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Some numbers (because who doesn't like numbers). Let's say (VERY F'ING HYPOTHETICALLY) that I could walk into a $300k Google job. You as a startup can offer m

Some numbers (because who doesn't like numbers). Let's say (VERY F'ING HYPOTHETICALLY) that I could walk into a $300k Google job. You as a startup can offer me $150k+equity, and let's say there's a 4 year vesting period on those options. Straight out of the gate we can see that the bare minimum those options have to be worth to make that transaction worthwhile is $600k (ignoring tax, 'cos I'm not looking that up). Time value of money increases that to, let's say, $666k. So far, so good. Now, what are the odds of getting that payout? If you went round that cycle 10 times, how many times would it pay out? 1? 2? Let's be very, extremely, remarkably, and irrationally charitable and say that every other startup lasts 4 years and pays out, and the rest go pop. That means we need to double our baseline to $1.3M to compensate. For going into any of these deals to be rational, to balance the risk each one needs to be credibly offering to make you a millionaire.

isolli 9y ago
You're not even taking risk aversion into account. You simply suppose that expected values have to match. But you'd normally want a higher expected value in the case where the payoff is uncertain. So the difference should even higher than you suggest.
dwaltrip 9y ago
Some people don't want to work for a big corp. This preference changes the analysis significantly.
- regularfry 9y ago
  Sure. That's outside the realms of a discussion of whether equity is reasonable compensation for a lowered salary, though - "not working for bigcorp" is a separate part of the compensation package. I'm not saying that anyone's wrong for choosing to work for a startup. I'm just saying that it might not be rational. We're human, so that's fine. We're allowed to have non-economic value systems. But anyone walking into a job where options are part of the compensation ought to understand how the company views what it is offering.
  - dwaltrip 9y ago
    I think it's misguided to label non-economic factors as irrelevant to a rational consideration. Humans aren't economic robots. Money is an abstraction, a very important one, but not all-encompassing. Perhaps your comment came with an implied "assuming no preference in firm size". That's fine, but a large number of people don't fall into that category, and so they will need to rationally modify the analysis.
ixtli 9y ago
... and that doesn't even consider the existential risk you take on by working for a place that will push you out / fire you if you get sick or otherwise can't work for more than a few months vs a place that will give you comprehensive health benefits, etc.
neltnerb 9y ago
Yeah... I tried explaining this to my ex-boss once. The math just isn't that complicated. I think MBAs are trained to ignore any math that doesn't suit their position.
dang 9y ago
Could you please not use allcaps for emphasis? The site guidelines ask you not to: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.

isolli 9y ago

You're not even taking risk aversion into account. You simply suppose that expected values have to match. But you'd normally want a higher expected value in the case where the payoff is uncertain. So the difference should even higher than you suggest.

dwaltrip 9y ago

Some people don't want to work for a big corp. This preference changes the analysis significantly.

regularfry 9y ago
Sure. That's outside the realms of a discussion of whether equity is reasonable compensation for a lowered salary, though - "not working for bigcorp" is a separate part of the compensation package. I'm not saying that anyone's wrong for choosing to work for a startup. I'm just saying that it might not be rational. We're human, so that's fine. We're allowed to have non-economic value systems. But anyone walking into a job where options are part of the compensation ought to understand how the company views what it is offering.
- dwaltrip 9y ago
  I think it's misguided to label non-economic factors as irrelevant to a rational consideration. Humans aren't economic robots. Money is an abstraction, a very important one, but not all-encompassing. Perhaps your comment came with an implied "assuming no preference in firm size". That's fine, but a large number of people don't fall into that category, and so they will need to rationally modify the analysis.

ixtli 9y ago

... and that doesn't even consider the existential risk you take on by working for a place that will push you out / fire you if you get sick or otherwise can't work for more than a few months vs a place that will give you comprehensive health benefits, etc.

neltnerb 9y ago

Yeah... I tried explaining this to my ex-boss once. The math just isn't that complicated. I think MBAs are trained to ignore any math that doesn't suit their position.

dang 9y ago

Could you please not use allcaps for emphasis? The site guidelines ask you not to: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.