13 ms·

What you need to know before you join a startup

147 points by eriktrautman 8y ago

miesman 8y ago
Ask for and actually read the company stock agreement line by line before agreeing to join. The article does not mention clawback which is another thing to look for: https://en.wikipedia.org/wiki/Clawback https://en.wikipedia.org/wiki/Clawback
- moxthrowingaway 8y ago
  yeah, but even without a clawback, couldn't the company just ask for the shares back or threaten to fire the person? that's what Zynga did.
techslave 8y ago
> And (again, just a personal advice) you should only accept an offer if you plan to immediately forward exercise all the offered options horrible advice
- ericsoderstrom 8y ago
  Why's that? (Not trying to be snarky, generally want to know more)
  - bradlys 8y ago
    You have to pay for the privilege of owning the stock (exercise price) plus whatever gains the valuation has increased it to. So, if you got options at $1/share and bought them when they were privately valued at $10/share... You have to pay $1 per share plus $9/share in whatever your marginal tax rate is. The upside here is that if the company goes public later at $20/share... You only pay $10/share in capital gains tax rates than $19/share in marginal income tax rate. (Assuming you hold them for a year after purchase) Downside? You just paid tens of thousands of dollars in hard cash and taxes for lottery tickets. The company could still go under, you'll never sell unless they get acquired or ipo, and you'll be out all that money you spent. In general, I think it's horrendous advice to forward exercise. Great way to lose money.
    - sk5t 8y ago
      If you early-exercise there should be no spread at all between the strike price and taxable quasi-value. Early exercise is a solid choice, provided the strike price is low enough such that exercising is not a major expense / unreasonable qty eggs in one basket.
      - beager 8y ago
        Better yet, if you’re trying to be employee #1, have the founders frontload some of your year 1 salary as a cash bonus to cover early-exercise.
    - newnewpdro 8y ago
      https://blog.wealthfront.com/always-file-your-83b/ https://blog.wealthfront.com/always-file-your-83b/
    - jpatokal 8y ago
      By joining the startup with its startup salary, you've already thrown away tens if not hundreds of thousands of dollars of hard cash you could have earned by taking that Google offer instead. So if you feel that this is a rational decision, spending another $10k to minimize a lot of tax pain down the road is also entirely rational. It's also an interesting quirk of human psychology that we value the loss of something we have (here $10k in cash) so much more than the cost of not having something in the first place.
      - bradlys 8y ago
        Sure but not everyone can make it into Google. I'd be there myself but I can't pass the interviews.
        vgrichina 8y ago
        It's not like Google is some magical unicorn place though. It's boring soul-crushing big corp job with overwhelming politics. Seeing smartest people waste their time on this was very depressing for me during 3 years spent there.
- optimusclimb 8y ago
  Additionally, the vast majority of startups I've worked for, and am aware of, will not file the paperwork to let you 83b. AND, if you bring it up, they will probably tell you politely they're not going to bring up your request to the board and go through all that hassle just to hire you.
  - nathan_f77 8y ago
    That doesn't sound right. I thought an 83b election is always strongly encouraged, because the tax consequences are horrendous if you forget to file it. And I don't think the startup has to do anything? You just fill out the form and send it to the IRS.
ryanobjc 8y ago
Generally true, but the upside of a bigcorp is higher than indicated, which significantly dilutes the financial upside of startupland. The quote: "after accounting for dilution you will get around $600K, which is more than what Google would have paid you on top of the base salary" Here the answer is.. maybe. Senior Software Engineers @ Google earn $350k or so, so over 5 years thats about $170k/year RSUs, or $850k over 5 years.
YjSe2GMQ 8y ago
This comment is probably to be downvoted as off topic, but in case anyone missed this gem. Here Comes Another Bubble: https://youtu.be/I6IQ_FOCE6I https://youtu.be/I6IQ_FOCE6I
deleted 8y ago
[deleted]
x0x0 8y ago
The delta between first employee and founders is wildly underplayed in this article. In our case: one founder worked unpaid for almost a year. After incorporating, we both continue to work much longer hours than our first eng hire. In addition, our first hire walked on to a market salary, health insurance, and a company with paying customers and $3m in the bank. ie at least an order of magnitude risk reduction. Both founders continue to take much less salary than the first employee.
- invaliduser 8y ago
  Exactly. There may be some overgeneralization or maybe exageration sometimes about the first employee doing all the work while the founders get to enjoy the fame and the money. Let me add my case: 3 founders, I am one of them, we all worked for more than 1 year, not being paid, not taking a single day of vacation, not even weekends, to understand our market, build our product, and launch. Our first employee came after that, and while we started paying ourselves, on minimum wages, our first employee (developper) was paid slightly above market level and working normal hours. We have 5 employees today, they all get paid at market level or above, we recently raised funds (at seed level), less than 1M, and we (founders) still work 7/7 most of the time. I understand how first employees may have the feeling they do not have what they deserve, and in some startups that may be true, but can we say this feeling is _sometimes_ a cognitive bias due to the employee not perceiving the financial risks involved in creating a company, and the amount of work done by founders?
  - speedplane 8y ago
    From the article: "Many engineers drop out of college or leave comfortable jobs at Google to join startups as early employees dreaming about huge upsides, fame, and romance of working for a startup." I don't know many folks that drop out of college to work at a startup, that could be a sacrifice. But I do know plenty who dropped out of Big-Tech. If the startup fails, they can almost certainly get their cosy big-tech job back. So all their are giving up is a year or two salary differential for a few years in exchange for a lotto ticket. That isn't much of a sacrifice, it's more of a trade.
  - 8y ago
Finbarr 8y ago
> So if you consider an offer from a seed stage company, and try to estimate your upside, divide the shares amount offered to you by at least 1.5 right away. No, multiply by 0 right away.
jondubois 8y ago
>> A $10M acquihire brings $3M to the founders, so they are likely to accept the offer, leaving them significantly richer, and you with $100K that are unlikely to cover what you would have made if you joined Google instead. This doesn't sound like a very bad scenario at all. 100K is a lot of money. Also, back then there was a risk that maybe Google would not have grown as much as it did. >> But if you join as employee #10, and are offered 0.1% of shares, the story is completely different. If the company exits for $100M, you only get $60K, which is a completely meaningless number if you invested few years of your life into the company. That's almost one year of an average person's salary in the US. It could pay for someone one year to work on their own project.
- SkidanovAlex 8y ago
  "unlikely to cover what you would have made if you joined Google instead." refers to what you would have made if you joined Google few years ago, not at its early days
  - jondubois 8y ago
    Google stock price almost doubled in the last 3 years. That's a lot for a company that size.
hcnews 8y ago
A disproportionate amount of this company's employees are ICPC winners/finalists. I am getting Imposter Syndrome just by looking at that page. oof.
- baoha 8y ago
  Russia and China have a huge tradition in preparing and participating in those competitions, while in US, I found it's more like of a hobby, so I'm not surprised given both founders are Russians.
  - SkidanovAlex 8y ago
    While P(Russian|ICPC Winner) is high, P(ICPC Winner|Russian) is still pretty low :) Also, Illia is Ukrainian, not Russian, but it's nitpicking. ICPC is a great way to start your career if you were unfortunate enough to get born in a noname city somewhere in ex-Soviet Union, thus people are pretty motivated to do well. In US by the time you graduate you already have few internships in your resume, and are pretty figured career wise, so naturally the benefits of ICPC are less attractive.
    - baoha 8y ago
      Don't get me wrong, I have great respect for people with high prizes in ICPC, which is way more difficult than IOI in high school. I was just stating the fact.
  - deleted 8y ago
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  - deleted 8y ago
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- C1sc0cat 8y ago
  Not really applicable in the real world and to many of that sort of person would be a huge read flag for me. A bit like the one company I interviewed at that had some odd stuff on their site about your reading level. It never came up in interview but I would have loved to have said of course I new all those words drum roll at age ten doesn't every one :-)
Animats 8y ago
If you're good enough to get into Google/Facebook/etc, you should demand more money to work at a startup. The risk is higher.
- im11af 8y ago
  Sure, the risk is higher. But so is the potential reward. And that shouldn't go unnoticed.
  - Animats 8y ago
    As the original poster points out, if you're not in the first few employees, the potential reward is smaller than what you'd make at a big company.
  - Retra 8y ago
    Despite popular opinion, risk and reward are not cosmically related.
  - alecbenzer 8y ago
    They mean the risk is higher quantitatively because the money you're giving up from Google, etc. is higher than average for a software engineer. OTOH, nothing about the reward changes depending on what other places you could be working at.
jsinai 8y ago
> Most importantly, you will learn significantly faster than if you worked at a large company. Having worked in two early stage startups and at big tech early in my career, this depends entirely on your experience level and on the engineering team’s. At a big tech company you are far more likely to work with highly experienced engineers and learn from the best then at a startup. That being said, it depends completely on who they have hired before you or on your own experience level (especially if you are employee #1). My advice is to meet the engineering team and make sure that you have a good opportunity to interact with them during or after the interview process.
- speedplane 8y ago
  I agree with your sentiment. At university, I learned computer science. At my first big-tech job, I learned software development. In my startup, I learned how to run a business. All along, you're learning, but the skills you learn are not the same. Having a strong base of software development methodology was a huge boon in a startup where you have to make compromises.
- bryanrasmussen 8y ago
  I've worked at both, as a general rule I find you learn more at a startup because most learning happens by doing, and in a startup you are the one that will have to be doing whatever, even if it is outside your comfort zone. In a big tech scenario they generally only want you to be doing what is in your comfort zone, that is what you are there for - you are the best at making X widgets, make X midgets all day long - don't dare to look over at the Y Widgets code MR! In really big tech this can be mitigated sometimes because projects may be split out of the company at large, and these little moonshot projects might function as a startup within the larger ecosystem.
- pietrovismara 8y ago
  Having worked in 2 startups, almost all I've learned I did myself. Finding people more talented/experienced than you is hard in startups, and there's this really bad tendency to build everything as a prototype, while very rarely you get to convert something to a stable product. So while you get to practice on possibly a broad array of topics, you rarely get to get beyond the beginner level / learn the best practices for it. In the long run, this can be really disruptive for your career if you don't take the time to practice on your own.
nathan_f77 8y ago
I don't really understand why dilution is such a common thing. Why not just issue a fixed number of shares at the beginning and plan for future funding rounds? If I was a founder of a VC-backed startup, I think it would be much more fair to sell my own shares to investors, instead of diluting all of my early employees. If you offer your first employee 1% of the company, but everyone knows that they're going to end up with ~0.3% after all the dilution, then just give them 0.3% and promise that there will be no dilution. EDIT: I just got to the end of the article: "Finally, we structured our company in such a way that our tokens never dilute." That sounds like a great idea to me.
- pragmacoders 8y ago
  Startups don't tend to be fans of tying their own hands in terms of what they can do with stock. To be fair - investors are also not fans of that. Potential investors will look at how shares and stock options are distributed and determine if it will allow them the flexibility they need in future fundraising/buyout efforts. To go against this (investor interest and personal flexibility) founders would both have to have strong conviction and KNOW they won't need to rely on pleasing VCs in the future, for the company to survive. This goes against how startups are currently built.
- alexpetralia 8y ago
  Yes it is sort of odd that the status quo is to offer a sliding amount of equity (due to dilution). I'm not immediately sure why a fixed amount of shares, whose value simply increases over time, is not the status quo. The only trouble I can see with this is that shares are non-divisible, so you have to give out at least 1 share, even if it is priced at $10,000.
  - pragmacoders 8y ago
    The shares given to investors often have dilution protection and guarantees as to when the company can sell and what minimum compensation will be given to them if that happens. They also have protections such as "If the company dies, we will have first claim to any assets of the company" The reason this is not offered to employees is a combination of fear (if we're being generous) and lack of incentive (the employee often has little leverage and no legal representation to look over contracts). The end result being - if you have the capital, you have the leverage.
blackflame7000 8y ago
Be very cautious about accepting any position at a startup as the technical founder but they treat you like employee #1. You will quickly find that you are (seemingly) doing most of the work but not receiving anywhere near your fair share. Ideas are easy, building them is hard. Don't be fooled by a higher salary at the expense of more equity.
- pragmacoders 8y ago
  If you're in this position, also be aware of whether you're being offered stock options or stock. It's a little heartbreaking to watch years of equity disappear, in the company you built, because you don't have a year's paycheck worth of savings lying around to buy your options before they expire.
  - taude 8y ago
    People should be more aware of this, especially if you go to work for a couple years at a high-value Unicorn company where your strike price might be something crazy like $25. If you don't ride it through to exit, you may very well either be trapped, or gamble that they will have an exit in the future. You may easily be spending $60K or 150K to exercise your options and have no market to liquidity them. Naturally, this is counter-balanced by you not giving up on your base compensation when you go to work at such a company and you mentally treat the stock perk as an incentive to get you through the rough work patches. I'd be really curious about people's experience who worked at some of the more famous unicorns and left already. Maybe at a company like Uber or AirBnb? Edit: I don't know if Uber issues RSUs or anything. I'm only basing on my knowledge that I know there's Unicorn valued companies out there with late stage round raises that offer options at what seems like grossly high prices.
  - blackflame7000 8y ago
    This almost seems like its a problem with the tax system. Depending on the potential upside, it might be better to exercise the options without the means to pay the taxes and then take out a loan to settle your debt with the IRS possibly at a discounted amount.
- 8y ago
ligotti 8y ago
This is simply a detailed argument to consider opportunity costs. One concerning thing, to me, is that it mostly centers around money. There are so many "pivots" and re-orgs to become the next 10x grower that kills morale. If it's VC-backed I would stay far, far away. Anyways here are my takeaways. Pros: Had a bit more freedom to push my solutions and learn quickly. For example, at one point when we needed scaling I was able to be a decision maker on which technology to use (landed on Spark). Faster-pace, and there is a sense of ownership of the product. Cons: The product itself can change if an investor freaks out. Founders often feel entitled to your time and effort in a very unhealthy way. Possible long hours and high stress. The author has a great point about expectation value. What is the probability of punching that lottery ticket times an employee's payoff? This should be the calculation. If it is higher than your sweet job at Google, go for it, if that's what matters to you. Being able to "only" work 40 hours a week and make 350k sounds like the lottery ticket to me. I hate to be so preachy about it but working 7 days a week, 60+ hours a week, giving up family, friends, social life and hobbies, for years on end, to be millionaire instead of a super comfortable hundred-thousandaire sounds a bit over-the-top.
alexpetralia 8y ago
I think it's worth keeping in mind that most people don't live in SF and most people wouldn't get a job at FAANG. People work at startups often because their reasonable alternative is working at a dev shop or the back office of SomeBigCo. Startups offer more energy, learning, and often even pay (thanks to investor capital) than these alternatives. Yes, the amount of equity offered may not be justified from an ethical point of view, but it does seem to be a market-clearing rate.
- laumars 8y ago
  > I think it's worth keeping in mind that most people don't live in SF and most people wouldn't get a job at FAANG. People work at startups often because their reasonable alternative is working at a dev shop or the back office of SomeBigCo. Even outside of SF there are a whole gulf of positions out there that fall somewhere between a dev shop / "back office of SomeBigCo" and starts ups. Plus sometimes "back offices" can be pretty rewarding too if the person in charge of that office has fostered the right kind of work environment.
  - winningcontinue 8y ago
    Very good counter point. I worked at a back office for a large transportation company, and the work was much more rewarding than anything I've experienced at a startup.
fatnoah 8y ago
The article doesn't seem to mention the concept of a liquidation preference. Your 1% could be worth $0, even in a $50M exit.

147 points by eriktrautman 8y ago

Ask for and actually read the company stock agreement line by line before agreeing to join. The article does not mention clawback which is another thing to look for: https://en.wikipedia.org/wiki/Clawback https://en.wikipedia.org/wiki/Clawback

moxthrowingaway 8y ago
yeah, but even without a clawback, couldn't the company just ask for the shares back or threaten to fire the person? that's what Zynga did.

techslave 8y ago

> And (again, just a personal advice) you should only accept an offer if you plan to immediately forward exercise all the offered options horrible advice

ericsoderstrom 8y ago
Why's that? (Not trying to be snarky, generally want to know more)
- bradlys 8y ago
  You have to pay for the privilege of owning the stock (exercise price) plus whatever gains the valuation has increased it to. So, if you got options at $1/share and bought them when they were privately valued at $10/share... You have to pay $1 per share plus $9/share in whatever your marginal tax rate is. The upside here is that if the company goes public later at $20/share... You only pay $10/share in capital gains tax rates than $19/share in marginal income tax rate. (Assuming you hold them for a year after purchase) Downside? You just paid tens of thousands of dollars in hard cash and taxes for lottery tickets. The company could still go under, you'll never sell unless they get acquired or ipo, and you'll be out all that money you spent. In general, I think it's horrendous advice to forward exercise. Great way to lose money.
  - sk5t 8y ago
    If you early-exercise there should be no spread at all between the strike price and taxable quasi-value. Early exercise is a solid choice, provided the strike price is low enough such that exercising is not a major expense / unreasonable qty eggs in one basket.
    - beager 8y ago
      Better yet, if you’re trying to be employee #1, have the founders frontload some of your year 1 salary as a cash bonus to cover early-exercise.
  - newnewpdro 8y ago
    https://blog.wealthfront.com/always-file-your-83b/ https://blog.wealthfront.com/always-file-your-83b/
  - jpatokal 8y ago
    By joining the startup with its startup salary, you've already thrown away tens if not hundreds of thousands of dollars of hard cash you could have earned by taking that Google offer instead. So if you feel that this is a rational decision, spending another $10k to minimize a lot of tax pain down the road is also entirely rational. It's also an interesting quirk of human psychology that we value the loss of something we have (here $10k in cash) so much more than the cost of not having something in the first place.
    - bradlys 8y ago
      Sure but not everyone can make it into Google. I'd be there myself but I can't pass the interviews.
      - vgrichina 8y ago
        It's not like Google is some magical unicorn place though. It's boring soul-crushing big corp job with overwhelming politics. Seeing smartest people waste their time on this was very depressing for me during 3 years spent there.
optimusclimb 8y ago
Additionally, the vast majority of startups I've worked for, and am aware of, will not file the paperwork to let you 83b. AND, if you bring it up, they will probably tell you politely they're not going to bring up your request to the board and go through all that hassle just to hire you.
- nathan_f77 8y ago
  That doesn't sound right. I thought an 83b election is always strongly encouraged, because the tax consequences are horrendous if you forget to file it. And I don't think the startup has to do anything? You just fill out the form and send it to the IRS.

ryanobjc 8y ago

Generally true, but the upside of a bigcorp is higher than indicated, which significantly dilutes the financial upside of startupland. The quote: "after accounting for dilution you will get around $600K, which is more than what Google would have paid you on top of the base salary" Here the answer is.. maybe. Senior Software Engineers @ Google earn $350k or so, so over 5 years thats about $170k/year RSUs, or $850k over 5 years.

YjSe2GMQ 8y ago

This comment is probably to be downvoted as off topic, but in case anyone missed this gem. Here Comes Another Bubble: https://youtu.be/I6IQ_FOCE6I https://youtu.be/I6IQ_FOCE6I

deleted 8y ago

[deleted]

x0x0 8y ago

The delta between first employee and founders is wildly underplayed in this article. In our case: one founder worked unpaid for almost a year. After incorporating, we both continue to work much longer hours than our first eng hire. In addition, our first hire walked on to a market salary, health insurance, and a company with paying customers and $3m in the bank. ie at least an order of magnitude risk reduction. Both founders continue to take much less salary than the first employee.

invaliduser 8y ago
Exactly. There may be some overgeneralization or maybe exageration sometimes about the first employee doing all the work while the founders get to enjoy the fame and the money. Let me add my case: 3 founders, I am one of them, we all worked for more than 1 year, not being paid, not taking a single day of vacation, not even weekends, to understand our market, build our product, and launch. Our first employee came after that, and while we started paying ourselves, on minimum wages, our first employee (developper) was paid slightly above market level and working normal hours. We have 5 employees today, they all get paid at market level or above, we recently raised funds (at seed level), less than 1M, and we (founders) still work 7/7 most of the time. I understand how first employees may have the feeling they do not have what they deserve, and in some startups that may be true, but can we say this feeling is _sometimes_ a cognitive bias due to the employee not perceiving the financial risks involved in creating a company, and the amount of work done by founders?
- speedplane 8y ago
  From the article: "Many engineers drop out of college or leave comfortable jobs at Google to join startups as early employees dreaming about huge upsides, fame, and romance of working for a startup." I don't know many folks that drop out of college to work at a startup, that could be a sacrifice. But I do know plenty who dropped out of Big-Tech. If the startup fails, they can almost certainly get their cosy big-tech job back. So all their are giving up is a year or two salary differential for a few years in exchange for a lotto ticket. That isn't much of a sacrifice, it's more of a trade.
- 8y ago

Finbarr 8y ago

> So if you consider an offer from a seed stage company, and try to estimate your upside, divide the shares amount offered to you by at least 1.5 right away. No, multiply by 0 right away.

jondubois 8y ago

>> A $10M acquihire brings $3M to the founders, so they are likely to accept the offer, leaving them significantly richer, and you with $100K that are unlikely to cover what you would have made if you joined Google instead. This doesn't sound like a very bad scenario at all. 100K is a lot of money. Also, back then there was a risk that maybe Google would not have grown as much as it did. >> But if you join as employee #10, and are offered 0.1% of shares, the story is completely different. If the company exits for $100M, you only get $60K, which is a completely meaningless number if you invested few years of your life into the company. That's almost one year of an average person's salary in the US. It could pay for someone one year to work on their own project.

SkidanovAlex 8y ago
"unlikely to cover what you would have made if you joined Google instead." refers to what you would have made if you joined Google few years ago, not at its early days
- jondubois 8y ago
  Google stock price almost doubled in the last 3 years. That's a lot for a company that size.

hcnews 8y ago

A disproportionate amount of this company's employees are ICPC winners/finalists. I am getting Imposter Syndrome just by looking at that page. oof.

baoha 8y ago
Russia and China have a huge tradition in preparing and participating in those competitions, while in US, I found it's more like of a hobby, so I'm not surprised given both founders are Russians.
- SkidanovAlex 8y ago
  While P(Russian|ICPC Winner) is high, P(ICPC Winner|Russian) is still pretty low :) Also, Illia is Ukrainian, not Russian, but it's nitpicking. ICPC is a great way to start your career if you were unfortunate enough to get born in a noname city somewhere in ex-Soviet Union, thus people are pretty motivated to do well. In US by the time you graduate you already have few internships in your resume, and are pretty figured career wise, so naturally the benefits of ICPC are less attractive.
  - baoha 8y ago
    Don't get me wrong, I have great respect for people with high prizes in ICPC, which is way more difficult than IOI in high school. I was just stating the fact.
- deleted 8y ago
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- deleted 8y ago
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C1sc0cat 8y ago
Not really applicable in the real world and to many of that sort of person would be a huge read flag for me. A bit like the one company I interviewed at that had some odd stuff on their site about your reading level. It never came up in interview but I would have loved to have said of course I new all those words drum roll at age ten doesn't every one :-)

Animats 8y ago

If you're good enough to get into Google/Facebook/etc, you should demand more money to work at a startup. The risk is higher.

im11af 8y ago
Sure, the risk is higher. But so is the potential reward. And that shouldn't go unnoticed.
- Animats 8y ago
  As the original poster points out, if you're not in the first few employees, the potential reward is smaller than what you'd make at a big company.
- Retra 8y ago
  Despite popular opinion, risk and reward are not cosmically related.
- alecbenzer 8y ago
  They mean the risk is higher quantitatively because the money you're giving up from Google, etc. is higher than average for a software engineer. OTOH, nothing about the reward changes depending on what other places you could be working at.

jsinai 8y ago

> Most importantly, you will learn significantly faster than if you worked at a large company. Having worked in two early stage startups and at big tech early in my career, this depends entirely on your experience level and on the engineering team’s. At a big tech company you are far more likely to work with highly experienced engineers and learn from the best then at a startup. That being said, it depends completely on who they have hired before you or on your own experience level (especially if you are employee #1). My advice is to meet the engineering team and make sure that you have a good opportunity to interact with them during or after the interview process.

speedplane 8y ago
I agree with your sentiment. At university, I learned computer science. At my first big-tech job, I learned software development. In my startup, I learned how to run a business. All along, you're learning, but the skills you learn are not the same. Having a strong base of software development methodology was a huge boon in a startup where you have to make compromises.
bryanrasmussen 8y ago
I've worked at both, as a general rule I find you learn more at a startup because most learning happens by doing, and in a startup you are the one that will have to be doing whatever, even if it is outside your comfort zone. In a big tech scenario they generally only want you to be doing what is in your comfort zone, that is what you are there for - you are the best at making X widgets, make X midgets all day long - don't dare to look over at the Y Widgets code MR! In really big tech this can be mitigated sometimes because projects may be split out of the company at large, and these little moonshot projects might function as a startup within the larger ecosystem.
pietrovismara 8y ago
Having worked in 2 startups, almost all I've learned I did myself. Finding people more talented/experienced than you is hard in startups, and there's this really bad tendency to build everything as a prototype, while very rarely you get to convert something to a stable product. So while you get to practice on possibly a broad array of topics, you rarely get to get beyond the beginner level / learn the best practices for it. In the long run, this can be really disruptive for your career if you don't take the time to practice on your own.

nathan_f77 8y ago

I don't really understand why dilution is such a common thing. Why not just issue a fixed number of shares at the beginning and plan for future funding rounds? If I was a founder of a VC-backed startup, I think it would be much more fair to sell my own shares to investors, instead of diluting all of my early employees. If you offer your first employee 1% of the company, but everyone knows that they're going to end up with ~0.3% after all the dilution, then just give them 0.3% and promise that there will be no dilution. EDIT: I just got to the end of the article: "Finally, we structured our company in such a way that our tokens never dilute." That sounds like a great idea to me.

pragmacoders 8y ago
Startups don't tend to be fans of tying their own hands in terms of what they can do with stock. To be fair - investors are also not fans of that. Potential investors will look at how shares and stock options are distributed and determine if it will allow them the flexibility they need in future fundraising/buyout efforts. To go against this (investor interest and personal flexibility) founders would both have to have strong conviction and KNOW they won't need to rely on pleasing VCs in the future, for the company to survive. This goes against how startups are currently built.
alexpetralia 8y ago
Yes it is sort of odd that the status quo is to offer a sliding amount of equity (due to dilution). I'm not immediately sure why a fixed amount of shares, whose value simply increases over time, is not the status quo. The only trouble I can see with this is that shares are non-divisible, so you have to give out at least 1 share, even if it is priced at $10,000.
- pragmacoders 8y ago
  The shares given to investors often have dilution protection and guarantees as to when the company can sell and what minimum compensation will be given to them if that happens. They also have protections such as "If the company dies, we will have first claim to any assets of the company" The reason this is not offered to employees is a combination of fear (if we're being generous) and lack of incentive (the employee often has little leverage and no legal representation to look over contracts). The end result being - if you have the capital, you have the leverage.

blackflame7000 8y ago

Be very cautious about accepting any position at a startup as the technical founder but they treat you like employee #1. You will quickly find that you are (seemingly) doing most of the work but not receiving anywhere near your fair share. Ideas are easy, building them is hard. Don't be fooled by a higher salary at the expense of more equity.

pragmacoders 8y ago
If you're in this position, also be aware of whether you're being offered stock options or stock. It's a little heartbreaking to watch years of equity disappear, in the company you built, because you don't have a year's paycheck worth of savings lying around to buy your options before they expire.
- taude 8y ago
  People should be more aware of this, especially if you go to work for a couple years at a high-value Unicorn company where your strike price might be something crazy like $25. If you don't ride it through to exit, you may very well either be trapped, or gamble that they will have an exit in the future. You may easily be spending $60K or 150K to exercise your options and have no market to liquidity them. Naturally, this is counter-balanced by you not giving up on your base compensation when you go to work at such a company and you mentally treat the stock perk as an incentive to get you through the rough work patches. I'd be really curious about people's experience who worked at some of the more famous unicorns and left already. Maybe at a company like Uber or AirBnb? Edit: I don't know if Uber issues RSUs or anything. I'm only basing on my knowledge that I know there's Unicorn valued companies out there with late stage round raises that offer options at what seems like grossly high prices.
- blackflame7000 8y ago
  This almost seems like its a problem with the tax system. Depending on the potential upside, it might be better to exercise the options without the means to pay the taxes and then take out a loan to settle your debt with the IRS possibly at a discounted amount.
8y ago

ligotti 8y ago

This is simply a detailed argument to consider opportunity costs. One concerning thing, to me, is that it mostly centers around money. There are so many "pivots" and re-orgs to become the next 10x grower that kills morale. If it's VC-backed I would stay far, far away. Anyways here are my takeaways. Pros: Had a bit more freedom to push my solutions and learn quickly. For example, at one point when we needed scaling I was able to be a decision maker on which technology to use (landed on Spark). Faster-pace, and there is a sense of ownership of the product. Cons: The product itself can change if an investor freaks out. Founders often feel entitled to your time and effort in a very unhealthy way. Possible long hours and high stress. The author has a great point about expectation value. What is the probability of punching that lottery ticket times an employee's payoff? This should be the calculation. If it is higher than your sweet job at Google, go for it, if that's what matters to you. Being able to "only" work 40 hours a week and make 350k sounds like the lottery ticket to me. I hate to be so preachy about it but working 7 days a week, 60+ hours a week, giving up family, friends, social life and hobbies, for years on end, to be millionaire instead of a super comfortable hundred-thousandaire sounds a bit over-the-top.

alexpetralia 8y ago

I think it's worth keeping in mind that most people don't live in SF and most people wouldn't get a job at FAANG. People work at startups often because their reasonable alternative is working at a dev shop or the back office of SomeBigCo. Startups offer more energy, learning, and often even pay (thanks to investor capital) than these alternatives. Yes, the amount of equity offered may not be justified from an ethical point of view, but it does seem to be a market-clearing rate.

laumars 8y ago
> I think it's worth keeping in mind that most people don't live in SF and most people wouldn't get a job at FAANG. People work at startups often because their reasonable alternative is working at a dev shop or the back office of SomeBigCo. Even outside of SF there are a whole gulf of positions out there that fall somewhere between a dev shop / "back office of SomeBigCo" and starts ups. Plus sometimes "back offices" can be pretty rewarding too if the person in charge of that office has fostered the right kind of work environment.
- winningcontinue 8y ago
  Very good counter point. I worked at a back office for a large transportation company, and the work was much more rewarding than anything I've experienced at a startup.

fatnoah 8y ago

The article doesn't seem to mention the concept of a liquidation preference. Your 1% could be worth $0, even in a $50M exit.