21 ms·

If founders treated their investors the same way they treated their employees

679 points by whack 6y ago

Bailin 6y ago
> Investor: So, 0.1% of your ($10M) company works out to $100,000 Isn't that actually $10,000, or is there some startup valuation math that I'm not aware of? EDIT the article has since been updated with new numbers, and the math now works out as expected
- drcoopster 6y ago
  Read the rest of the article.
  - Bailin 6y ago
    I did before I posted, and the rest of the article didn't explain that disparity at all. That being said, it looks like the article has been updated to use new numbers now.
seibelj 6y ago
Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach, whatever) and they are willing to go this route. Invalid reasons for working at a startup: - Getting rich off stock options. - Making a lot of money in salary. - Work / life balance. - Stability.
- kristopolous 6y ago
  For me I'm far too naturally transgressive to work at a large company. I really wish I could, life would be easier, less work, less stress, pay better... None of them will take me so I keep help building and (sometimes) exiting startups. It's really exhausting. 20 years of this... I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently follow it instead of challenge it. I've honestly thought about figuring out how I could put things on ice for a few years and get a PhD, because then I'd have the proper paperwork to allow for my disposition and could finally stop this exhausting startup life.
  - WaxProlix 6y ago
    You should get a therapist (or a life coach?), these sorts of problems are rarely confined to just the work space.
    - kristopolous 6y ago
      Yeah, probably. It's certainly worth giving it a go.
  - knodi 6y ago
    Do you mean transgressive as another word for asshole, in interacting with your coworkers?
    - kristopolous 6y ago
      No not at all. Nobody has ever quit under my management. People quit bosses, not jobs and I've always kept my people. So I think I've been pretty good
  - bluntfang 6y ago
    >I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently follow it instead of challenge it. it sounds like you've identified a personal problem with a clear goal, the next logical step would be to shop around therapists who think they might help you achieve that specific goal. and i think it's very important to shop them. Maybe even read a few books on how to find the right therapist for you. It's important to not get stuck on one who you don't like or who isn't interested in help you the way you want to be helped. I've found with therapy that sunk cost fallacy is real when you've found one that really doesn't fit with your goals.
  - dannykwells 6y ago
    So I have a PhD, and do empathize with being "transgressive", but I'll say I think it's less about the PhD than it is about being right. If you are bull headed and drive really hard in a new area, you better be right because you are taking responsibility and accountability for that area (whether you think you are or not). High risk, high reward - sound familiar? This is true at Google, at startups, in academia. So it's really more of a personality thing - if you're ok being obedient, you also don't need to bear the stress of accountability. But if not, well, no degree will alleviate that stress.
- hitekker 6y ago
  I'd add "Mental Health" to the bottom list.
- thinkingkong 6y ago
  The invalid reasons are all accurate. The only challenge is (almost?) everyone has a friend or colleague that worked at Slack or Uber and made stupendous amounts of money; far in advance of what they would get at a FAANG. It doesn't take into account luck & risk, but this kind of casual relationship with successful startups colours peoples expectations in a different light.
  - novok 6y ago
    You might of made a stupendous amount of money if you worked at Uber 2014 or sooner. 2015 or later and you had a stock that was flat or worse for 5 years at this point.
  - brogrammernot 6y ago
    How much money do you actually need though? I’ve worked for 5 startups now and my equity payout has been 0, 0, 0, 0, and now I stand I make low 7 figures from the equity on this last company (publicly traded now). During those startups the following happened: - I saw my nieces and nephews so little they forgot my name. They were young, sure, but it still stung when they look at you like a stranger - Messed up a 8+ year relationship with my significant other and we haven’t talked in years - Let my student debt pile up to take on more equity than salary (dumbass idea for the record) - Lost friends along the way because I could never do anything - Missed many family/friends birthdays as I was working - Worked 80 hour weeks for a long time What did I feel after I saw my equity/stock rise to above 7 figures? Stupidity. I gave up a lot on my journey and money can’t get it back, in fact, the money I stand to earn doesn’t enable me to do much more than what my salary already does. I can travel, eat well, have luxury goods if I want (I’m not that type of person but anyways), and so forth. My point being that this was a.) self-inflicted and b.) not worth the combined opportunity cost of all of those years. So for every “friend” who made lots of money at Uber or other places, there’s a story like me or a story where someone’s never made anything from equity because profitable exits are fucking hard
    - 9erdelta 6y ago
      Working ridiculous hours at a startup (I can barely remember anything from 2016) really drove home to me that time is way way way way way more valuable than money. Use it wisely (unfortunately wisdom is hard to get before the time has been wasted). Took a few years to get out of startups but I'm out (ish) now and I'm way more picky about how much time I'll work on something these days.
- ignoramous 6y ago
  See also: https://danluu.com/startup-tradeoffs/ https://danluu.com/startup-tradeoffs/
- maps7 6y ago
  I would like to work for a startup as a way to move/improve my stack but looking at some startup job postings show that they want Googler-tier devs with decades of experience while paying nothing
  - goatherders 6y ago
    What they want and what they end up hiring are very rarely the same.
  - bb88 6y ago
    I would recommend going the consulting/contracting route. Mostly because you get to see how different companies approach problems. When you move from company to company you take the best ideas forward.
- nogabebop23 6y ago
  to add another valid (yet totally invalid) point: You want an impressive job title. At an established company you're going to be a Software Developer or Engineer level n; at a startup you can easily be Lead, Director of or even a VP if that's important to you.
  - MaxBarraclough 6y ago
    Is there such thing as an impressive title, in software development, if the company is unheard-of? This is a sector where people with no relevant formal education and three years on-the-job experience sometimes get called senior.
    - nicoburns 6y ago
      To be fair, "senior" doesn't seem to be particularly high up the ladder of job titles at tech companies these days. You get titles like "lead", "principle", and "staff", which are all considered more senior than senior. At the end of the day, job titles are mostly for getting past recruiters. Interviewers (if they're any good) will judge you on your actual experience and capabilities.
  - drchopchop 6y ago
    That can be important, especially if you've been "under-titled" at your previous job and need to reset yourself on the career ladder. It's a lot easier to go from senior -> lead -> VP -> CTO by jumping into the startup world than it is to climb the ladder at a megacorp.
    - marcinzm 6y ago
      Sure but everyone knows the titles are inflated so it only matters if you plan to stay in startups perpetually. Megacorps won't pay any attention to your inflated title. edit: And I've seen interviewers pause at such titles and comment "are you sure you want to work here, we can't offer you as nice of a title." So it may count against you even.
- skrebbel 6y ago
  Frankly I'm getting tired of this drum HN keeps beating about startups not offering a good work/life balance. Some startups don't, true. Some FAANGs don't either, what's the difference? I know plenty of startups that have a sane working culture as a key point of differentiation in the job market.
  - drchopchop 6y ago
    Agreed, I am 40+ and am a CTO at a startup which has great work/life balance. We pay approximately market (for a normal dev job, not FAANG), haven't had people do overtime in well over a year, are transparent about finances, and have practically zero politics. It is also possible for a startup to be "stable", especially if it's bootstrapped/profitable.
    - high_derivative 6y ago
      'have practically zero politics' tingles my bs-meter. How would you know how your employees feel about this? There is always politics. Of course not for the ones who cannot be promoted further, but for everyone else. My boss not acknowledging the existence of politics would be a red flag to me.
      - deleted 6y ago
        [deleted]
      - hehsjsbb 6y ago
        Politics isn't just about promotion. It's about what kind of work people get to do, whose opinion is respected, etc. I don't care about getting promoted in my current role (at a small start-up where the eng org is flat), but I'm miserable because there's obviously a clique of people who are "trusted" and take over the technical direction of anything interesting. What's left is basically just implementing their ideas and then having them rewrite it on you or nitpick it in PRs until they practically wrote it.
        giantg2 6y ago
- marcinzm 6y ago
  > - Making a lot of money in salary. Startups pay more in salary than non-tech non-finance companies do in total comp. Startups that are far enough along (pre-IPO Uber, Lyft, etc.) pay more than FAANG (the RSUs aren't liquid but you need to only wait a year or two).
  - deleted 6y ago
    [deleted]
  - trimbo 6y ago
    Uber employees who joined in 2015 actually saw their RSUs decrease in value by the time the lockup ended in 2019. 4 years of working at a pre-IPO unicorn for negative growth. Heard this from multiple people but here's an article: https://www.financialsamurai.com/how-uber-employees-failed-to-get-rich-off-the-uber-ipo/ https://www.financialsamurai.com/how-uber-employees-failed-t...
    - marcinzm 6y ago
      That depends totally on the RSU package they got when they joined. Negative growth if the package was 50% higher than their previous or FAANG comp is still a net gain.
      - pb7 6y ago
        This is true and was the case for some people but if you had taken an Uber offer, for example, to Facebook or Google, they would have matched it.
      - trimbo 6y ago
        If it was 50% higher when they were hired, they still probably made less. All FAANG stocks climbed 100+% over the same timeframe. Amazon, 500%. [Edit] But... I think you might have missed the point. The reason to join a pre-IPO company is to make far more money post-IPO when the stock rises. Joining Facebook in 2008 or Google in 2000 would be equivalents here, and those people became very, very wealthy on the day of the IPO due to this pop vs when they joined. Uber employees who joined 4 years before IPO had their stock drop instead.
- Swizec 6y ago
  Personally I like to work with startups because: - they pay more than enough for my near-term financial goals - the equity is ok - they let me work on sidehustles - I get to work on stuff that is truly make or break for the company, not some bullshit pet project a PM needs to get promoted
  - pb7 6y ago
    Wouldn't it feel like it's a little bit bullshit if the company went out of business shortly after and all that work was for nothing? All of our work is so ephemeral.
    - dilyevsky 6y ago
      Same happens in big cos when sometimes hundreds or more engineering years are scrapped purely because of internal political wars or “reorgs”
      - pb7 6y ago
        That's precisely my point. Startup work is not any more meaningful or everlasting than work at a big company. GP claimed PMs at big companies only come up with meaningless work but I think the work is meaningless almost everywhere. Every human needs purpose but pouring yourself into something that is very likely to have so little permanent impact seems foolish. I think there is a desperate call for balance in life which is why work-life balance provided by stable companies is valuable, not because the work you do there is any more or less important than a startup.
        dilyevsky 6y ago
        I disagree - it’s just way harder to come by any meaning in the corporate world than it is in startup. Startups have to assign meaningful work to everyone they hired or they die. Not so for big (or even medium) corp so they have to play the “work life balance” card so you don’t blow your brains out from boredom. Ofc that also means big cos are more welcoming to people who didn’t want anything to do with their work in the first place and just in it for the paycheck (nothing wrong with that) and it’s always a spectrum.
- lkbm 6y ago
  Main reason: it's more fun. I could be a cog in a giant corporate machine, or I can have a measurable impact where I work. I can stay in my lane and do my specific job tasks, or I can run around putting out fires and helping wherever help is needed. I mindlessly build the specific design product handed me, or I can guide my own work in accordance to the needs of our customers and the business. I can follow policy and fill out forms when making any decision, or I can just do what's right because who has time to write policies and look over approval forms? tbf, tech is relatively good at a lot of these. As I understand it, Facebook gives a fair bit of latitude to engineers, and Google used to be famous for their 20% time. But the longer a company exists, and the bigger it gets, the more bureaucracy and controlling it'll get. Every big disaster means a new policy on how to prevent future disasters. I think pg wrote an essay stating that the most valuable skill in an early startup employee is "helpfulness" (maybe not though -- cursory search didn't find it). You do what needs to be done. This is roughly your "wear many hats" point, but more than just different technologies, and not just being new. If you just want to have a well-defined, steady, sane-every-day job, a startup is terrible. If you every want to say "that's my job", a start-up is terrible. If you're the sort of person people will come to for help with whatever comes up (and enjoy being that), start-ups can be great.
  - episteme 6y ago
    I'm not sure you can say the startup impact is measurable either. You certainly can't measure it by monetary value. Mindlessly building what is handed to you is a culture problem and not a company size problem. Some startups have less freedom than some corporations but both usually grant more freedom to more senior people. You can still 'wear many hats' at some mega corps too, if the company only has 'engineer' as a title then you are expected to basically do 'everything' . The team you are on will decide what the balance is though. I think all of what you said could apply to both sizes of the companies.
  - vlunkr 6y ago
    Both of these comments make good points, but are two ends of a false dichotomy. Not every startup is going to have horrible work/life balance, and not every job at a big company is going to be boring and soul crushing. And there are all sorts of jobs in the middle and to the side of this spectrum.
- mac01021 6y ago
  I worked as a software engineer for a large media company, outside of any tech hub. I switched to working remotely for a San Francisco-based startup because they offered me a 30% raise over what my current employer was willing to pay. Two years later, when working for the startup became less palatable, I went back to my old company. My manager there struggled with the HR dept as hard as they could and got them to just match my startup salary in order for me to come back. Which I guess is just to say the parent comment is not universally correct.
- znpy 6y ago
  So far I stayed away from both startups and consulting companies (Accenture, NTT Data and similar) and it went fairly well. One day I'll reconsider this choice, probably when I'll have a bit more of financial stability (read: bought a house and paid it in full) and can afford some more risk. Most people seems to overlook the fact that most startups die within a year, and some more startups drag a long death march before dieing. You might have fun or do crazy interesting things, but if the company goes bust it might not be pretty. For the moment, I'll stay conservative about this kind of things.
- johncolanduoni 6y ago
  I mean, making a lot of money in salary is a very valid reason if they actually pay you a lot of money in salary (it does happen).
- KorematsuFred 6y ago
  I have learned this hard way.
- biztos 6y ago
  I've seen people hired into startups that just got their A-round and they made sub-FAANG market rate plus whatever crazy stock incentive they agreed to. And the exit strategy was usually acquisition by FAANG anyway. So I would add as a valid reason: - Startup will pay you as much as anyone else, and won't be boring. Caveat: may only apply to early hires!
- dinht 6y ago
  Certainly you can get a considerable amount of salary, depending on your angle of working in a startup. In the recent career changes, I often look at 1-2 years old start-up where tech side has been rather stagnant. My angle is clear -> getting stuffs done, move the tech forward and make sure it is aligned with the company's direction But this is not enough for founders to have a peace of mind regarding your commitment. - If you have already built a reputation, then that's enough for you to argue for a market rate salary. - Else you would need to trade for some equity. What are you getting out of this compared to a corp job: - The work is likely more interesting. - Away from corporate landscape (if that's not your thing) - Gaining experience in new domain, doing thing in new ways.
- doopy1 6y ago
  I work at a startup, not a co-founder, salary is not amazing, but pretty good - most I've ever made. Work life balance is also the best I've ever had. Just my data point.
sambroner 6y ago
Good read. I like the new story format to rehash the lively startup vs big tech employment debate on HN. It could almost use a part 2 to explain aspects of the conversation (how is the employee making a $300k investment, preferred stock, etc), but I don't think anyone is missing the joke. The story format makes it clear how employees are getting a worse deal than investors. Still, employees receive cash dividends every few weeks (a salary), isn't that a positive?
- adoxyz 6y ago
  A salary =/= dividends.
- jdauriemma 6y ago
  I think the major distinction between salary and dividends is that the latter requires no labor.
- kilotaras 6y ago
  > Still, employees receive cash dividends every few weeks (a salary), isn't that a positive? People are usually foregoing part of the salary in lieu of options. e.g. $25k paycut (really conservative compared to FAANG) will come up to $100k over 4 years. One can consider those $100k as cost of options you get.
- neltnerb 6y ago
  The employees receive "cash dividends" that are typically lower than market rates for a salary plus the second they leave for a new job they will likely end up creatively shafted out of the difference in salary they effectively invested in good faith. Because they're not working there anymore it's "demoralizing to others" if they retain the ownership that, again, they invested a part of their salary for in good faith. You've probably heard that one before. It is absolutely outrageous to tell an employee that they're getting paid less in exchange for equity and then turn around and declare that the equity doesn't count the same as if they got paid market rates and just invested a portion of their salary.
- PeterisP 6y ago
  Quoting the original article, "If you’re taking a $X pay cut to join a startup, you’re really investing $X in them. Far be it from me to tell you how to spend your money, but make sure you’re happy with what you’re getting in return." The appropriate consideration when working for most startups is not that you're getting a cash dividend, quite the opposite - it's equivalent to the startup withholding a significant amount from each paycheck, and "buying" options/stock/whatever with that withheld money - you honestly earned that money, but you're not getting cash but something else instead. Is that something else a good value for that money?
shehryarrr 6y ago
That 90-day expiry window is the most archaic bullshit. Can't come up with 200K cash? Too bad, and thanks for all that hard work and long hours you put in.
- virgilp 6y ago
  Another thing that may be hard to understand for non-US citizens. For me, exercising options costs me just that, the option price + bank fees; I owe no tax. I have to pay full tax when & if I sell the shares. This seems like a much fairer taxation regime - I pay tax when I earn something - just having un-sellable shares didn't suddenly increase my wealth. With this, it actually makes sense to exercise options and stay employed at the startup: you now may not be qualified as a short-term seller when you sell the stock, since you held on to it for a while.
  - jagged-chisel 6y ago
    One should exercise at the earliest possible convenience. If I'd exercised on day 1 when I joined a startup, I wouldn't have owed tax because I wasn't getting a discount, but a locked-in price. So when I exercised after the value increased, I then owed tax. I've seen it suggested that one should exercise on day 1. But that doesn't have to mean you pay for them immediately (after all, you don't get to keep them immediately - you have to wait for vesting...), so you work out a payment plan with deductions every paycheck so that you've pay fully for whatever is vested at the time it vests.
    - jasondelta 6y ago
      Or one should never exercise at all until an acquisition or an IPO happens. I've seen too many people exercise stock options trying to minimize tax implications down the road, only to see them eventually leave the company for any number of reasons and they end up get heavily diluted to almost nothing in future rounds. All that money basically down the drain trying to chase long term capital gains vs regular income tax rates when the likelihood that they'll make anything is extremely low. Everyone's risk posture is different, but considering how few startups are actually successful, I would argue it's better to just assume the options are worthless and just deal with the regular income tax situation if you get lucky enough to be around during an IPO or acquisition.
nautilus12 6y ago
This hits me right in the tendies. How many times have I had this conversation to no avail
- mdnahas 6y ago
  I think I had this conversation word-for-word with one company. I told the CEO my salary demand and he could pay me in cash or in stock at the previous valuation (which had happened a week earlier, so I knew the price and that they had cash). He just kept blowing smoke at me. I decided I couldn't work for someone who lied to me (or, perhaps, believed his own BS?).
brd529 6y ago
Bravo bravo bravo! This piece neatly encapsulates all the problems with ISOs. The biggest one is mentioned at the beginning - information asymmetry. I don’t really understand why most companies, especially small ones less than 100 people, can’t be transparent about their cap table with employees. I do think the culture around 90 day exercise Windows is changing. Here is a list of companies with extended windows [1]. At this point I would never join a company with 90 day windows. [1] https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
- alecbenzer 6y ago
  AFAIK the 90 day thing was more of a legal thing than something the companies themselves wanted to enforce?
  - brd529 6y ago
    It's true that a company can't issue ISOs if the termination window is more than 90 days, they have to be NSOs instead. IMO the downside of the NSOs (pay tax immediately upon exercise instead of at next year's tax deadline - ISOs don't actually change the amount of tax that is due, just the timing of when you pay it) is small compared to the very real risk that your options will go poof if you don't have the cash to exercise and pay tax if there is a termination event.
    - rsanek 6y ago
      Startups can easily opt to convert ISOs to NSOs after the 90 days -- but of course, they typically do not.
  - C1sc0cat 6y ago
    The UK is much better in this regard as the HMRC has rules for approved option schemes - I have EMI shares in my current employer
  - rsanek 6y ago
    No, by law ISOs just convert to NSOs at 90 days. Startups themselves decided to expire them, there is nothing preventing them simply allowing them to change. You get worse tax treatment, of course, but at least you get to retain the ability to participate in the upside.
seibelj 6y ago
I missed over $1 million in options when one of my former companies was acquired. I still made good money but nowhere near the same. I was pretty sure it was going to sell, but I didn't know how long it would take (over 1 year for sure) and nothing in life is guaranteed. If I had exercised all the options I would have had over $300k in paper gains for a tax bill. Instead I exercised 10% of what I had the ability to exercise. This is one major reason I will never work at a startup again unless I am the cofounder.
- sky_rw 6y ago
  Depending on the size of the startup at the time you join, I found it fairly easy to negotiate an extension to the exercise window. Likely because so few people even bring it up.
  - seibelj 6y ago
    There was 0% chance of that occurring as the CEO was a total shark. You would be shocked at how much of the cap table he retained vs. all the crazy funding shenanigans that happened. Very astute player of the game, he did very well. I will invest in his future companies but never work for him again.
    - eli 6y ago
      Why is it ok to fund that behavior if it’s victimizing people?
      - seibelj 6y ago
        I was an employee not a cofounder. I agreed to the terms. He will do anything to succeed. I invest money in people who succeed. That is my opinion about where I will place investments in hyper-risky early stage startups. The biggest jerk in this whole thing is the USA tax code / IRS that made me pay taxes on paper gains.
    - tehlike 6y ago
      Can you name the company, I'm curious
readams 6y ago
Don't forget: Even if they are a unicorn, they won't IPO for 15 years and you'll be trapped because you can't afford the taxes to leave the company. Imagine working for Palantir.
zebrafish 6y ago
Isn't this capitalism? Labor and capital are two different factors of production. If you're willing to take the pay cut and risk associated w/ joining a startup, but are unhappy with the returns, why wouldn't you just keep your job, invest the $100,000, and get access to the preferential terms given to capital?
- ahelwer 6y ago
  Good luck investing in private companies with $100k. The only way us serfs can get access to those opportunities is to chain our futures to the company and go work for them. Also means we can't diversify our portfolio like the VCs can.
  - C1sc0cat 6y ago
    Are there no listed PE funds
  - icedchai 6y ago
    You can diversify by investing in public markets, where you have actual liquidity. I've made more off of the Facebook stock I bought after the IPO than I have from any of the startups I worked for. One did have a "successful" exit, meaning the returns were positive, though nothing to write home about. I would've been better investing that money into Apple or AMD. All the people complaining about their worthless stock options need to realize that generally, the investors all got screwed, too.
    - ahelwer 6y ago
      The whole thesis of VC funds is to invest in many companies and have a few home runs drive returns. VC-backed companies failing is just the cost of doing business in a random extremistan world. For programmers it's as you say - either nothing, or at best "nothing to write home about". Unless you win the lottery.
      - icedchai 6y ago
GoodJokes 6y ago
It’s like you all rediscover capitalism from a medium posh every two weeks.
draw_down 6y ago
If you go in buying the hype you’re a mark, but it does happen. I think people here are in such a hurry to devalue equity compensation that they forget there can be an upside, maybe a big one. I took my current job because they were offering what I was already paid, plus a better workplace as well as options that, at the time, seemed like they could be a nice bonus. Over the next couple years they gained a lot of value, and I recently sold a fraction of my holdings for several hundred thousand dollars. So I dunno, maybe not everyone holding “lottery tickets” is a rube.
motohagiography 6y ago
This is perfect. I looked at working for startups as though I were an investor, because while an investor is putting maybe 1/30th of their fund into a company, I'm putting %100 of my time into it and it will be my sole source of income and wealth, which means I have way more to lose as an employee than someone who YOLO'd a few million of hedged, other people's money into it. As an employee, my risk/reward has fixed upside (+lottery tickets) and an asymmetric downside that includes opportunity cost. Most people are just doing jobs, and that's how they manage, but money is made in direct inverse proportion to how much physical work you do. If you are doing work, you are rarely providing as much value as someone delivering just the value of yours and others' work. Arguably, the most value is provided by people who do the breadth-first search for opportunities than the depth-first search for technical "solution" leverage. A company needs both, but as the post implies, figure out if you would invest in a company before deciding to work for them.
StreamBright 6y ago
Some of these problems are coming from the reason that many of the startups are unicorns, with other words pyramid schemes. https://www.forbes.com/sites/forbescommunicationscouncil/2017/05/22/startup-unicorn-or-corporate-ponzi-the-telltale-signs/ https://www.forbes.com/sites/forbescommunicationscouncil/201... https://www.linkedin.com/pulse/how-tech-startups-behaving-new-age-ponzi-schemes-kirti-dixit/ https://www.linkedin.com/pulse/how-tech-startups-behaving-ne...
colinrand 6y ago
A few things I have noticed missing from discussion of why/why not to join a start up is prestige and lineage. Early engineers from start ups that get traction carry an aura of prestige (warranted or not is a separate question) that they were witness to 'something special' that happened. Second is lineage. Like it or not, cohorts of engineers often stick together and create informal networks that help populate their careers with better opportunities in the future. Going through the crucible with a team is a great way to form bonds that can last decades.
- dpeck 6y ago
  The first part I’d say is even less likely than a big payout. That is only going to be true if it’s at a very well known consumer brand or just within a very specific niche
bjornsing 6y ago
This is the first “employee perspective” criticism of equity incentives I’ve read that makes perfect sense. Hat off for that! :) Sadly in the country where I’ve founded startups (Sweden) the government mandates that the terms must be really shitty, or there are immediate tax consequences that somebody has to swallow.
- C1sc0cat 6y ago
  Strange Sweden has a strong private investor culture possibly employees should be lobbying for a change in the law.
goatherders 6y ago
I was employee ~150 at a company that essentially had it's exit event with a massive GE investment a couple years ago. DUring that investment, employees were required to sell their stock/options. To the credit of the VP who hired me, the result was exactly as he had told me: "when this company has it's event, you'll likely get enough off your options to put the kids through college or for a big down payment on a really nice house. But the only people who will sniff 7 figure paydays are the VP/C-suite and the only person getting rich(er) is the CTO/founder."
mdorazio 6y ago
Always absent in these kinds of essays/posts is the reason why startups are able to get away with this. If it didn't work, obviously the options games would have stopped a long time ago. A lot of people don't want to admit that there's a small army of young, naive employees who are enamored with startups and are perfectly willing to sign up for below-market salary and extremely unfavorable options terms in exchange for "the startup experience". And importantly, this small army is constantly renewing itself. Repeatedly bringing up how much the game is rigged doesn't really do much to change anything.
- troughway 6y ago
  Backed by Hollywood propaganda, and really propaganda from most tech news outlets as well.
- qntty 6y ago
  It's also possible to pass laws that protect employees
- VRay 6y ago
  > Repeatedly bringing up how much the game is rigged doesn't really do much to change anything. Au contraire! I stumbled across one of these semi-monthly kludgeposts with a comment section full of angry people early in my career, and it helped me avoid getting mired in any bad startup situations. I think that getting the word out about this stuff is one of the best things we can do, since it'd be really hard to try and legislate this problem away
- a13n 6y ago
  Options aren't a game. They're preferable to employees, for tax reasons. If startups gave employees shares, then employees would have to pay taxes on those shares, even though they're illiquid - so you're paying taxes on something you can't even sell! Options solve this problem well, by delaying the tax burden until the equity is actually worth something. If it ends up worth nothing, you don't exercise your options and you don't pay any taxes.
  - 6y ago
rdlecler1 6y ago
As an investor I don’t ever recall getting a paycheck from a company.
- pb7 6y ago
  How many hours of work do you do for each company you invest in?
cs-szazz 6y ago
This hits home. I'm a fairly early employee at a unicorn, with no exit in sight. I've talked to the cofounders about extending my exercise window, and got the response of "We can probably do that when the time comes". Of course if that turns out to not be the case, well then I'm now stuck leaving behind a huge portion of my equity to cover the taxes, assuming I can sell to cover. Love that this seems to be getting more popular, hope it becomes the norm for companies in the future.
- chii 6y ago
  Options being dangled in front of employees to trick them (only later to find out they can't afford to exercise it) is infuriating - it's almost fraud imo.
  - cs-szazz 6y ago
    100% agree. I'm in the low 7-figures right now (on paper), and will probably be mid-7 with the next round of funding. So I have 0 chance of affording the taxes if I wanted to leave, and am kind of at the whim of the board if they want to extend my window. It's not a great feeling, especially when you contributed a lot to the company at a very early stage. I am glad there's companies popping up to help with this problem, like ESO Fund, but in my opinion the companies should be trying to fix this instead.
    - nbclark 6y ago
      Without knowing your exact situation, one thing to keep in mind is that the preferred value (last valuation / # of shares) of a share is generally a good bit higher than the tax liability (value of a common share from the 409a minus your strike). Still likely a big tax hit, but perhaps slightly better. IMO changes to tax law for illiquid assets is the best but most unlikely option here.
      - cs-szazz 6y ago
        Yeah it's a good call out, in this case FMV is about 1/3rd the preferred. Sadly the that still puts it out of reach for me, but means I can afford to exercise at least some.
nostrademons 6y ago
So founders do treat some of their investors like this - look at every ICO, and a lot of dumb overseas money, and a good number of friends/family/fools rounds. And conversely, there are some employees that they treat with kid gloves, who basically get the investor treatment. Look at executive hires. The difference is basically two letters: "No". Most institutional investors have the ability and inclination to say no to a deal. Many executives - or even high-level FAANG engineers - have the ability and inclination to say no to a deal. Your average engineer a couple years out of college does not, or if they do, they don't understand the power of declining a job offer. Start your negotiations with "no". Be curious and open to opportunities, and show a lot of enthusiasm during the interview process, but whenever you feel you're treated unfairly, walk away. People will stop treating you unfairly.
- smattiso 6y ago
  The problem is that some people need money and can't say no. That's why anybody works for minimum wage... The executives and investors and FAANG engineers have all made good money and seen decent RSU terms, you can't pull the wool over their eyes. Someone who is just getting into tech may be allured by a 50k salary and "1 MILLION OPTIONS!!!!" (There are ten trillion in the option pool). I think engineers would do well to know that you are a COST CENTER to the business and the people who run it. They need you to make their product so they can make money but they hire you begrudgingly. You are in their power and they want to take advantage of you by paying you the least they can (shady options awards) and working you as much as possible (why did you slip on this feature you story pointed!!!). Put yourselves in their shoes and you would do the same. Starting a successful business is all about customer growth and making money. If you aren't directly responsible for a part of that then you are a cost. Make sure you are getting paid what you are worth because nothing in this world gets built without great engineers, but the system is run by people who want to have power over you. Be careful.
  - chii 6y ago
    > The problem is that some people need money and can't say no. If they need money, and this is the best offer they got, then what's the problem with accepting it? They are still better off than not accepting it.
sharklazer 6y ago
> Founder: Sure. We’re looking for a $100,000 commitment, and in return, you would be getting 0.1% of the company. Founder: Sure. We’re looking for a $100,000 commitment, and in return, you would be getting 0.1% of the company on top of $100,000 in pay. FTFY
- tylerhou 6y ago
  No, the $100,000 commitment represents the opportunity cost compared to a higher paying job. That is, if the distinction is between: 1) $150,000 + 0.1%, or 2) $250,000 Picking (1) would equal trading $100,000 for 0.1%.
- madamelic 6y ago
  0.1% on top of $60,000 in pay. Or if you are lucky to join later, 0.01% on top of $100,000.
blobbers 6y ago
This is so true, and incredibly frustrating. I joined a start up as the first employee, and the amount of equity they gave me was ridiculous. I got blinded by the notion of them raising a large amount of money and hiring at a rapid pace; the reality was they failed to raise an A round, then diluted employees despite giving a better valuation for their seed "friends and family" round. When confronted just talked about how that was the business. Was super frustrating. Once I realized how the CEO operated, I left. I waited for my 1 year cliff though.
borski 6y ago
Early exercise and ISOs fix a lot of these problems.
laser 6y ago
I think startups would have a lot easier time recruiting great people if they offered Stock Appreciation Rights [1] instead of typical options. I didn’t even know SARs existed, they’re so non-standard in the startup industry, until as a founder considering an open-ended hiring offer for the first time I desperately looked for some legal upside compensation system that wouldn’t screw me in all likely scenarios. Stock would mean tax bill upfront with high chance of failure. Options would likely expire before I could securely exercise and liquidate to cover costs. I ultimately decided to stay the founder course, but glad to have found what I think is an acceptable compensation structure. Even if requiring it adds friction to deals until docs are standardized, at least people should know it’s an option. I’d be curious to understand if anyone has found a downside, except to the investors that build these anti-employee systems to arbitrage on knowledge asymmetry. [1] https://en.m.wikipedia.org/wiki/Stock_appreciation_right https://en.m.wikipedia.org/wiki/Stock_appreciation_right
- a13n 6y ago
  One downside here is that SARs are taxed as ordinary income. This means you might end up paying 30-50% taxes instead of the 15-20% long term capital gains rate you'd pay on ISOs, RSUs, or selling shares from exercised NSOs.
  - foobiekr 6y ago
    Also, I don't think there's a secondary market option for SARs or similar.
codingdave 6y ago
The last time I got hired into a startup with options, they didn't tell me what percentage of equity the options represented, they just said, "You get 50K." I didn't even ask for any more details because their choice to give numbers instead of a meaningful metric made me think to myself, "OK, so I'm deciding whether to take this based solely on salary, and anything else is just a future bonus, not a deciding factor." I did take the job, but never banked on the options. To me, failing to give you all the information isn't a deal-killer on a potential job. But it should flavor your approach to the job, and help you decide exactly how committed you are to the work.
- rosywoozlechan 6y ago
  I never even think about options. They're a non-factor when deciding to work at a startup or any company. I don't even know why they bother to give them out. As an alternative to tiny options they could opt to give people a bonus on acquisition or IPO or find some other incentive to keep talent. I'm honestly more interested in 401k contributions.
olliej 6y ago
yuuuup. This is the reason I won't work for startups. If you want me to take a below market rate job then I'm an investor, and you can treat me as such. I would argue early employees are investing much more, $ for $ than any VC.
yalogin 6y ago
Are these terms for stock any different for even the first 20-30 employees? Or are they also get the same terms? Why do people say being the first 20-30 employees in a start up is good?
- cybersol 6y ago
  The terms are often the same, but the percentage is more like 1% than 0.1%. Also the easy way up the management chain is to be a warm body in a rapidly growing company.
fredgrott 6y ago
I ran into this example recently by some startup in Las Vegas, job said junior flutter dev at $80k plus corp apt paid oh BUT no relocation expenses paid you have to move out their with just your clothes on your back and yet they are still looking past their Aug 1 deadline because they thing they will find a senior flutter dev on those terms..
wskinner 6y ago
For those in the comments who are confused about how various equity compensation schemes work, the best guide I'm aware of is https://www.holloway.com/g/equity-compensation/about https://www.holloway.com/g/equity-compensation/about. It covers all the common types - RSUs, NSOs, ISOs, 83b elections, and more.
- htrp 6y ago
  This is a great resource. Only annoying thing is the constant prompt to login with your social accounts.
rexreed 6y ago
The oft-cited quote is that it's very, very, very rare to make money working as an employee at a Startup. The farther you are away from the founding team, the harder it is. And 99 times out of a 100 even the founding team doesn't make anything, if there's an upside exit at all. If you want to work at a startup as a non-founder employee, go into it knowing that you're taking the risk and getting little of the potential upside reward. If the pay is good and you like the company and the work, then do it. But any stock options will be mostly meaningless. I wish Founders would just let Employees participate in seed stage financing and be in with the same terms as early investors if the employees want to truly risk it.
- Shorel 6y ago
  Your last sentence is key. I think it was a way of financing enterprises some centuries ago. Why is it no longer accepted?
  - rexreed 6y ago
    Yes it's a curiosity. I mean it makes sense. Let's say your salary would be $120k plus $30k in stock. Rather than giving you stock as options, you could just be given that stock as equivalent value (subject to a vesting schedule) and on the same terms of the Seed Round. No money out of pocket... am I missing something?
eximius 6y ago
This thread has reminded me of a concept (whose term I am struggling and failing to remember) that is as important, if not more, than what is traditionally thought of as the cap table. In the case of a sale, investors with <this term> would get their money back (possibly at an inflated ratio) before the rest of the money from the sale is distributed via equity. This is important because it means that even if you get favorable stock terms, you might still be screwed (or at least disadvantaged) if there is no money left after this money is paid out. Can anyone remind me of the term?
- amsilprotag 6y ago
  Preferred stock? Priority?
- plasma 6y ago
  Liquidation preference
  - eximius 6y ago
    Ah, yes, I think it was this. The startup I left had unfavorable liquidation preference seniority for employees (standard) but most of the investors had a liquidation multiplier. https://angel.co/blog/liquidation-preference-your-equity-could-be-worth-millions-or-nothing https://angel.co/blog/liquidation-preference-your-equity-cou...
- xondono 6y ago
  Seniority?
- jbay808 6y ago
  I believe those are the "preferred shares" that the founder in the article declined to offer to the investor protagonist.
a13n 6y ago
It's interesting that this post is falling off the front page so quickly. At the time of writing it has 537 points and is 8 hours old. There are many above it with much fewer points, that are much older (eg. 127 points, 12 hours). It makes me wonder if YC intentionally penalizes posts like these, because ideas like these make it harder for their portfolio companies to hire employees.
- pyrophane 6y ago
  I believe it penalizes articles that have a large number of comments relative to votes.
  - laser 6y ago
    That doesn't hold explanatory power in this case, look at the points, comments, and age. For "Modeling a Wealth Tax", "Canon's Cloud..." and "If founders treated...": https://www.dropbox.com/s/vk1i2q8mlbs5x2s/Screen%20Shot%202020-08-18%20at%205.12.58%20PM.png?dl=0 https://www.dropbox.com/s/vk1i2q8mlbs5x2s/Screen%20Shot%2020... I'm also suspicious, although most suspect as sibling comment to yours suggests, that it's likely something automated rather than malicious. Perhaps there's too few comments?
- kevinskii 6y ago
  It's a good question, but Sam Altman has written about the need to compensate startup employees more fairly (see the link at the bottom of the article). Also, these types of "startup equity is worthless" articles tend to pop up frequently on HN, where they often linger on the front page for hours and generate the same discussions in the comments. If this article is being penalized at all, that's probably the reason. HN generally penalizes articles about recurring topics. I suspect YC realizes it's in their best interest for their portfolio companies to be fair and transparent in their equity offers.
TedShiller 6y ago
Well, employees are not investors, even if the author is implying that they should be the same, or should be treated the same. Employment contracts are at-will, nobody is forced to agree to compensation. Of course, if the compensation is horrendously unfair, the top talent will not accept it.
- ClumsyPilot 6y ago
  > Employment contracts are at-will, nobody is forced What is the point you are making here, other than stating the obvious? It's the same for investment, what am I missing?
  - TedShiller 6y ago
    The point was that it's a free market, like it or not. Companies won't treat investors the same as employees. They never have. If they do, let me know.
faithfulcat 6y ago
I have a question on this. I am employed in a startup since the last 3 years. I already have 100k shares vested (5 year window, 3 years passed). I can buy them at a low strike price (<$100 for all shares). However, I think that when I buy the options, I'll have to pay the tax on the amount? What happens if I don't pay the tax but just buy the options? Will I lose my options because I haven't paid the tax?
- bialczabub 6y ago
  In the US, any stock held past December 31 of the year in which it was obtained by exerciing an ISO (the most common kind of startup option) generates "income" according to the Alternative Minimum Tax (AMT). AMT is essentially a completely different taxation system that runs in parallel to regular income tax in America. If the shares you exercise are worth a good amount, you will probably wind up paying AMT, especially if you live in a place with high state and local taxes. After calculating your tax liability for both systems, you have to pay whichever is larger of regular income tax or AMT. Usually this payment, or part of it, comes due April 15th of the next year. Your company is not involved in your reporting and paying these taxes, but it's a federal crime to either misrepresent your income (which omitting the exercise from your filing would be) or not to pay the appropriate taxes. If you haven't realized yet, a lot of this is complicated, so do your own due dilligence and/or work with a tax professional. The AMT tax rate is 26% or 28%. The "income" considered by AMT for exercising and holding is equal to the difference between your strike price and the fair market value (FMV) of the stock on the day you exercised. FMV is based on a 409a valuation for companies that are still private. For public companies it's the market price for the stock on that day. I'm not sure what you mean by your having "a low strike price (<$100 for all shares). For 100k shares, a strike price of $0.001 would cost $100 to exercise 100k shares. To make the math easy, I'll give a hyptothetical... You have 100k vested shares with a strike price of $0.10. The company has done well for the past 3 years and now has a FMV of $3.10 per share. To exercise 100k shares, you would need to pay $10k. However, if you're still holding these shares on 1/1/2021, you will have an AMT tax liability due 4/15/2021 of ~28% * ($3.10 - $0.10) * 100k = $84k. Now it's weird how AMT works, so the above number isn't exactly what you wind up paying, but it's close. In general, the case stated above implies you would owe a sizeable amount in taxes if you exercised and held the stock. People do this if they're leaving a company and their options will otherwise expire, or if they strongly believe the company will IPO or be acquired soon. Exercising starts a clock on the stock you're holding. If you hold the stock for a year after you exercise, your earnings will then only be taxed at the long term capital gains rate (probably 20%) rather than the ordinary income tax rate (usually higher than 20%). Earnings are the sale price minus the strike price (what you paid to acquire the stock or your "cost basis"). The downside of exercising now is 1) you have to pay cash to exercise, 2) you will generate a tax liability without necessarily having a way to sell your stock, and 3) if the price of the stock falls, the AMT you paid winds up being an even greater percent of the value. There is a way to receive credit on future tax bills for previously paid AMT tax that wound up like this, but it's complicated and best to be avoided. The upside is mostly to obtain the a lower tax rate on the eventual sale. Most employees still with the company who didn't exercise their stock early don't exercise it until they plan to sell it.

679 points by whack 6y ago

> Investor: So, 0.1% of your ($10M) company works out to $100,000 Isn't that actually $10,000, or is there some startup valuation math that I'm not aware of? EDIT the article has since been updated with new numbers, and the math now works out as expected

drcoopster 6y ago
Read the rest of the article.
- Bailin 6y ago
  I did before I posted, and the rest of the article didn't explain that disparity at all. That being said, it looks like the article has been updated to use new numbers now.

seibelj 6y ago

Valid reasons to work for a startup: - You are a cofounder. - You have little experience and you are using this to break into the industry, and get experience on many different technologies ("wear many hats"). - They are working on a very specific problem or using a specific technology that you strongly desire to work on and it's difficult to do it anywhere else. - You want to work a certain way (remote, on the beach, whatever) and they are willing to go this route. Invalid reasons for working at a startup: - Getting rich off stock options. - Making a lot of money in salary. - Work / life balance. - Stability.

kristopolous 6y ago
For me I'm far too naturally transgressive to work at a large company. I really wish I could, life would be easier, less work, less stress, pay better... None of them will take me so I keep help building and (sometimes) exiting startups. It's really exhausting. 20 years of this... I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently follow it instead of challenge it. I've honestly thought about figuring out how I could put things on ice for a few years and get a PhD, because then I'd have the proper paperwork to allow for my disposition and could finally stop this exhausting startup life.
- WaxProlix 6y ago
  You should get a therapist (or a life coach?), these sorts of problems are rarely confined to just the work space.
  - kristopolous 6y ago
    Yeah, probably. It's certainly worth giving it a go.
- knodi 6y ago
  Do you mean transgressive as another word for asshole, in interacting with your coworkers?
  - kristopolous 6y ago
    No not at all. Nobody has ever quit under my management. People quit bosses, not jobs and I've always kept my people. So I think I've been pretty good
- bluntfang 6y ago
  >I wish more companies would value those who "challenge the book" instead of "follow the book" or that I could find a way to obediently follow it instead of challenge it. it sounds like you've identified a personal problem with a clear goal, the next logical step would be to shop around therapists who think they might help you achieve that specific goal. and i think it's very important to shop them. Maybe even read a few books on how to find the right therapist for you. It's important to not get stuck on one who you don't like or who isn't interested in help you the way you want to be helped. I've found with therapy that sunk cost fallacy is real when you've found one that really doesn't fit with your goals.
- dannykwells 6y ago
  So I have a PhD, and do empathize with being "transgressive", but I'll say I think it's less about the PhD than it is about being right. If you are bull headed and drive really hard in a new area, you better be right because you are taking responsibility and accountability for that area (whether you think you are or not). High risk, high reward - sound familiar? This is true at Google, at startups, in academia. So it's really more of a personality thing - if you're ok being obedient, you also don't need to bear the stress of accountability. But if not, well, no degree will alleviate that stress.
hitekker 6y ago
I'd add "Mental Health" to the bottom list.
thinkingkong 6y ago
The invalid reasons are all accurate. The only challenge is (almost?) everyone has a friend or colleague that worked at Slack or Uber and made stupendous amounts of money; far in advance of what they would get at a FAANG. It doesn't take into account luck & risk, but this kind of casual relationship with successful startups colours peoples expectations in a different light.
- novok 6y ago
  You might of made a stupendous amount of money if you worked at Uber 2014 or sooner. 2015 or later and you had a stock that was flat or worse for 5 years at this point.
- brogrammernot 6y ago
  How much money do you actually need though? I’ve worked for 5 startups now and my equity payout has been 0, 0, 0, 0, and now I stand I make low 7 figures from the equity on this last company (publicly traded now). During those startups the following happened: - I saw my nieces and nephews so little they forgot my name. They were young, sure, but it still stung when they look at you like a stranger - Messed up a 8+ year relationship with my significant other and we haven’t talked in years - Let my student debt pile up to take on more equity than salary (dumbass idea for the record) - Lost friends along the way because I could never do anything - Missed many family/friends birthdays as I was working - Worked 80 hour weeks for a long time What did I feel after I saw my equity/stock rise to above 7 figures? Stupidity. I gave up a lot on my journey and money can’t get it back, in fact, the money I stand to earn doesn’t enable me to do much more than what my salary already does. I can travel, eat well, have luxury goods if I want (I’m not that type of person but anyways), and so forth. My point being that this was a.) self-inflicted and b.) not worth the combined opportunity cost of all of those years. So for every “friend” who made lots of money at Uber or other places, there’s a story like me or a story where someone’s never made anything from equity because profitable exits are fucking hard
  - 9erdelta 6y ago
    Working ridiculous hours at a startup (I can barely remember anything from 2016) really drove home to me that time is way way way way way more valuable than money. Use it wisely (unfortunately wisdom is hard to get before the time has been wasted). Took a few years to get out of startups but I'm out (ish) now and I'm way more picky about how much time I'll work on something these days.
ignoramous 6y ago
See also: https://danluu.com/startup-tradeoffs/ https://danluu.com/startup-tradeoffs/
maps7 6y ago
I would like to work for a startup as a way to move/improve my stack but looking at some startup job postings show that they want Googler-tier devs with decades of experience while paying nothing
- goatherders 6y ago
  What they want and what they end up hiring are very rarely the same.
- bb88 6y ago
  I would recommend going the consulting/contracting route. Mostly because you get to see how different companies approach problems. When you move from company to company you take the best ideas forward.
nogabebop23 6y ago
to add another valid (yet totally invalid) point: You want an impressive job title. At an established company you're going to be a Software Developer or Engineer level n; at a startup you can easily be Lead, Director of or even a VP if that's important to you.
- MaxBarraclough 6y ago
  Is there such thing as an impressive title, in software development, if the company is unheard-of? This is a sector where people with no relevant formal education and three years on-the-job experience sometimes get called senior.
  - nicoburns 6y ago
    To be fair, "senior" doesn't seem to be particularly high up the ladder of job titles at tech companies these days. You get titles like "lead", "principle", and "staff", which are all considered more senior than senior. At the end of the day, job titles are mostly for getting past recruiters. Interviewers (if they're any good) will judge you on your actual experience and capabilities.
- drchopchop 6y ago
  That can be important, especially if you've been "under-titled" at your previous job and need to reset yourself on the career ladder. It's a lot easier to go from senior -> lead -> VP -> CTO by jumping into the startup world than it is to climb the ladder at a megacorp.
  - marcinzm 6y ago
    Sure but everyone knows the titles are inflated so it only matters if you plan to stay in startups perpetually. Megacorps won't pay any attention to your inflated title. edit: And I've seen interviewers pause at such titles and comment "are you sure you want to work here, we can't offer you as nice of a title." So it may count against you even.
skrebbel 6y ago
Frankly I'm getting tired of this drum HN keeps beating about startups not offering a good work/life balance. Some startups don't, true. Some FAANGs don't either, what's the difference? I know plenty of startups that have a sane working culture as a key point of differentiation in the job market.
- drchopchop 6y ago
  Agreed, I am 40+ and am a CTO at a startup which has great work/life balance. We pay approximately market (for a normal dev job, not FAANG), haven't had people do overtime in well over a year, are transparent about finances, and have practically zero politics. It is also possible for a startup to be "stable", especially if it's bootstrapped/profitable.
  - high_derivative 6y ago
    'have practically zero politics' tingles my bs-meter. How would you know how your employees feel about this? There is always politics. Of course not for the ones who cannot be promoted further, but for everyone else. My boss not acknowledging the existence of politics would be a red flag to me.
    - deleted 6y ago
      [deleted]
    - hehsjsbb 6y ago
      Politics isn't just about promotion. It's about what kind of work people get to do, whose opinion is respected, etc. I don't care about getting promoted in my current role (at a small start-up where the eng org is flat), but I'm miserable because there's obviously a clique of people who are "trusted" and take over the technical direction of anything interesting. What's left is basically just implementing their ideas and then having them rewrite it on you or nitpick it in PRs until they practically wrote it.
      - giantg2 6y ago
marcinzm 6y ago
> - Making a lot of money in salary. Startups pay more in salary than non-tech non-finance companies do in total comp. Startups that are far enough along (pre-IPO Uber, Lyft, etc.) pay more than FAANG (the RSUs aren't liquid but you need to only wait a year or two).
- deleted 6y ago
  [deleted]
- trimbo 6y ago
  Uber employees who joined in 2015 actually saw their RSUs decrease in value by the time the lockup ended in 2019. 4 years of working at a pre-IPO unicorn for negative growth. Heard this from multiple people but here's an article: https://www.financialsamurai.com/how-uber-employees-failed-to-get-rich-off-the-uber-ipo/ https://www.financialsamurai.com/how-uber-employees-failed-t...
  - marcinzm 6y ago
    That depends totally on the RSU package they got when they joined. Negative growth if the package was 50% higher than their previous or FAANG comp is still a net gain.
    - pb7 6y ago
      This is true and was the case for some people but if you had taken an Uber offer, for example, to Facebook or Google, they would have matched it.
    - trimbo 6y ago
      If it was 50% higher when they were hired, they still probably made less. All FAANG stocks climbed 100+% over the same timeframe. Amazon, 500%. [Edit] But... I think you might have missed the point. The reason to join a pre-IPO company is to make far more money post-IPO when the stock rises. Joining Facebook in 2008 or Google in 2000 would be equivalents here, and those people became very, very wealthy on the day of the IPO due to this pop vs when they joined. Uber employees who joined 4 years before IPO had their stock drop instead.
Swizec 6y ago
Personally I like to work with startups because: - they pay more than enough for my near-term financial goals - the equity is ok - they let me work on sidehustles - I get to work on stuff that is truly make or break for the company, not some bullshit pet project a PM needs to get promoted
- pb7 6y ago
  Wouldn't it feel like it's a little bit bullshit if the company went out of business shortly after and all that work was for nothing? All of our work is so ephemeral.
  - dilyevsky 6y ago
    Same happens in big cos when sometimes hundreds or more engineering years are scrapped purely because of internal political wars or “reorgs”
    - pb7 6y ago
      That's precisely my point. Startup work is not any more meaningful or everlasting than work at a big company. GP claimed PMs at big companies only come up with meaningless work but I think the work is meaningless almost everywhere. Every human needs purpose but pouring yourself into something that is very likely to have so little permanent impact seems foolish. I think there is a desperate call for balance in life which is why work-life balance provided by stable companies is valuable, not because the work you do there is any more or less important than a startup.
      - dilyevsky 6y ago
        I disagree - it’s just way harder to come by any meaning in the corporate world than it is in startup. Startups have to assign meaningful work to everyone they hired or they die. Not so for big (or even medium) corp so they have to play the “work life balance” card so you don’t blow your brains out from boredom. Ofc that also means big cos are more welcoming to people who didn’t want anything to do with their work in the first place and just in it for the paycheck (nothing wrong with that) and it’s always a spectrum.
lkbm 6y ago
Main reason: it's more fun. I could be a cog in a giant corporate machine, or I can have a measurable impact where I work. I can stay in my lane and do my specific job tasks, or I can run around putting out fires and helping wherever help is needed. I mindlessly build the specific design product handed me, or I can guide my own work in accordance to the needs of our customers and the business. I can follow policy and fill out forms when making any decision, or I can just do what's right because who has time to write policies and look over approval forms? tbf, tech is relatively good at a lot of these. As I understand it, Facebook gives a fair bit of latitude to engineers, and Google used to be famous for their 20% time. But the longer a company exists, and the bigger it gets, the more bureaucracy and controlling it'll get. Every big disaster means a new policy on how to prevent future disasters. I think pg wrote an essay stating that the most valuable skill in an early startup employee is "helpfulness" (maybe not though -- cursory search didn't find it). You do what needs to be done. This is roughly your "wear many hats" point, but more than just different technologies, and not just being new. If you just want to have a well-defined, steady, sane-every-day job, a startup is terrible. If you every want to say "that's my job", a start-up is terrible. If you're the sort of person people will come to for help with whatever comes up (and enjoy being that), start-ups can be great.
- episteme 6y ago
  I'm not sure you can say the startup impact is measurable either. You certainly can't measure it by monetary value. Mindlessly building what is handed to you is a culture problem and not a company size problem. Some startups have less freedom than some corporations but both usually grant more freedom to more senior people. You can still 'wear many hats' at some mega corps too, if the company only has 'engineer' as a title then you are expected to basically do 'everything' . The team you are on will decide what the balance is though. I think all of what you said could apply to both sizes of the companies.
- vlunkr 6y ago
  Both of these comments make good points, but are two ends of a false dichotomy. Not every startup is going to have horrible work/life balance, and not every job at a big company is going to be boring and soul crushing. And there are all sorts of jobs in the middle and to the side of this spectrum.
mac01021 6y ago
I worked as a software engineer for a large media company, outside of any tech hub. I switched to working remotely for a San Francisco-based startup because they offered me a 30% raise over what my current employer was willing to pay. Two years later, when working for the startup became less palatable, I went back to my old company. My manager there struggled with the HR dept as hard as they could and got them to just match my startup salary in order for me to come back. Which I guess is just to say the parent comment is not universally correct.
znpy 6y ago
So far I stayed away from both startups and consulting companies (Accenture, NTT Data and similar) and it went fairly well. One day I'll reconsider this choice, probably when I'll have a bit more of financial stability (read: bought a house and paid it in full) and can afford some more risk. Most people seems to overlook the fact that most startups die within a year, and some more startups drag a long death march before dieing. You might have fun or do crazy interesting things, but if the company goes bust it might not be pretty. For the moment, I'll stay conservative about this kind of things.
johncolanduoni 6y ago
I mean, making a lot of money in salary is a very valid reason if they actually pay you a lot of money in salary (it does happen).
KorematsuFred 6y ago
I have learned this hard way.
biztos 6y ago
I've seen people hired into startups that just got their A-round and they made sub-FAANG market rate plus whatever crazy stock incentive they agreed to. And the exit strategy was usually acquisition by FAANG anyway. So I would add as a valid reason: - Startup will pay you as much as anyone else, and won't be boring. Caveat: may only apply to early hires!
dinht 6y ago
Certainly you can get a considerable amount of salary, depending on your angle of working in a startup. In the recent career changes, I often look at 1-2 years old start-up where tech side has been rather stagnant. My angle is clear -> getting stuffs done, move the tech forward and make sure it is aligned with the company's direction But this is not enough for founders to have a peace of mind regarding your commitment. - If you have already built a reputation, then that's enough for you to argue for a market rate salary. - Else you would need to trade for some equity. What are you getting out of this compared to a corp job: - The work is likely more interesting. - Away from corporate landscape (if that's not your thing) - Gaining experience in new domain, doing thing in new ways.
doopy1 6y ago
I work at a startup, not a co-founder, salary is not amazing, but pretty good - most I've ever made. Work life balance is also the best I've ever had. Just my data point.

sambroner 6y ago

Good read. I like the new story format to rehash the lively startup vs big tech employment debate on HN. It could almost use a part 2 to explain aspects of the conversation (how is the employee making a $300k investment, preferred stock, etc), but I don't think anyone is missing the joke. The story format makes it clear how employees are getting a worse deal than investors. Still, employees receive cash dividends every few weeks (a salary), isn't that a positive?

adoxyz 6y ago
A salary =/= dividends.
jdauriemma 6y ago
I think the major distinction between salary and dividends is that the latter requires no labor.
kilotaras 6y ago
> Still, employees receive cash dividends every few weeks (a salary), isn't that a positive? People are usually foregoing part of the salary in lieu of options. e.g. $25k paycut (really conservative compared to FAANG) will come up to $100k over 4 years. One can consider those $100k as cost of options you get.
neltnerb 6y ago
The employees receive "cash dividends" that are typically lower than market rates for a salary plus the second they leave for a new job they will likely end up creatively shafted out of the difference in salary they effectively invested in good faith. Because they're not working there anymore it's "demoralizing to others" if they retain the ownership that, again, they invested a part of their salary for in good faith. You've probably heard that one before. It is absolutely outrageous to tell an employee that they're getting paid less in exchange for equity and then turn around and declare that the equity doesn't count the same as if they got paid market rates and just invested a portion of their salary.
PeterisP 6y ago
Quoting the original article, "If you’re taking a $X pay cut to join a startup, you’re really investing $X in them. Far be it from me to tell you how to spend your money, but make sure you’re happy with what you’re getting in return." The appropriate consideration when working for most startups is not that you're getting a cash dividend, quite the opposite - it's equivalent to the startup withholding a significant amount from each paycheck, and "buying" options/stock/whatever with that withheld money - you honestly earned that money, but you're not getting cash but something else instead. Is that something else a good value for that money?

shehryarrr 6y ago

That 90-day expiry window is the most archaic bullshit. Can't come up with 200K cash? Too bad, and thanks for all that hard work and long hours you put in.

virgilp 6y ago
Another thing that may be hard to understand for non-US citizens. For me, exercising options costs me just that, the option price + bank fees; I owe no tax. I have to pay full tax when & if I sell the shares. This seems like a much fairer taxation regime - I pay tax when I earn something - just having un-sellable shares didn't suddenly increase my wealth. With this, it actually makes sense to exercise options and stay employed at the startup: you now may not be qualified as a short-term seller when you sell the stock, since you held on to it for a while.
- jagged-chisel 6y ago
  One should exercise at the earliest possible convenience. If I'd exercised on day 1 when I joined a startup, I wouldn't have owed tax because I wasn't getting a discount, but a locked-in price. So when I exercised after the value increased, I then owed tax. I've seen it suggested that one should exercise on day 1. But that doesn't have to mean you pay for them immediately (after all, you don't get to keep them immediately - you have to wait for vesting...), so you work out a payment plan with deductions every paycheck so that you've pay fully for whatever is vested at the time it vests.
  - jasondelta 6y ago
    Or one should never exercise at all until an acquisition or an IPO happens. I've seen too many people exercise stock options trying to minimize tax implications down the road, only to see them eventually leave the company for any number of reasons and they end up get heavily diluted to almost nothing in future rounds. All that money basically down the drain trying to chase long term capital gains vs regular income tax rates when the likelihood that they'll make anything is extremely low. Everyone's risk posture is different, but considering how few startups are actually successful, I would argue it's better to just assume the options are worthless and just deal with the regular income tax situation if you get lucky enough to be around during an IPO or acquisition.

nautilus12 6y ago

This hits me right in the tendies. How many times have I had this conversation to no avail

mdnahas 6y ago
I think I had this conversation word-for-word with one company. I told the CEO my salary demand and he could pay me in cash or in stock at the previous valuation (which had happened a week earlier, so I knew the price and that they had cash). He just kept blowing smoke at me. I decided I couldn't work for someone who lied to me (or, perhaps, believed his own BS?).

brd529 6y ago

Bravo bravo bravo! This piece neatly encapsulates all the problems with ISOs. The biggest one is mentioned at the beginning - information asymmetry. I don’t really understand why most companies, especially small ones less than 100 people, can’t be transparent about their cap table with employees. I do think the culture around 90 day exercise Windows is changing. Here is a list of companies with extended windows [1]. At this point I would never join a company with 90 day windows. [1] https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows

alecbenzer 6y ago
AFAIK the 90 day thing was more of a legal thing than something the companies themselves wanted to enforce?
- brd529 6y ago
  It's true that a company can't issue ISOs if the termination window is more than 90 days, they have to be NSOs instead. IMO the downside of the NSOs (pay tax immediately upon exercise instead of at next year's tax deadline - ISOs don't actually change the amount of tax that is due, just the timing of when you pay it) is small compared to the very real risk that your options will go poof if you don't have the cash to exercise and pay tax if there is a termination event.
  - rsanek 6y ago
    Startups can easily opt to convert ISOs to NSOs after the 90 days -- but of course, they typically do not.
- C1sc0cat 6y ago
  The UK is much better in this regard as the HMRC has rules for approved option schemes - I have EMI shares in my current employer
- rsanek 6y ago
  No, by law ISOs just convert to NSOs at 90 days. Startups themselves decided to expire them, there is nothing preventing them simply allowing them to change. You get worse tax treatment, of course, but at least you get to retain the ability to participate in the upside.

seibelj 6y ago

I missed over $1 million in options when one of my former companies was acquired. I still made good money but nowhere near the same. I was pretty sure it was going to sell, but I didn't know how long it would take (over 1 year for sure) and nothing in life is guaranteed. If I had exercised all the options I would have had over $300k in paper gains for a tax bill. Instead I exercised 10% of what I had the ability to exercise. This is one major reason I will never work at a startup again unless I am the cofounder.

sky_rw 6y ago
Depending on the size of the startup at the time you join, I found it fairly easy to negotiate an extension to the exercise window. Likely because so few people even bring it up.
- seibelj 6y ago
  There was 0% chance of that occurring as the CEO was a total shark. You would be shocked at how much of the cap table he retained vs. all the crazy funding shenanigans that happened. Very astute player of the game, he did very well. I will invest in his future companies but never work for him again.
  - eli 6y ago
    Why is it ok to fund that behavior if it’s victimizing people?
    - seibelj 6y ago
      I was an employee not a cofounder. I agreed to the terms. He will do anything to succeed. I invest money in people who succeed. That is my opinion about where I will place investments in hyper-risky early stage startups. The biggest jerk in this whole thing is the USA tax code / IRS that made me pay taxes on paper gains.
  - tehlike 6y ago
    Can you name the company, I'm curious

readams 6y ago

Don't forget: Even if they are a unicorn, they won't IPO for 15 years and you'll be trapped because you can't afford the taxes to leave the company. Imagine working for Palantir.

zebrafish 6y ago

Isn't this capitalism? Labor and capital are two different factors of production. If you're willing to take the pay cut and risk associated w/ joining a startup, but are unhappy with the returns, why wouldn't you just keep your job, invest the $100,000, and get access to the preferential terms given to capital?

ahelwer 6y ago
Good luck investing in private companies with $100k. The only way us serfs can get access to those opportunities is to chain our futures to the company and go work for them. Also means we can't diversify our portfolio like the VCs can.
- C1sc0cat 6y ago
  Are there no listed PE funds
- icedchai 6y ago
  You can diversify by investing in public markets, where you have actual liquidity. I've made more off of the Facebook stock I bought after the IPO than I have from any of the startups I worked for. One did have a "successful" exit, meaning the returns were positive, though nothing to write home about. I would've been better investing that money into Apple or AMD. All the people complaining about their worthless stock options need to realize that generally, the investors all got screwed, too.
  - ahelwer 6y ago
    The whole thesis of VC funds is to invest in many companies and have a few home runs drive returns. VC-backed companies failing is just the cost of doing business in a random extremistan world. For programmers it's as you say - either nothing, or at best "nothing to write home about". Unless you win the lottery.
    - icedchai 6y ago

GoodJokes 6y ago

It’s like you all rediscover capitalism from a medium posh every two weeks.

draw_down 6y ago

If you go in buying the hype you’re a mark, but it does happen. I think people here are in such a hurry to devalue equity compensation that they forget there can be an upside, maybe a big one. I took my current job because they were offering what I was already paid, plus a better workplace as well as options that, at the time, seemed like they could be a nice bonus. Over the next couple years they gained a lot of value, and I recently sold a fraction of my holdings for several hundred thousand dollars. So I dunno, maybe not everyone holding “lottery tickets” is a rube.

motohagiography 6y ago

This is perfect. I looked at working for startups as though I were an investor, because while an investor is putting maybe 1/30th of their fund into a company, I'm putting %100 of my time into it and it will be my sole source of income and wealth, which means I have way more to lose as an employee than someone who YOLO'd a few million of hedged, other people's money into it. As an employee, my risk/reward has fixed upside (+lottery tickets) and an asymmetric downside that includes opportunity cost. Most people are just doing jobs, and that's how they manage, but money is made in direct inverse proportion to how much physical work you do. If you are doing work, you are rarely providing as much value as someone delivering just the value of yours and others' work. Arguably, the most value is provided by people who do the breadth-first search for opportunities than the depth-first search for technical "solution" leverage. A company needs both, but as the post implies, figure out if you would invest in a company before deciding to work for them.

StreamBright 6y ago

Some of these problems are coming from the reason that many of the startups are unicorns, with other words pyramid schemes. https://www.forbes.com/sites/forbescommunicationscouncil/2017/05/22/startup-unicorn-or-corporate-ponzi-the-telltale-signs/ https://www.forbes.com/sites/forbescommunicationscouncil/201... https://www.linkedin.com/pulse/how-tech-startups-behaving-new-age-ponzi-schemes-kirti-dixit/ https://www.linkedin.com/pulse/how-tech-startups-behaving-ne...

colinrand 6y ago

A few things I have noticed missing from discussion of why/why not to join a start up is prestige and lineage. Early engineers from start ups that get traction carry an aura of prestige (warranted or not is a separate question) that they were witness to 'something special' that happened. Second is lineage. Like it or not, cohorts of engineers often stick together and create informal networks that help populate their careers with better opportunities in the future. Going through the crucible with a team is a great way to form bonds that can last decades.

dpeck 6y ago
The first part I’d say is even less likely than a big payout. That is only going to be true if it’s at a very well known consumer brand or just within a very specific niche

bjornsing 6y ago

This is the first “employee perspective” criticism of equity incentives I’ve read that makes perfect sense. Hat off for that! :) Sadly in the country where I’ve founded startups (Sweden) the government mandates that the terms must be really shitty, or there are immediate tax consequences that somebody has to swallow.

C1sc0cat 6y ago
Strange Sweden has a strong private investor culture possibly employees should be lobbying for a change in the law.

goatherders 6y ago

I was employee ~150 at a company that essentially had it's exit event with a massive GE investment a couple years ago. DUring that investment, employees were required to sell their stock/options. To the credit of the VP who hired me, the result was exactly as he had told me: "when this company has it's event, you'll likely get enough off your options to put the kids through college or for a big down payment on a really nice house. But the only people who will sniff 7 figure paydays are the VP/C-suite and the only person getting rich(er) is the CTO/founder."

mdorazio 6y ago

Always absent in these kinds of essays/posts is the reason why startups are able to get away with this. If it didn't work, obviously the options games would have stopped a long time ago. A lot of people don't want to admit that there's a small army of young, naive employees who are enamored with startups and are perfectly willing to sign up for below-market salary and extremely unfavorable options terms in exchange for "the startup experience". And importantly, this small army is constantly renewing itself. Repeatedly bringing up how much the game is rigged doesn't really do much to change anything.

troughway 6y ago
Backed by Hollywood propaganda, and really propaganda from most tech news outlets as well.
qntty 6y ago
It's also possible to pass laws that protect employees
VRay 6y ago
> Repeatedly bringing up how much the game is rigged doesn't really do much to change anything. Au contraire! I stumbled across one of these semi-monthly kludgeposts with a comment section full of angry people early in my career, and it helped me avoid getting mired in any bad startup situations. I think that getting the word out about this stuff is one of the best things we can do, since it'd be really hard to try and legislate this problem away
a13n 6y ago
Options aren't a game. They're preferable to employees, for tax reasons. If startups gave employees shares, then employees would have to pay taxes on those shares, even though they're illiquid - so you're paying taxes on something you can't even sell! Options solve this problem well, by delaying the tax burden until the equity is actually worth something. If it ends up worth nothing, you don't exercise your options and you don't pay any taxes.
- 6y ago

rdlecler1 6y ago

As an investor I don’t ever recall getting a paycheck from a company.

pb7 6y ago
How many hours of work do you do for each company you invest in?

cs-szazz 6y ago

This hits home. I'm a fairly early employee at a unicorn, with no exit in sight. I've talked to the cofounders about extending my exercise window, and got the response of "We can probably do that when the time comes". Of course if that turns out to not be the case, well then I'm now stuck leaving behind a huge portion of my equity to cover the taxes, assuming I can sell to cover. Love that this seems to be getting more popular, hope it becomes the norm for companies in the future.

chii 6y ago
Options being dangled in front of employees to trick them (only later to find out they can't afford to exercise it) is infuriating - it's almost fraud imo.
- cs-szazz 6y ago
  100% agree. I'm in the low 7-figures right now (on paper), and will probably be mid-7 with the next round of funding. So I have 0 chance of affording the taxes if I wanted to leave, and am kind of at the whim of the board if they want to extend my window. It's not a great feeling, especially when you contributed a lot to the company at a very early stage. I am glad there's companies popping up to help with this problem, like ESO Fund, but in my opinion the companies should be trying to fix this instead.
  - nbclark 6y ago
    Without knowing your exact situation, one thing to keep in mind is that the preferred value (last valuation / # of shares) of a share is generally a good bit higher than the tax liability (value of a common share from the 409a minus your strike). Still likely a big tax hit, but perhaps slightly better. IMO changes to tax law for illiquid assets is the best but most unlikely option here.
    - cs-szazz 6y ago
      Yeah it's a good call out, in this case FMV is about 1/3rd the preferred. Sadly the that still puts it out of reach for me, but means I can afford to exercise at least some.

nostrademons 6y ago

So founders do treat some of their investors like this - look at every ICO, and a lot of dumb overseas money, and a good number of friends/family/fools rounds. And conversely, there are some employees that they treat with kid gloves, who basically get the investor treatment. Look at executive hires. The difference is basically two letters: "No". Most institutional investors have the ability and inclination to say no to a deal. Many executives - or even high-level FAANG engineers - have the ability and inclination to say no to a deal. Your average engineer a couple years out of college does not, or if they do, they don't understand the power of declining a job offer. Start your negotiations with "no". Be curious and open to opportunities, and show a lot of enthusiasm during the interview process, but whenever you feel you're treated unfairly, walk away. People will stop treating you unfairly.

smattiso 6y ago
The problem is that some people need money and can't say no. That's why anybody works for minimum wage... The executives and investors and FAANG engineers have all made good money and seen decent RSU terms, you can't pull the wool over their eyes. Someone who is just getting into tech may be allured by a 50k salary and "1 MILLION OPTIONS!!!!" (There are ten trillion in the option pool). I think engineers would do well to know that you are a COST CENTER to the business and the people who run it. They need you to make their product so they can make money but they hire you begrudgingly. You are in their power and they want to take advantage of you by paying you the least they can (shady options awards) and working you as much as possible (why did you slip on this feature you story pointed!!!). Put yourselves in their shoes and you would do the same. Starting a successful business is all about customer growth and making money. If you aren't directly responsible for a part of that then you are a cost. Make sure you are getting paid what you are worth because nothing in this world gets built without great engineers, but the system is run by people who want to have power over you. Be careful.
- chii 6y ago
  > The problem is that some people need money and can't say no. If they need money, and this is the best offer they got, then what's the problem with accepting it? They are still better off than not accepting it.

sharklazer 6y ago

> Founder: Sure. We’re looking for a $100,000 commitment, and in return, you would be getting 0.1% of the company. Founder: Sure. We’re looking for a $100,000 commitment, and in return, you would be getting 0.1% of the company on top of $100,000 in pay. FTFY

tylerhou 6y ago
No, the $100,000 commitment represents the opportunity cost compared to a higher paying job. That is, if the distinction is between: 1) $150,000 + 0.1%, or 2) $250,000 Picking (1) would equal trading $100,000 for 0.1%.
madamelic 6y ago
0.1% on top of $60,000 in pay. Or if you are lucky to join later, 0.01% on top of $100,000.

blobbers 6y ago

This is so true, and incredibly frustrating. I joined a start up as the first employee, and the amount of equity they gave me was ridiculous. I got blinded by the notion of them raising a large amount of money and hiring at a rapid pace; the reality was they failed to raise an A round, then diluted employees despite giving a better valuation for their seed "friends and family" round. When confronted just talked about how that was the business. Was super frustrating. Once I realized how the CEO operated, I left. I waited for my 1 year cliff though.

borski 6y ago

Early exercise and ISOs fix a lot of these problems.

laser 6y ago

I think startups would have a lot easier time recruiting great people if they offered Stock Appreciation Rights [1] instead of typical options. I didn’t even know SARs existed, they’re so non-standard in the startup industry, until as a founder considering an open-ended hiring offer for the first time I desperately looked for some legal upside compensation system that wouldn’t screw me in all likely scenarios. Stock would mean tax bill upfront with high chance of failure. Options would likely expire before I could securely exercise and liquidate to cover costs. I ultimately decided to stay the founder course, but glad to have found what I think is an acceptable compensation structure. Even if requiring it adds friction to deals until docs are standardized, at least people should know it’s an option. I’d be curious to understand if anyone has found a downside, except to the investors that build these anti-employee systems to arbitrage on knowledge asymmetry. [1] https://en.m.wikipedia.org/wiki/Stock_appreciation_right https://en.m.wikipedia.org/wiki/Stock_appreciation_right

a13n 6y ago
One downside here is that SARs are taxed as ordinary income. This means you might end up paying 30-50% taxes instead of the 15-20% long term capital gains rate you'd pay on ISOs, RSUs, or selling shares from exercised NSOs.
- foobiekr 6y ago
  Also, I don't think there's a secondary market option for SARs or similar.

codingdave 6y ago

The last time I got hired into a startup with options, they didn't tell me what percentage of equity the options represented, they just said, "You get 50K." I didn't even ask for any more details because their choice to give numbers instead of a meaningful metric made me think to myself, "OK, so I'm deciding whether to take this based solely on salary, and anything else is just a future bonus, not a deciding factor." I did take the job, but never banked on the options. To me, failing to give you all the information isn't a deal-killer on a potential job. But it should flavor your approach to the job, and help you decide exactly how committed you are to the work.

rosywoozlechan 6y ago
I never even think about options. They're a non-factor when deciding to work at a startup or any company. I don't even know why they bother to give them out. As an alternative to tiny options they could opt to give people a bonus on acquisition or IPO or find some other incentive to keep talent. I'm honestly more interested in 401k contributions.

olliej 6y ago

yuuuup. This is the reason I won't work for startups. If you want me to take a below market rate job then I'm an investor, and you can treat me as such. I would argue early employees are investing much more, $ for $ than any VC.

yalogin 6y ago

Are these terms for stock any different for even the first 20-30 employees? Or are they also get the same terms? Why do people say being the first 20-30 employees in a start up is good?

cybersol 6y ago
The terms are often the same, but the percentage is more like 1% than 0.1%. Also the easy way up the management chain is to be a warm body in a rapidly growing company.

fredgrott 6y ago

I ran into this example recently by some startup in Las Vegas, job said junior flutter dev at $80k plus corp apt paid oh BUT no relocation expenses paid you have to move out their with just your clothes on your back and yet they are still looking past their Aug 1 deadline because they thing they will find a senior flutter dev on those terms..

wskinner 6y ago

For those in the comments who are confused about how various equity compensation schemes work, the best guide I'm aware of is https://www.holloway.com/g/equity-compensation/about https://www.holloway.com/g/equity-compensation/about. It covers all the common types - RSUs, NSOs, ISOs, 83b elections, and more.

htrp 6y ago
This is a great resource. Only annoying thing is the constant prompt to login with your social accounts.

rexreed 6y ago

The oft-cited quote is that it's very, very, very rare to make money working as an employee at a Startup. The farther you are away from the founding team, the harder it is. And 99 times out of a 100 even the founding team doesn't make anything, if there's an upside exit at all. If you want to work at a startup as a non-founder employee, go into it knowing that you're taking the risk and getting little of the potential upside reward. If the pay is good and you like the company and the work, then do it. But any stock options will be mostly meaningless. I wish Founders would just let Employees participate in seed stage financing and be in with the same terms as early investors if the employees want to truly risk it.

Shorel 6y ago
Your last sentence is key. I think it was a way of financing enterprises some centuries ago. Why is it no longer accepted?
- rexreed 6y ago
  Yes it's a curiosity. I mean it makes sense. Let's say your salary would be $120k plus $30k in stock. Rather than giving you stock as options, you could just be given that stock as equivalent value (subject to a vesting schedule) and on the same terms of the Seed Round. No money out of pocket... am I missing something?

eximius 6y ago

This thread has reminded me of a concept (whose term I am struggling and failing to remember) that is as important, if not more, than what is traditionally thought of as the cap table. In the case of a sale, investors with <this term> would get their money back (possibly at an inflated ratio) before the rest of the money from the sale is distributed via equity. This is important because it means that even if you get favorable stock terms, you might still be screwed (or at least disadvantaged) if there is no money left after this money is paid out. Can anyone remind me of the term?

amsilprotag 6y ago
Preferred stock? Priority?
plasma 6y ago
Liquidation preference
- eximius 6y ago
  Ah, yes, I think it was this. The startup I left had unfavorable liquidation preference seniority for employees (standard) but most of the investors had a liquidation multiplier. https://angel.co/blog/liquidation-preference-your-equity-could-be-worth-millions-or-nothing https://angel.co/blog/liquidation-preference-your-equity-cou...
xondono 6y ago
Seniority?
jbay808 6y ago
I believe those are the "preferred shares" that the founder in the article declined to offer to the investor protagonist.

a13n 6y ago

It's interesting that this post is falling off the front page so quickly. At the time of writing it has 537 points and is 8 hours old. There are many above it with much fewer points, that are much older (eg. 127 points, 12 hours). It makes me wonder if YC intentionally penalizes posts like these, because ideas like these make it harder for their portfolio companies to hire employees.

pyrophane 6y ago
I believe it penalizes articles that have a large number of comments relative to votes.
- laser 6y ago
  That doesn't hold explanatory power in this case, look at the points, comments, and age. For "Modeling a Wealth Tax", "Canon's Cloud..." and "If founders treated...": https://www.dropbox.com/s/vk1i2q8mlbs5x2s/Screen%20Shot%202020-08-18%20at%205.12.58%20PM.png?dl=0 https://www.dropbox.com/s/vk1i2q8mlbs5x2s/Screen%20Shot%2020... I'm also suspicious, although most suspect as sibling comment to yours suggests, that it's likely something automated rather than malicious. Perhaps there's too few comments?
kevinskii 6y ago
It's a good question, but Sam Altman has written about the need to compensate startup employees more fairly (see the link at the bottom of the article). Also, these types of "startup equity is worthless" articles tend to pop up frequently on HN, where they often linger on the front page for hours and generate the same discussions in the comments. If this article is being penalized at all, that's probably the reason. HN generally penalizes articles about recurring topics. I suspect YC realizes it's in their best interest for their portfolio companies to be fair and transparent in their equity offers.

TedShiller 6y ago

Well, employees are not investors, even if the author is implying that they should be the same, or should be treated the same. Employment contracts are at-will, nobody is forced to agree to compensation. Of course, if the compensation is horrendously unfair, the top talent will not accept it.

ClumsyPilot 6y ago
> Employment contracts are at-will, nobody is forced What is the point you are making here, other than stating the obvious? It's the same for investment, what am I missing?
- TedShiller 6y ago
  The point was that it's a free market, like it or not. Companies won't treat investors the same as employees. They never have. If they do, let me know.

faithfulcat 6y ago

I have a question on this. I am employed in a startup since the last 3 years. I already have 100k shares vested (5 year window, 3 years passed). I can buy them at a low strike price (<$100 for all shares). However, I think that when I buy the options, I'll have to pay the tax on the amount? What happens if I don't pay the tax but just buy the options? Will I lose my options because I haven't paid the tax?

bialczabub 6y ago
In the US, any stock held past December 31 of the year in which it was obtained by exerciing an ISO (the most common kind of startup option) generates "income" according to the Alternative Minimum Tax (AMT). AMT is essentially a completely different taxation system that runs in parallel to regular income tax in America. If the shares you exercise are worth a good amount, you will probably wind up paying AMT, especially if you live in a place with high state and local taxes. After calculating your tax liability for both systems, you have to pay whichever is larger of regular income tax or AMT. Usually this payment, or part of it, comes due April 15th of the next year. Your company is not involved in your reporting and paying these taxes, but it's a federal crime to either misrepresent your income (which omitting the exercise from your filing would be) or not to pay the appropriate taxes. If you haven't realized yet, a lot of this is complicated, so do your own due dilligence and/or work with a tax professional. The AMT tax rate is 26% or 28%. The "income" considered by AMT for exercising and holding is equal to the difference between your strike price and the fair market value (FMV) of the stock on the day you exercised. FMV is based on a 409a valuation for companies that are still private. For public companies it's the market price for the stock on that day. I'm not sure what you mean by your having "a low strike price (<$100 for all shares). For 100k shares, a strike price of $0.001 would cost $100 to exercise 100k shares. To make the math easy, I'll give a hyptothetical... You have 100k vested shares with a strike price of $0.10. The company has done well for the past 3 years and now has a FMV of $3.10 per share. To exercise 100k shares, you would need to pay $10k. However, if you're still holding these shares on 1/1/2021, you will have an AMT tax liability due 4/15/2021 of ~28% * ($3.10 - $0.10) * 100k = $84k. Now it's weird how AMT works, so the above number isn't exactly what you wind up paying, but it's close. In general, the case stated above implies you would owe a sizeable amount in taxes if you exercised and held the stock. People do this if they're leaving a company and their options will otherwise expire, or if they strongly believe the company will IPO or be acquired soon. Exercising starts a clock on the stock you're holding. If you hold the stock for a year after you exercise, your earnings will then only be taxed at the long term capital gains rate (probably 20%) rather than the ordinary income tax rate (usually higher than 20%). Earnings are the sale price minus the strike price (what you paid to acquire the stock or your "cost basis"). The downside of exercising now is 1) you have to pay cash to exercise, 2) you will generate a tax liability without necessarily having a way to sell your stock, and 3) if the price of the stock falls, the AMT you paid winds up being an even greater percent of the value. There is a way to receive credit on future tax bills for previously paid AMT tax that wound up like this, but it's complicated and best to be avoided. The upside is mostly to obtain the a lower tax rate on the eventual sale. Most employees still with the company who didn't exercise their stock early don't exercise it until they plan to sell it.