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This. I joined a moderately successful startup (good acquisition where founders made > $1 m) and the rewards were not worth the risks as an early employee. Also
This. I joined a moderately successful startup (good acquisition where founders made > $1 m) and the rewards were not worth the risks as an early employee. Also, the RSUs are low risk, high rewards at the "usual suspects". Unless you love working on a small team with more autonomy, but without comfortable resources and losing sleep over whether your company will be there next week, I just don't see the attraction of joining a startup as an early employee. You can learn a whole lot from a "usual suspect", where the world's experts reside, and a whole team of competent and hard-working people are also.
With that said, I'm super interested in how we can make it better for early employers, and the obvious solution is to give them more equity. Why do founders get over 10x early employees ? Just doesn't seem fair.
> I joined a startup and the rewards were not worth the risks as an early employee.
Which risks did you take?
Opportunity cost being the main one, and living uncomfortably. Benefits were not that great. Resources were small, which limited potential for expert help.
I wish I could say otherwise, but all my startup experiences have been kind of like that. Wouldn't change it for the world, though.
Risk of not earning similar to what FAANG offer.
It's not simply compensation, but the variety and flexibility of learning or working in different things, and from others.
Try doing that with a startup whose bulk of development is done overseas. No personal work connection, lack of meaningful discussion (due to time zones and cultural/philosophy barrier), no concern for your growth as an individual. You are more likely to be distant from your workers due to startups' smaller budgets discouraging the use of in-house developers.
Risk of not being employed by big-paying corp + risk of not having that big-corp on my resume which consequence with the risk of being unemployed for 3-5 months once startup is gone + risk of working nights and w-ends because of reasons + risk of having a tiny network for my next job hunt + risk of pivot every N months + ... maybe I should really quit my startup and apply to Bezosland.
> I just don't see the attraction of joining a startup as an early employee. You can learn a whole lot from a "usual suspect", where the world's experts reside, and a whole team of competent and hard-working people are also.
I’ve noticed people tend to specialize at larger places, and not everyone wants to go deep rather than wide. Startups are a super easy way to optimize for a wider skill base, albeit at a sharp cost of depth.
YMMV, but it depends on the type of education you value.
I see your point, and I agree. I'd also say that even though people are "deeper" at larger places, there are so many different "deep" people that you tend to get "wide" if you need to. Just ask a different person.
I can't speak for other because people choose different walk of life but I thought I share what I felt about specialization vs generalization w.r.t to large companies and startups.
Generalization will limit career and compensation eventually. There will be a point where the market will have a glut for general skillset.
Specialization, on the other hand, usually leads to higher compensation and valuable skillset.
This does not mean that Specialist can't be Generalist. It could be that Specialist was once Generalist and get bored :).
By 2012-2014, the landscape of web development has not changed drastically so if a Generalist stops doing what he/she did and chose to be a Specialist from 2014-2018 (say, in Storage design, Distributed Systems, Machine Learning, or AI), that doesn't mean he/she can't go down to the product/web layer and contribute: it's still MVC doing CRUD backed by MySQL/PostgreSQL and with a touch of some client-side stuff.
Just be warned, a startup often has the promise of more autonomy, but there are plenty of startups run by ego-centric micromanaging wanna-be engineers. Be careful equating, 'being able to talk to the CEO' as autonomy, you may find yourself having to explain your decisions/code to people who's engineering skills are 'being able to convince a VC to give them money'. You'll also probably not tackle 'large problems' but hack and slash a Node/Django/React app into meeting an MVP.
Choose wisely.
That being said, I'd go for a startup if you want to eventually run your own. There's so much you'll learn from seeing things actually occur that you'll never learn from anywhere else.
That's absolutely true. The assumption "that you will always get more autonomy at startups" is fanciful.
In reality, many if not most startups are run by inexperienced and often immature managers and engineers who are substantially less qualified and skilled at running a team than their equivalents in more mature tech companies.
I have seen this too. Particularly when the first round of early employees don't have a lot of experience, but have a significant amount of influence and sway simply by nature of being an early employee. It can be very frustrating being someone with experience that has to sit back and watch big mistakes be made despite warnings from people who have done it before.
There's an attitude I've noticed also of, "we're not Xyz." Hate to break it, but most problems aren't really that unique. If you resist learning the lessons from other companies, you will repeat their mistakes.
> Particularly when the first round of early employees don't have a lot of experience, but have a significant amount of influence and sway simply by nature of being an early employee.
As is often the case...
Very often the first generation of employees at a startup will consist mostly or solely of folks with 0-3 years experience at most. Then if that startup survives, all these people are "naturally" promoted to senior / team lead / tech lead levels...
> It can be very frustrating being someone with experience that has to sit back and watch big mistakes be made despite warnings from people who have done it before.
I feel you, brother. I've been there too.
> There's an attitude I've noticed also of, "we're not Xyz."
It's called "young arrogance".
"Hey, we're a bunch of straight-out-of-school engineers, but clearly we can do better than Google because we're awesome!".
> Why do founders get over 10x early employees?
Because founders take at least 100x the risk of an early employee, and 100x the personal risk and commitment.
Founders generally aren't getting paid (at least until revenue or significant funding comes through) and they have 100x the impact that an early employee does on the success of the company. If an early employee doesn't work out, the founders just replace that person. If the founders aren't working out, the company fails. If an early employee isn't working out and the founders don't replace that person, and the company fails, that is again the founder's fault.
Early startup employees have higher risk and generally more stress than at established companies, and if the market was rational, they would be compensated more, in cash, to offset this risk and stress.
Equity is not the solution, for many reasons. The biggest reason is that the founders will always value the equity higher than early employees. If not, they should not have founded the company.
It sometimes makes sense for founders to sell some of that early equity to VCs (anyone who has buckets of cash and wants more risk/reward exposure) who can afford to hedge by investing in lots of early stage companies, only one of which needs to be a winner. Once the VCs put the money in, it makes sense for founders to hire people at market rates.
VCs should be people who are swimming in cash, and therefore looking for a high rate of return, and with a high tolerance for risk in the amounts that they are going to invest. Early employees in general do not meet any of these criteria.
For early employees to accept equity in place of a market-clearing salary is then just a mistake. We see engineers settling for half the salary they could have at an established company, plus lottery tickets. This is absolutely crazy. Early engineers in the vast majority of cases should not be going anywhere near the kinds of crazy risk that pouring half your salary into a long-shot investment represents. Especially when the salary that you are left with is tied up in that same risky venture.
The reasonable position for early employees is to insist on not also being early investors. Raising money is the founders' responsibility, they should go out and do that, and early employees should demand the same salary they could get at an established company.
The argument that equity compensation aligns incentives makes sense for co-founders and for executives. It almost never makes sense for early technical hires who can easily be replaced.
My experiences from startups have been underwhelming for reasons similar to yours. I haven't been part of an autocratic ego-centric management, but I still felt like I didn't deliver any real impact. I was just told to fix bugs, close tickets, etc. Same cog in a machine feel but without the benefit of working closely with people to mentor you.
In the last startup I was in, even though we're in a team of only 3 engineers, implementing design changes was an uphill battle. The senior engineer lives in Eastern Europe so communication time was difficult, and he had a very impractical way of doing things (preferred his own hand-made JavaScript framework over third parties, no modules, no integrated testing). These things lead to making myself a harder sell for companies that follow less unorthodox software development practices.
Yeah, they can often be more freeform, but also by giving you the illusion that you can flip things around, or be a big fish in a small pond. Being that big fish is not good if the pond itself stinks.
> Because founders take at least 100x the risk of an early employee, and 100x the personal risk and commitment.
Simply untrue.
Many early startup employees work intense 12-14 hour days. Are you saying founders work 1,200-1,400 hour days?
Early startup employees also risk about the same as founders. Maybe a little less, financially.
> Founders generally aren't getting paid (at least until revenue or significant funding comes through)
That often happens fast, particularly in markets with well-established, well-oiled VC machines like SV.
Founders usually start out with under market pay, but it's maybe x3-5 under market, not x100 as you imply.
> Early startup employees have higher risk and generally more stress than at established companies, and if the market was rational, they would be compensated more, in cash, to offset this risk and stress.
You're talking about it as if it's some sort of impossibility. There's no natural law that says that early employees must get a fraction of 1% non-preferred shares and almost never make any money from it.
Early employees can and should get a bigger piece of the pie. If they don't, then it's not just something to be wistful about ("if only the market was rational!"), but there will be very real consequences, which we are already seeing: startups won't be able to hire top talent, because the top talent will go to companies that pay it better.
> Equity is not the solution, for many reasons. The biggest reason is that the founders will always value the equity higher than early employees. If not, they should not have founded the company.
So you're telling early employees working 12-14 hour days that they don't value the startup? Irrelevant, unsubstantiated nonsense. "You shouldn't get more equity, you probably don't want it anyway!". If they don't want it, or don't believe in the startup, what are they doing there?!
Valuing a startup and being in a position to receive a meaningful amount of compensation from said startup if/when it IPOs are two very different things.
I am not an expert, but between dilution of stock, the high risk involved with any startup, the timeline to payoff on equity and accompanying opportunity cost for non-founding engineers, and the overall lack of control which even early employees have relative to founders, it’s not unreasonable for an early employee to say “I do value the company but do not want to bet the farm on it for the next five years of my life. I will, however, as an employee, give it my all.”
Especially if said employee is > 24 years of age.
I agree with what you wrote, but the reality is that startups can't pay market rate in most cases. So they should at least offer more equity.
Or, you know, they can try to keep getting away with offering 0.01% non-preferred stock, and telling every employee that the startup will sell for $1BN at least, and they will become millionaires.
> If they don't want it, or don't believe in the startup, what are they doing there?!
It's a job. Early employees working 12-14 hour days are not doing themselves or the startup any favors.
If the market were rational, compensation would be more in cash and less in kool-aid, the importance of work-life balance would be understood even at the early stages, and the idea that a startup has some special kind of magic--where people sleep under their desks and believe in the dream--would be replaced by professionalism and the sober assessment of probable outcomes.
The reasons that startups have yet to learn lessons that other industries learned decades and centuries ago are easy to see in the startup culture if you look for them.
> It's a job. Early employees working 12-14 hour days are not doing themselves or the startup any favors.
I worked in early stage startups. There is absolutely a strong sense of a small, intimate team working hard for a common goal.
Nobody is claiming or treating it as "a job". When the founders were asking the whole team to regularly work entire weekends before launch, nobody said it was "a job".
> If the market were rational [...]
You keep repeating that, but it is a sort of truism that doesn't stand up to even cursory scrutiny.
High-acceleration startups are, by definition, trying to reach ambitious goals quickly. They're not about providing a nice work-life balance to their members.
If a startup founder pitched a VC with "we all have great work-life balance, and it's our goal to stay this way!" she wouldn't get a dime.
Startups are intense, and have intense expectations.
The reality is that startups need people to work harder, sacrifice more of their lives, for a few years, in a hope of a big payout, which is where the equity component comes in.
This formula worked well in SV for decades, but recently the VCs and founders got greedy, and said "hey, why should we reserve millions of dollars for our early employees, if they'll work just as hard for empty promises of such amounts instead"?
That's the current situation, as reflected in this thread.
> Many early startup employees work intense 12-14 hour days. Are you saying founders work 1,200-1,400 hour days
Hours and days don’t capture the value. I have risked my house, every minute of spare time, I have put Heroku bills on my personal credit card, paid contractors out of my pocket and had to create something out of nothing within a difficult market vertical. Comparing that to a “long day at the office” doesn’t even compute.
Early employees also get paid. In my little company, I am the last person to get paid. My employees are the first even when it’s coming out of my own pocket.
It’s asinine to equate an early employee with a founder. As far as 12-16 hour days for employees — if that’s the case then you are doing it wrong. Nothing good comes from those sorts of hours — it isn’t sustainable even for a little bit.
> Hours and days don’t capture the value. I have risked my house, every minute of spare time, I have put Heroku bills on my personal credit card, paid contractors out of my pocket and had to create something out of nothing within a difficult market vertical. Comparing that to a “long day at the office” doesn’t even compute.
First of all, kudos to you for being so dedicated and courageous.
Most startup founders that I know aren't like you at all.
Often they have seed funding very early. Not only do they pay nothing out of pocket, but typically they can draw a modest salary pretty early on.
The other thing is that nobody is claiming you shouldn't get more equity, that is fair. My argument is against ridiculous assessments that "founders always work x100 harder than any employee".
Most founders I've seen weren't like you, and I've seen early employees working harder than founders in some cases.
Fair point. I haven’t been lucky enough to raise a $750k seed round because I went to Stanford and play tennis with a Sequoia partner. So my perspective is based on my experience of actually suffering to build something while, you are correct, many decently funded startups could do a better job of sharing the reward with early employees — especially when founders are essentially spending other people’s money.
8y ago
Founders don't work many more hours per day than early employees at x100 less than early employees. They work many more months/years before earning an income at all.
By the time the employees start to get hired, a large part of the risk and work that a founder does to earn their hopeful future fat stacks has already been done.
Now, are startup compensation packages a little low and relying on the money making reputation of past decades? Sure. That doesnt mean there isn't a world of difference between working hard on something that has a decent amount of vetting for below market rate, and working hard on working that's almost certainly not going to pan out for zero dollars.
> Founders don't work many more hours per day than early employees at x100 less than early employees. They work many more months/years before earning an income at all.
>
> By the time the employees start to get hired, a large part of the risk and work that a founder does to earn their hopeful future fat stacks has already been done.
What you describe isn't the case for most tech startups I know.
These startups need a lot of highly involved technical work done, and often need to hire a small team early on. They typically get seed money quickly. It's not unusual to see seed money right from the start.
> Now, are startup compensation packages a little low and relying on the money making reputation of past decades? Sure.
The point in this thread is not that it's "a little low".
The numbers quoted is that if you're a good engineer at a top tech company, you can almost guarantee about $2m over 4-5 years. In a startup, you'd make less than half of that in cash, with the only compensation being some stock options, that people are rapidly realizing are worth nothing in most cases.
That's a big difference, especially over many years. And we didn't even mention the large gaps in benefits, healthcare, work-life balance, job stability...
The bottom line is that the startups were so good at squeezing the real value out of their job offers, that now only irrational developers will choose them over bigger already successful companies.
If good means experienced/senior, which is what the people pulling those numbers in are, then yeah I certainly don't think startups are anywhere near competitive with big companies for talent. I don't think they really need to be, or should try to be.
If you're 15 years in at Google then yeah, no shit you shouldnt take a job at some hinky dink no name company. You're severely demoting yourself. You wouldn't go wait tables at a restaurant and expect the compensation to be competitive with your software engineer salary. Your skills aren't that useful to the restaurant, they wouldn't make anywhere near enough money from you for it to make sense.
Senior level big software company employee vs startup employee is like that but on a less extreme scale. You're more useful to them than you are to a restaurant, but you still have a lot of skills and experience that it doesn't make sense for them to pay for that it does for a big company.
Its on me for not specifying and making assumptions, but imo when talking startup competitiveness it should be focused on fresh grads or those with a couple years experience in industry but not necessarily at big tech. That's where startups are going to find their cost effective generalists, and its where I think the compensation is "a little low and relying on past reputation".
Also, with good devs making $400-500k/year at bigco, I think it needs to be kept in mind that those numbers are with a lot of their compensation being in stock and big tech stock having risen a lot in the last decade. Someone whose compensation at Facebook happened to turn out to be $400k/year would have been getting signed each year for far less.
Using those numbers would be like evaluating startup packages as if theyre guaranteed a large ipo.
As for startups getting funding right from the start, that means they're being funded based on founder credentials rather than the qualities of the business. If you have those kind of credentials and use them to start a company then your opportunity cost is likely huge. That's the founders additional risk there.
At the end of the day, when your company gets sold, and your founder worked on the company for 1-2 years before you did, but they walk away with millions and you walk away with the equivalent of a Camry - I question whether equity is not the solution.
In terms of market rate salary, the startup will never match FAANG. Seriously. I'm talking about Sign-on bonus, annual bonus, re-ups, benefits (like a heart-transplant $100k operation for your kids), gym membership, rent subsidies, etc...
So it has to be equity since that's all the startup can offer. It's income inequality 101, what we're living in.
Anyways, at some point, I'm complaining, because the system is the way it is and we have to live with reality. And I understand that if founders didn't make it out big enough, they wouldn't start one in the first place. But I have a feeling that if enough people were educated on how much a bad deal being an early employee was, we could tip the scale a bit.
> "In terms of market rate salary, the startup will never match FAANG."
> "if enough people were educated on how much a bad deal being an early employee was, we could tip the scale a bit."
Yes. The reason why startup compensation is much lower are because of perception (people aren't rational) and only a shift in perception will shift the balance.
The reason why equity is not the solution is that the default outcome is not the Camry, it's giving up some multiple of your salary in exchange for nothing. People overvalue lottery tickets. We're not rational.
If a funded company (series A, say) is offering you equity as a large part of comp, you have to ask yourself why the VCs don't buy back that equity for the cost of paying market rates for talent. If it makes sense for you, it should make even more sense for them. Unless you think you have a higher appetite for risk than early-stage investors, something doesn't add up.
Thanks for the interesting discussion. The only reason why I'm still advocating more equity for early employees is because founders get so much of it. So if an exit were to happen, which could make the founders very rich, the early employee gets nothing. In your case of the default outcome, both get nothing, and that is OK. But if something were to happen, the early employee still gets nothing.
> if an exit were to happen, which could make the founders very rich, the early employee gets nothing
Depends what you mean by "early". The first engineers should be getting 1% or a bit more and getting diluted along the way. This can still be $400k-1M for 4 years of work with a base that is more than enough to "pay the bills".
Not quite nothing ...
> If a funded company (series A, say) is offering you equity as a large part of comp, you have to ask yourself why the VCs don't buy back that equity for the cost of paying market rates for talent.
Because the company wants to align your incentives with its own success, of course. That's the original reason why equity was offered to employees in SV, back in the good old chip-making days.
According to your argument, equity never made sense as a compensation factor. Obviously that's not the case, it has been an important factor in the past, and if enough people wisen up, will probably be so again in the future.
Look, either startups sell equity and pay developers market rate, or they give them more equity to compensate for under-market pay. Otherwise, these startups are underpaying developers, plain and simple, and these developers will prefer to work in companies that compensate them fairly, which this thread's commentary suggests is already happening.
Incidentally, I agree that paying market rate in cash isn't the solution, because startups need harder, more dedicated workers than the average company in the market.
That's exactly why equity is crucial.
Tellingly, startup founders agree when they pitch their startup as "definitely a unicorn, stick around and your options will be worth millions of dollars" to every single candidate. It's just that the equity factor is now only empty promises, because even early employees only get tiny amounts of bottom-preference options.
It makes 0 economic sense for developers the alignment thing is marketing BS. Go to the best VC in the field and offer him/her to bet all of the funds money on a single deal see how hard he/she laughs at you. If you exclude top 5 VC firms the whole VC field is net losers and that people who's full time job is to pick winners
> startups need harder, more dedicated workers than the average company in the market.
I agree. So hire harder and more dedicated people. This is not impossible.
The idea that people will work harder for equity than they would for EV-equivalent cash is where we disagree.
If you have 5% of the company, and your direct contribution makes 5% of the difference in whether the company meets its objectives, setting aside whatever external market factors that are totally beyond your control--how motivating is this really? How motivating would it be to a more economically rational actor? Maybe this is the real reason why startup employees tend to skew younger...
You're assuming that VCs can evaluate the prospects of a company better than potential employees. The reverse is often true, especially for startups where the main risks are technical.
Respectfully, if you don’t like the split, the clear answer is to be a founder.
The option is available to all, but very few take it. For really good reasons.
> The reality is that startups need people to work harder, sacrifice more of their lives
There's probably two areas where we might disagree here.
One is that "sacrificing more of their lives" leads to better outcomes. Reasonable people can disagree on whether, or under what circumstances, 80-hour weeks and weekends at the office actually do help the company.
When you are a founder, it is hard not to work all day every day, and you have to actually force yourself to take time off or you're likely to become less effective without even realizing it. Often this same intensity and drive filters down, but in a distorted way, by the "nobody wants to leave the office first" effect. Hard work "theater" is just as common in startups as it is anywhere else, but the hours are longer and it is even more destructive in the long run. Where the correct balance should be between "real artists ship" and professionalism and having a life outside of work--that's a big issue.
Setting that aside, the other area where we might disagree is that if you decide long hours are where it's at (and I'm not going to disagree with how you run a company if it's yours) then how do you motivate people to do that?
> When the founders were asking the whole team to regularly work entire weekends before launch, nobody said it was "a job".
Is that because nobody would do that for just "a job"? Or is that because nobody would rationally do that unless they were being fairly compensated? Finance and petroleum are very different industries but in both of them people put in long hours, risk their health, and are (sometimes) well compensated.
Leaving aside pep talks, let's say you can motivate people to work long hours by giving them either equity or cash. Even if the expected value of the equity is higher, the higher variance makes the cash a far better choice for most employees. The question is, if employees were compensated wholly in cash at whatever rate the market would set, but had the option to buy the equity they are getting for the salary they are giving up, as a totally unrelated and optional transaction, how many of them would take it?
> This formula worked well in SV for decades
How do you avoid survivorship bias here?
Regardless, we can agree that the situation has gotten worse, in the sense of people taking compensation packages that you need a finance degree to understand, but I wouldn't say it was rational for most employees taking early equity even before it got worse.
Just to bring some perspective...when I was starting out, I was a teacher. I put in 12-16 hour days, got paid the inflation adjusted equivalent of 23k/yr, and put school supplies on my CC while facing the significant opportunity cost of spending my most energetic years empowering others.
I finally burned out and “retired” to 10x the salary at half the time and energy cost.
My point is that people will do things that are not in their financial interests because they are believers. Early employees are believers. I think you are underestimating the amount that early employees are putting on the line, including things like out of pocket costs for services for those businesses. People ARE doing it wrong, if rationally self-interested is your metric.