7 ms·

These are good points for finding your first engineer, but here is a tip for helping close your dream hire: offer more equity. Your first eng hire will shoulde

These are good points for finding your first engineer, but here is a tip for helping close your dream hire: offer more equity. Your first eng hire will shoulder nearly all of the technical burden soon after as the founders transition into more of the non-technical roles (sales, outreach, recruiting, fundraising, business strategy). The amount of blood, sweat, and tears poured in by the first eng hire is somewhat less than a founder, yes, but not the 30-50x typical equity ratio we see today.

benatkin 8y ago
This isn't generally a good idea because you run the risk of giving equity to someone who doesn't care about it, which is foolish for the company for the same reason that it's foolish for the prospective employee to not try to get more equity.
brianwawok 8y ago
Depends on pay, right? If you are offering employee #1 market pay, why would you give them 10% equity? That is potentially millions of dollars for not taking a risk. I have been on both sides of this, and have thoughts. What do you think is fair for employee #1 making at or near market rate?
- westoncb 8y ago
  > If you are offering employee #1 market pay, why would you give them 10% equity? So that they care about the company on a similar level to the founders, and feel a real sense of ownership, dedication, and responsibility. I've been in a position several times now where at work I'll have a reputation as a very capable engineer, typically placed on or leading the most critical projects etc. —but, my employers still have no idea what my contribution could have been if I were made to feel like the company was partially my project too, and that there wasn't some massive (though never explicit) social divide between the founders and everyone else, the rest of us being mere tools for the founders' use (only one job I was at really gave that impression—the others were pretty good about creating an environment where everyone felt equal. But from speaking with many other prospects, it appears to be a typical attitude). There are thresholds in perception of ownership which when crossed give access to new categories of behavior in the perceiver. Think about 1%, 5%, and 10% equity in terms of sharing an object among a corresponding number of people: how much do you feel that thing is yours when sharing it with 100 people? With 20 people? With 10 people? For me, 10% is about where the line would be where I'd be willing to drop side projects etc. and seriously dedicate myself to the company. (And in my experience, this is not atypical: in the very early stage startup I was in, basically everyone was laying groundwork for their own startups on the side, or at least had other projects they were more interested in—but they'd make sad, fake displays of their dedication to the company to try and cover. At our largest there were still only ~7 people in the company.)
  - dangrover 8y ago
    This comment resonated with me. I have always felt this way as an engineer, whether it be a startup or a big company. I was always at kids table by virtue of being an engineer. I solved it by becoming a product manager. I miss engineering, but I no longer have that angst on a daily basis. I have found PMming is a job where sense of ownership + willingness to work to further overall success of the given project is heavily rewarded. And the precision of thought that is a pre-requesite for engineering can equally be applied to PMming (though not all PMs have it!).
    - westoncb 8y ago
      That's a direction I've been thinking about too!
- poof131 8y ago
  The problem is market rate. You mention market pay and equity as two separate things. But market rate is really total comp: base, bonus, and equity. For a senior engineer in the valley this is hitting $300k+. Saying we are close to market on salary and ignoring the rest of a total compensation package is disingenuous but suits startups (and others). A package with a value of $1.2M over 4 years would take a significant chunk of equity from a seed stage startup, or about 10% of equity on a convertible note round at a 10M cap, right around what the parent suggested. It’s fair to say we can’t give that up, but it’s also fair to say you aren’t matching market rate.
- sidlls 8y ago
  Two tranches: one a number of shares at par value to make up the difference in pay, the other the same grant you'd give any employee. Really though either pay cash market rate or else give them a meaningful stake.
- stemuk 8y ago
  Even if you pay your #1 employee at market rate he is taking huge risks and should be compensated accordingly. Working at an early stage company often comes with huge job insecurity, loss of medical benefits more mature companies might be able to offer (better insurance etc.) and a possible kink in your CV (3 years at Microsoft look much better than spending 3 years at an unsuccessful company that eventually shut down). To sum it up, I would expect a #1 engineers equity to be at least half of a founders equity AND payed at near-market rate.
  - brianwawok 8y ago
    > Even if you pay your #1 employee at market rate he is taking huge risks and should be compensated accordingly. Working at an early stage company often comes with huge job insecurity, loss of medical benefits more mature companies might be able to offer (better insurance etc.) Sorry, but no. Jobs are very easy for a good dev. You are taking no zero risk as engineer #1 at a startup if your pay is market rate. > and a possible kink in your CV (3 years at Microsoft look much better than spending 3 years at an unsuccessful company that eventually shut down). To who? I would hire the 3 failed startup guy any day over the 14 years at Microsoft guy. > To sum it up, I would expect a #1 engineers equity to be at least half of a founders equity AND payed at near-market rate. Haha. I mean I guess it's fair to expect that. Maybe someone would give it to you. To me, it sees like a very inflated value of self worth if you are wanting to take little to no risk but then reap MOST of the benefits of being a founder.
    - lordCarbonFiber 8y ago
      I mean "market rate" in terms of salary is 30 - 50% pay cut over total comp compared to working at an established company with RSUs and massive EoY bonuses. That coupled with the general resume risk means your first hire is leaving a lot on the table. If you need the best, you're going to have to pony up equity since you just can't compete otherwise. The open secret however, is that for most startups, you really don't need the best. You don't need top quality to throw together a web backend and a mobile app and start growing a base; for those companies it makes no sense to dilute the massive payout for the founders by sharing anything with the code monkey actually delivering the app.
- deleted 8y ago
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- thatjsguy 8y ago
  > ...why would you give them 10% equity? Because they’re taking on a gigantic risk too?
  - scarface74 8y ago
    What risk?
    - ryandrake 8y ago
      The huge career risk of having a string of no name companies on the resume rather than Google, Microsoft or Apple. I am quite certain I’d be much farther along in my career today had I taken the job at the big name 20 years ago instead of horsing around with a bunch of failing small companies.
      - scarface74 8y ago
        Guess what? Most software developers don’t live in Silicon Valley and never work for a FANG company, we seem to be doing okay....
        sidlls 8y ago
        Most of those developers "doing okay" are doing significantly worse than us SV and FAANG company engineers. I save more every year now than a good number of junior engineers take home in a year, and I'm a crappy average developer not even at FAANG with a much smaller total comp than their staff. There are a tiny, tiny number of SE jobs having more than 50% of my current salary (let alone equity and other benefits and perks) just about anywhere else that isn't also a hot tech/startup market (Austin, NY, Chicago).
        scarface74 8y ago
        The average software developer V in San Francisco makes about $190K according to salary.com. In most other major American cities outside of New York/DC area its about $140K. If you compare the cost of living in any of those cities, it starts looking a lot worse for Silicon Valley. https://qz.com/906086/san-francisco-is-actually-one-of-the-worst-paying-places-in-the-us/ https://qz.com/906086/san-francisco-is-actually-one-of-the-w... If you go the billable consultant route with the right skill set, you can get up to $200K https://www.indeed.com/m/viewjob?jk=e67229f7e25ea37b https://www.indeed.com/m/viewjob?jk=e67229f7e25ea37b Yes this is a realistic range. I’ve been given firm offers to do that type of work (AWS not Google) but the travel requirements would be too disruptive right now.
- zorpner 8y ago
  Depends on pay, right? If you are offering employee #1 market pay, why would you give them 10% equity? Because this is how you get good people. If you want to offer them what they could get by working someplace else, they may as well work someplace else (likely without the hours, stress, or potential instability of a startup).
  - brianwawok 8y ago
    Maybe, maybe not. Startups offer a lot of non-financial benefits over working at the big established companies. 1) Looser culture. Less likely to have a dress code or an attendance policy. 2) Less meetings, more coding. For someone that wants to get stuff done, way more to do in a startup. 3) Sense of purpose. A huge part of life satisfaction is doing something that actually matters. WAY easier to do this when you are shipping a product to actual customers vs sitting between 6 layers of management at google writing code to improve ad conversion by 0.1%
    - Retra 8y ago
      Pssh, I get all that at my entry level corporate job.
    - fma 8y ago
      Right. That's why I have side projects, to satisfy 1,2,3. My bank doesn't accept "sense of purpose" as payment. My real job is for my mortgage and retirement. An extra $10k+ per year counts a lot when compounded. $10k a year for 30 years, 7% average long term stock market return gets you $1 million. That could a better life style, retire many years earlier...all without the risk of a Scrappy startup hoping for a unicorn buyout. Play with the numbers...but that's what you are giving up because you want to wear a graphic t-shirt to work.
    - zorpner 8y ago
      Sense of purpose. A huge part of life satisfaction is doing something that actually matters. Truly, and it's changed my life for the better. I'm unclear, however, on the relevance of this statement to the extant startup scene -- ref: the latest YC class, for example.
- throwaway5752 8y ago
  I disagree with you on different grounds. Your points downthread about how it's not a risk are on the nose. No stigma for being part of a startup (the opposite) and even startup benefits are pretty great these days. This isn't ramen/buddies closet sort of work any more. I'd say the reason you want a strong equity package is a question of alignment and incentive, though. Ideally this person is going to be a VP of Engineering for you someday if you scale up and on top of that needs to have architect + SRE + hacker + sysadmin skills. On top of that, you'll probably want them to make similar sacrifices that you (as the founder) are making to get the business off the ground. It shouldn't be founder equity, and maybe the standard 4 yr + cliff structure isn't right for it, but you probably want this person to have a substantial vested interest in the success of the company.
- ummonk 8y ago
  Market comp for a talented experienced engineer is 250-450k. If you are paying that much, you can go ahead and skimp on equity.
- dasil003 8y ago
  Well what do you mean by market pay? Because savvy engineers playing the SV game will say 300-400k total comp they get from FANG is "market". However that's assuming A) you can jump through the hoops to get one of those positions and B) you can stomach the politics of whatever team you happen to land on. Neither of those things are much of an indicator of a good #1 engineer hire—yeah you want an above average engineer, but you don't want someone who is dependent on world-class tooling, world-class colleagues, or is so focused on tech that they can't see the forest for the trees of the business landscape they are in. You need a solid engineer who is a hustler, willing to dive deep into whatever area is necessary, but doesn't fetishize some aspect of technology or become obsessed with implementing something in-house because it's an interesting technical problem. Current hiring practices are largely cargo-culted off of successful tech giants who face very different problems from what the average startup does. If you find someone who gets it and has the skills to back it up then they deserve to be brought in with both a real salary and real equity because at this stage every hire is still life and death for the company. The challenge is whether you can recognize this person.
- angersock 8y ago
  5-20% depending on how much you're using their expertise. If you offer tiny or no equity, they have no incentive to align for growth. Also, founders are usually way less useful than the people they hire.
- mavelikara 8y ago
  I understand your point, but I won't take market pay for being the first employee. If I wanted market pay, I will go with a well-established company. I am assuming that you won't sell goods and services you produce at cost price. If that is case, you'd have worked as an employee of that buyer. Similarly, if I don't get a share of the value I produce, I won't join any startup as a early employee.
yeukhon 8y ago
The best #1 engineer is someone who is willing and will want to help do some cold call as well. Offer not just more equity but better base pay. They deserve better base, real cash. Then we talking. If you offer me my current salary (not faang level), plus a very good equtity (2-5% stake?) then I will work 15 hours every day likr I do now anyway. I will pull in 18 if you want. As a workalochic, I am up for all night. I will do cold call and go out to reach new users as well. I will clean the office with you. You want your founding team to feel they own a stake.

benatkin 8y ago

This isn't generally a good idea because you run the risk of giving equity to someone who doesn't care about it, which is foolish for the company for the same reason that it's foolish for the prospective employee to not try to get more equity.

brianwawok 8y ago

Depends on pay, right? If you are offering employee #1 market pay, why would you give them 10% equity? That is potentially millions of dollars for not taking a risk. I have been on both sides of this, and have thoughts. What do you think is fair for employee #1 making at or near market rate?

westoncb 8y ago
> If you are offering employee #1 market pay, why would you give them 10% equity? So that they care about the company on a similar level to the founders, and feel a real sense of ownership, dedication, and responsibility. I've been in a position several times now where at work I'll have a reputation as a very capable engineer, typically placed on or leading the most critical projects etc. —but, my employers still have no idea what my contribution could have been if I were made to feel like the company was partially my project too, and that there wasn't some massive (though never explicit) social divide between the founders and everyone else, the rest of us being mere tools for the founders' use (only one job I was at really gave that impression—the others were pretty good about creating an environment where everyone felt equal. But from speaking with many other prospects, it appears to be a typical attitude). There are thresholds in perception of ownership which when crossed give access to new categories of behavior in the perceiver. Think about 1%, 5%, and 10% equity in terms of sharing an object among a corresponding number of people: how much do you feel that thing is yours when sharing it with 100 people? With 20 people? With 10 people? For me, 10% is about where the line would be where I'd be willing to drop side projects etc. and seriously dedicate myself to the company. (And in my experience, this is not atypical: in the very early stage startup I was in, basically everyone was laying groundwork for their own startups on the side, or at least had other projects they were more interested in—but they'd make sad, fake displays of their dedication to the company to try and cover. At our largest there were still only ~7 people in the company.)
- dangrover 8y ago
  This comment resonated with me. I have always felt this way as an engineer, whether it be a startup or a big company. I was always at kids table by virtue of being an engineer. I solved it by becoming a product manager. I miss engineering, but I no longer have that angst on a daily basis. I have found PMming is a job where sense of ownership + willingness to work to further overall success of the given project is heavily rewarded. And the precision of thought that is a pre-requesite for engineering can equally be applied to PMming (though not all PMs have it!).
  - westoncb 8y ago
    That's a direction I've been thinking about too!
poof131 8y ago
The problem is market rate. You mention market pay and equity as two separate things. But market rate is really total comp: base, bonus, and equity. For a senior engineer in the valley this is hitting $300k+. Saying we are close to market on salary and ignoring the rest of a total compensation package is disingenuous but suits startups (and others). A package with a value of $1.2M over 4 years would take a significant chunk of equity from a seed stage startup, or about 10% of equity on a convertible note round at a 10M cap, right around what the parent suggested. It’s fair to say we can’t give that up, but it’s also fair to say you aren’t matching market rate.
sidlls 8y ago
Two tranches: one a number of shares at par value to make up the difference in pay, the other the same grant you'd give any employee. Really though either pay cash market rate or else give them a meaningful stake.
stemuk 8y ago
Even if you pay your #1 employee at market rate he is taking huge risks and should be compensated accordingly. Working at an early stage company often comes with huge job insecurity, loss of medical benefits more mature companies might be able to offer (better insurance etc.) and a possible kink in your CV (3 years at Microsoft look much better than spending 3 years at an unsuccessful company that eventually shut down). To sum it up, I would expect a #1 engineers equity to be at least half of a founders equity AND payed at near-market rate.
- brianwawok 8y ago
  > Even if you pay your #1 employee at market rate he is taking huge risks and should be compensated accordingly. Working at an early stage company often comes with huge job insecurity, loss of medical benefits more mature companies might be able to offer (better insurance etc.) Sorry, but no. Jobs are very easy for a good dev. You are taking no zero risk as engineer #1 at a startup if your pay is market rate. > and a possible kink in your CV (3 years at Microsoft look much better than spending 3 years at an unsuccessful company that eventually shut down). To who? I would hire the 3 failed startup guy any day over the 14 years at Microsoft guy. > To sum it up, I would expect a #1 engineers equity to be at least half of a founders equity AND payed at near-market rate. Haha. I mean I guess it's fair to expect that. Maybe someone would give it to you. To me, it sees like a very inflated value of self worth if you are wanting to take little to no risk but then reap MOST of the benefits of being a founder.
  - lordCarbonFiber 8y ago
    I mean "market rate" in terms of salary is 30 - 50% pay cut over total comp compared to working at an established company with RSUs and massive EoY bonuses. That coupled with the general resume risk means your first hire is leaving a lot on the table. If you need the best, you're going to have to pony up equity since you just can't compete otherwise. The open secret however, is that for most startups, you really don't need the best. You don't need top quality to throw together a web backend and a mobile app and start growing a base; for those companies it makes no sense to dilute the massive payout for the founders by sharing anything with the code monkey actually delivering the app.
deleted 8y ago
[deleted]
thatjsguy 8y ago
> ...why would you give them 10% equity? Because they’re taking on a gigantic risk too?
- scarface74 8y ago
  What risk?
  - ryandrake 8y ago
    The huge career risk of having a string of no name companies on the resume rather than Google, Microsoft or Apple. I am quite certain I’d be much farther along in my career today had I taken the job at the big name 20 years ago instead of horsing around with a bunch of failing small companies.
    - scarface74 8y ago
      Guess what? Most software developers don’t live in Silicon Valley and never work for a FANG company, we seem to be doing okay....
      - sidlls 8y ago
        Most of those developers "doing okay" are doing significantly worse than us SV and FAANG company engineers. I save more every year now than a good number of junior engineers take home in a year, and I'm a crappy average developer not even at FAANG with a much smaller total comp than their staff. There are a tiny, tiny number of SE jobs having more than 50% of my current salary (let alone equity and other benefits and perks) just about anywhere else that isn't also a hot tech/startup market (Austin, NY, Chicago).
        scarface74 8y ago
        The average software developer V in San Francisco makes about $190K according to salary.com. In most other major American cities outside of New York/DC area its about $140K. If you compare the cost of living in any of those cities, it starts looking a lot worse for Silicon Valley. https://qz.com/906086/san-francisco-is-actually-one-of-the-worst-paying-places-in-the-us/ https://qz.com/906086/san-francisco-is-actually-one-of-the-w... If you go the billable consultant route with the right skill set, you can get up to $200K https://www.indeed.com/m/viewjob?jk=e67229f7e25ea37b https://www.indeed.com/m/viewjob?jk=e67229f7e25ea37b Yes this is a realistic range. I’ve been given firm offers to do that type of work (AWS not Google) but the travel requirements would be too disruptive right now.
zorpner 8y ago
Depends on pay, right? If you are offering employee #1 market pay, why would you give them 10% equity? Because this is how you get good people. If you want to offer them what they could get by working someplace else, they may as well work someplace else (likely without the hours, stress, or potential instability of a startup).
- brianwawok 8y ago
  Maybe, maybe not. Startups offer a lot of non-financial benefits over working at the big established companies. 1) Looser culture. Less likely to have a dress code or an attendance policy. 2) Less meetings, more coding. For someone that wants to get stuff done, way more to do in a startup. 3) Sense of purpose. A huge part of life satisfaction is doing something that actually matters. WAY easier to do this when you are shipping a product to actual customers vs sitting between 6 layers of management at google writing code to improve ad conversion by 0.1%
  - Retra 8y ago
    Pssh, I get all that at my entry level corporate job.
  - fma 8y ago
    Right. That's why I have side projects, to satisfy 1,2,3. My bank doesn't accept "sense of purpose" as payment. My real job is for my mortgage and retirement. An extra $10k+ per year counts a lot when compounded. $10k a year for 30 years, 7% average long term stock market return gets you $1 million. That could a better life style, retire many years earlier...all without the risk of a Scrappy startup hoping for a unicorn buyout. Play with the numbers...but that's what you are giving up because you want to wear a graphic t-shirt to work.
  - zorpner 8y ago
    Sense of purpose. A huge part of life satisfaction is doing something that actually matters. Truly, and it's changed my life for the better. I'm unclear, however, on the relevance of this statement to the extant startup scene -- ref: the latest YC class, for example.
throwaway5752 8y ago
I disagree with you on different grounds. Your points downthread about how it's not a risk are on the nose. No stigma for being part of a startup (the opposite) and even startup benefits are pretty great these days. This isn't ramen/buddies closet sort of work any more. I'd say the reason you want a strong equity package is a question of alignment and incentive, though. Ideally this person is going to be a VP of Engineering for you someday if you scale up and on top of that needs to have architect + SRE + hacker + sysadmin skills. On top of that, you'll probably want them to make similar sacrifices that you (as the founder) are making to get the business off the ground. It shouldn't be founder equity, and maybe the standard 4 yr + cliff structure isn't right for it, but you probably want this person to have a substantial vested interest in the success of the company.
ummonk 8y ago
Market comp for a talented experienced engineer is 250-450k. If you are paying that much, you can go ahead and skimp on equity.
dasil003 8y ago
Well what do you mean by market pay? Because savvy engineers playing the SV game will say 300-400k total comp they get from FANG is "market". However that's assuming A) you can jump through the hoops to get one of those positions and B) you can stomach the politics of whatever team you happen to land on. Neither of those things are much of an indicator of a good #1 engineer hire—yeah you want an above average engineer, but you don't want someone who is dependent on world-class tooling, world-class colleagues, or is so focused on tech that they can't see the forest for the trees of the business landscape they are in. You need a solid engineer who is a hustler, willing to dive deep into whatever area is necessary, but doesn't fetishize some aspect of technology or become obsessed with implementing something in-house because it's an interesting technical problem. Current hiring practices are largely cargo-culted off of successful tech giants who face very different problems from what the average startup does. If you find someone who gets it and has the skills to back it up then they deserve to be brought in with both a real salary and real equity because at this stage every hire is still life and death for the company. The challenge is whether you can recognize this person.
angersock 8y ago
5-20% depending on how much you're using their expertise. If you offer tiny or no equity, they have no incentive to align for growth. Also, founders are usually way less useful than the people they hire.
mavelikara 8y ago
I understand your point, but I won't take market pay for being the first employee. If I wanted market pay, I will go with a well-established company. I am assuming that you won't sell goods and services you produce at cost price. If that is case, you'd have worked as an employee of that buyer. Similarly, if I don't get a share of the value I produce, I won't join any startup as a early employee.

yeukhon 8y ago

The best #1 engineer is someone who is willing and will want to help do some cold call as well. Offer not just more equity but better base pay. They deserve better base, real cash. Then we talking. If you offer me my current salary (not faang level), plus a very good equtity (2-5% stake?) then I will work 15 hours every day likr I do now anyway. I will pull in 18 if you want. As a workalochic, I am up for all night. I will do cold call and go out to reach new users as well. I will clean the office with you. You want your founding team to feel they own a stake.