase at a discount... This is better than options and filters out employees who don't care. Finally ... As many companies go bankrupt - cash is king. I've worked for companies who try to pay in shares just before going bankrupt...

by jasode 9y ago

rhizome 9y ago

If it's a young 2-person startup that just got a modest $120k investment from YCombinator I didn't know it was a thing that anybody should be hired from YC seed. I thought it was just to support the existing team.

pja 9y ago

I think at least some of the cynicism comes from founders offering salaries that are 30-40% of the rate they might get from 'bigcorp of choice' and then offering derisory amounts of equity in compensation. If the equity you offer is just about enough to make up for the employees loss of income if you get both a minimum $100million+ exit and no future dilution, then your offer isn’t going to be very enticing to jaded potential employees who have been round this particular block once or twice before.

auxym 9y ago
I inteviewed for a startup once (I don't live in a big startup hub). I was offered a 40% drop of my current salary, no benefits, no equity and no options. I was also sternly warned during the interview that they were looking for someone highly engaged in making the company grow. I cannot begin the understand the reasoning of the founders on that one.
- lr4444lr 9y ago
  A lot in this industry begins to make sense once I accepted that a lot of very otherwise intelligent and capable people are simply delusional.
  - toomuchtodo 9y ago
    Or suffering from dangerous levels of hubris.
    - giglamesh 9y ago
      I think of hubris as a form of delusion.
- arethuza 9y ago
  A few years back I was approached by a recruiter for an investment bank who seemed to think I should be delighted to take a lower salary and bonus and much fewer holidays (I think I was on 38 days a year) for the pleasure of working in what they described as a very "high pressure" environment. That actually got annoyed when I laughed and questioned why I'd want to work for them.
- snarf21 9y ago
  It is surely delusional but the founders tell themselves they are going to exit for 1B. So the chump options you would get for 1% worth is still going to net you 10M, which would be quite nice. Obviously, they are going to have to take more money and you are going to be diluted to nothing and you'll be lucky if the whole company exits for 10M. Equity seems only to have value as golden handcuffs, keeping early valuable employees at the company since they lose everything if they leave and can't afford to exercise 400K of options plus face the tax implications.
solatic 9y ago
Exactly. If you're a founder, you're looking for investors. Some investors pay with money. Some investors pay with time and talent. If you succeed, all of your investors deserve to share in your success. If you're not willing to share your success with those who are investing their time and talent, why should they be willing to invest with you?

saas_co_de 9y ago

> "mercenary" mindset a.k.a. "professionals" I agree with your assessment that what it really comes down to in most cases is that companies don't have the money and so they are trying to hustle something on the cheap. The other factor is that unless a startup happens to have some very talented technical co-founders (very rare, even though they all think they do) they aren't going to be able to identify or attract real talent anyway. If they were paying premium salaries the money would most likely be wasted.

patrickmay 9y ago
> a.k.a. "professionals" Exactly. A salesman I used to work with said "Everyone is coin operated." You might be able to go 5-10% either way for intangibles like the stack being used or interest in the product, but at the end of the day everyone has to make the mortgage.
- uauaayauuauaa 9y ago
  Unless you live in a van, or in a low cost of living situation, which admittedly 99.999% of programmers choose not to do thanks to the power of "lifestyle inflation".
  - CameronBanga 9y ago
    I'm not sure owning a house or reasonable apartment should be considered "lifestyle inflation", when working in an industry that continually creates some of the richest people in the world.

Yizahi 9y ago

Well if there is no money then pay with "fair" equity. I.e. you give a person 0.5% of a company and they have that same 0.5% in the next 5, 10, 20 years etc. No preferential share classes, no dilution, no golden parachutes for corporate investors, have predefined IPO date (e.g. no later than in 10 years or something like that), no any of the popular ways to screw employees with equity/options out of their shares.

jasode 9y ago
>Well if there is no money [...] No preferential share classes You're creating a circular contradiction about the money flow. A founder has no money. He gets interest from a VC like Sequoia Capital to invest $10 million. The standard and non negotiable terms of the deal means Sequoia gets "preferential shares" as a condition of writing a check for $10 million. One of my potential employees (Yizahi) I'm trying to recruit insists on "no preferential shares!". Sequoia then says, "Ok, no $10 million deal then. Bye!" As a result, both the founders and the employees have no working capital to build a more valuable company. We can't just shout out "no preferential shares" and "no dilution" without understanding the full ramifications of what that actually means.
- bitwize 9y ago
  I wish more people would understand this. It generalizes. We say "no DRM on the Web!" Hollywood says "Okay, no cross-platform movies on the web then, either. Bye!"
- tibbetts 9y ago
  Right. People often fail to recognize that without preferential shares startups would just raise at a lot worse valuations. If Sequoia is offering $10m at a $40m post money, how do you think that would change if they weren’t getting control and a guarantee they get paid first? Because without preference the founder incentive is a quick low risk liquidation at a price notably lower than $40m as soon as possible, because they’ve got 50% of the equity. This is another way in which financing valuations are an optimistic fiction.

anthony_barker 9y ago

2 comments: Check out ICOs... They are a bit scammy but deal with liquidity and resell. Second I would say is allow share purchase at a discount... This is better than options and filters out employees who don't care. Finally ... As many companies go bankrupt - cash is king. I've worked for companies who try to pay in shares just before going bankrupt...