5 ms·

I've seen a ton of this on HN for the past couple of years, "Go work for FAANG, startups are worthless." As someone who has started a company, gotten it funded,

I've seen a ton of this on HN for the past couple of years, "Go work for FAANG, startups are worthless." As someone who has started a company, gotten it funded, and would like to hire high quality engineers, this is deeply disheartening. I've tried to hire a few people, offering them market rate or close to it for base salary (_very_ rough ballpark 150-200K for 2-5y experience) and a decent chunk of equity (highly variable, for VP level I've offered up to 2%, there's a salary equity tradeoff though). These seem like fair offers, but often I'll get, "actually I'm really a cofounder so I should be getting double digit equity." That's fine, except 1.) I have 15% of the company in my option pool, so no I can't do that unless I effectively want to give nothing to everyone after that person. 2.) At the risk of sounding aggrieved: I spent all of my savings to get this off the ground and funded, am taking a far below market salary, and you want to get that sort of equity with none of that risk? When I'm pretty sure you wouldn't be talking to me if I didn't have a nice war chest? What should someone in my position be doing to entice top notch people to join us? Yes it takes a leap of faith that what we're doing is interesting (please trust me that it is), and that someday stock worth 10s or 100s of K will be worth 100s or 1Ms. But if nobody is willing to take that leap, then companies like mine and many others will die. If it's all about cash and comfort, then FAANG will have won and innovation will slow. I'm really willing to listen, what can I do to solve this dilemma of a necessarily limited option pool AND inability to say, "yeah my stock is provably worth $100s a share and I can pay 75-90th percentile of market base."

Hydraulix989 6y ago
In the Zoox case, the founders allegedly subverted the rightful 1Ms payout of the early employees. You sound like a trusthworthy person, but there are so many other cases of this happening besides Zoox, and it's very difficult to predict peoples' moral reactions to life-changing amounts of money ahead-of-time. At the end of the day, it's up to the CEO to make sure everyone gets treated fairly.
- trytozoom 6y ago
  Good point. I hope I get the opportunity to test this hypothesis, but right now I can't imagine that mattering to me. I've made decisions recently where my thought process literally was, "Ok so if we win big, I'll have a slightly smaller yacht." It's not that hard to treat your people well. I fully recognize it's easy to say now, and I hope I stick to it when given the chance. More interesting than currently easy promises is: how do you interview the founders to maximize the chance that they're not greedy assholes?
  - deleted 6y ago
    [deleted]
tome 6y ago
> 1.) I have 15% of the company in my option pool, so no I can't do that unless I effectively want to give nothing to everyone after that person. Just out of interest, why couldn't you increase the size of the options pool?
- trytozoom 6y ago
  Answered elsewhere but 1.) unsure about implications on corporate governance at this stage of the company. 2.) I didn't think very much about this initially and thought 15% would be fine, now it would take a fair amount of legal wrangling to get right 3.) honestly part of the reason I worry about double digit grants when people are earning near market base salary is that I don't feel they're committed in proportion to the equity that's vesting. Maybe could be solved with long vesting schedules.
fredophile 6y ago
You may need to hire people with less experience but the potential to grow into the role. I'd say the biggest advantage to working at a startup is the ability to advance up the career ladder faster than you can at a traditional company.
kabouseng 6y ago
Don't compete on salary / money alone. Make the company attractive by providing other advantages, such as an interesting problem to work on, interesting technology, being part of a great team, the excellent experience the engineer will receive (not just closing bug tickets), a closable door office for each engineer etc. If you are going to compete on salary / options alone, you are also going to get candidates for whom that is also the only criteria evaluating a job.
tinco 6y ago
> and that someday stock worth 10s or 100s of K will be worth 100s or 1Ms This sounds a bit dodgy. I don't endorse paying someone with less than 5 years 250k/year but if you're looking at someone then the amount of options you give them should be worth at least the salary cut over the vesting period. So say you're looking at some VP potential that could get 400k per year working at Netflix or something and you're going to pay them $150k. Then you should offer them (imo) $750k in options vesting over 3 years. That's in now money, as in that should be whatever the investors in your last round paid for that same stock. Not an exact art of course but if you do it that way, and you explain your logic in the offer, and they still don't agree, then they just don't want to work for you. If this calculation comes out to something that's untenable for you, then you're looking at too expensive engineers and imo you should move your company out of the valley.
- 0xfaded 6y ago
  Unless that employee would like to pay taxes on an illiquid, fungible asset, then you actually want the value of those options to be zero at the time of grant/employment. In my experience, employees place much more emphasis on salary than options during negotiation. And that is find, it is the CEO's job to sell the vision of the business and acquire the resources necessary to execute. Just don't be disappointed if that means the company raises additional investment to pay your salary instead of granting more options.
  - tinco 6y ago
    Yeah of course the options should be set at 0 value, but they should represent the same future potential. I agree that if you can't entice on options then you should raise for salary, whatever makes the most sense. From my personal experience, if the startup feels very promising to me I'll lean more towards options, and if it feels more risky I'll lean towards salary.
- mrep 6y ago
  > Then you should offer them (imo) $750k in options vesting over 3 years. That's in now money, as in that should be whatever the investors in your last round paid for that same stock. Except those investors got preferred stock whereas you are getting common stock which has less value. Thus, they are offering you the option to pay 750k for stock that is actually worth more like 600k losing you money. Now those options do have some value because of the expiration time and the fact that the price can rise but option pricing is complicated. I highly recommend everyone considering startups to read up on the options greeks and go look at prices for deep out of the money (OTM) calls on public companies because that is effectively what startups are offering you and you can see what the public markets value options like that as.
thrwn_frthr_awy 6y ago
As a FAANG engineer that used to work for start ups I’ll give my honest feedback on why I don’t consider working for a start up anymore. A 15% options pool is insulting as you’ve decided to split off 85% for yourself and non-employees while leaving a measly 15% for the people who will actually build the company. 2% is just way to low to be of interest to me. And the sad part is, that is much higher that most offers. I have no idea what that two percent will be after being diluted x number of times, so the one thing that is supposed to incentivize me is just a black box with a theoretical ceiling of 2% and a very real possibility of 0 or close to it. Other things I would like to see: actual vacation time (not unlimited vacation) and accounting/books shared with employees (these are not PowerPoints).
- trytozoom 6y ago
  I appreciate the feedback, it's useful to hear this. I'd be willing to boost the options pool, but I'm not sure I'd be willing to do so right now for a few reasons. 1.) I don't trust that someone isn't going to come in, get offered a large chunk of equity (lets say it's 10%), and leave after 2 years with 5% of the company. In many ways that would be unfair to a future employee who works with us for a longer period of time and gets dramatically less equity. This could be solved with highly backloaded option grants (I've been thinking about doing this), but I suspect you wouldn't be interested if 8 of the 10% vests over years 5 and 6 or years 5-8 either. 2.) At previous startups I've worked, there are often follow-on grants that mitigate dilution for employees upon fundraising events. As a founder, I definitely won't get such a grant until I'm close to fully vesting. If we take some of the sting out of dilution, then that effectively is growing the option pool over time. 3.) I currently have 50.1% of the company. Had I cofounders, we would together own 50.1% of the company. This is helpful because it allows me to make some decisions without relying on our investor (who's been lovely so far, but still). Later, that will change, but at that point we'll have more infrastructure. On accounting/books, I don't know if I can do that. I've never seen it done across the org, though I'm happy to show senior management rough projections and our current burn. Unlimited vacation is an accounting construct. The pain of having to deal with accrued days vacation is not worth the hassle for a small company. When we have better financial infrastructure, maybe we'll revisit. A lot of this sounds like I need to foster some trust in my potential hires that I'm going to take care of them more than anything else. Regarding the equity, how would a long or highly backloaded vesting schedule work for people in your shoes?
tfehring 6y ago
Do you and/or your investors have preferred stock/liquidation preferences? If so, that dramatically reduces the value of employees' stock and creates a misalignment of incentives, and my impression is that that misalignment has been the biggest source of horror stories of employees getting screwed. If a $250M exit will make you rich, your investors happy, and your employees nothing, and you and your investors are the ones who get to decide whether to take that exit, your employees are right to value their equity grants at approximately $0. (That's not a knock on you specifically, of course - it's a claim about the importance of incentives.) Or maybe less than $0 - if you work at an established company with all cash comp you don't have to deal with watching your boss become a multimillionaire based on your hard work.
- trytozoom 6y ago
  I do not, the investors do. I sit in the same shoes as the employees and intend to keep it that way. It's entirely possible for our investors to recover their money, and for me and the employees to make $0. However it's not possible for me to make something and the employees to make $0. One small wrinkle is that my strike price was microscopic because of when the company was incorporated, whereas the strike price for an employee is merely very low, so there could be some outcome differences there.
WJW 6y ago
To rephrase the dilemma you pose: "FAANG has more money than my startup and the employees I want are mainly motivated by money". There is probably not much you can do to beat FAANG on the money front. Some options include: - Go for less top-notch people. Do you really need the very best or have you just convinced yourself that you do? How do you even measure quality? I've seen ex-FAANG people bomb more than once at a younger company because they couldn't handle the lack of structure and immediately went about imposing Google-scale solutions and processes for a 10-person company. - Seek out people motivated by something else than money (ie autonomy, purpose, mastery, community) and offer them opportunities to chase those things. - Finally, your post is very focused on YOUR perspective as entrepreneur. Things like "there will be no options left in the pool for other people" and "then companies like mine and many others will die" are not problems for the prospective employee. They are under no obligation to join your company just because you really want them to.
- datavirtue 6y ago
  I can't handle the structure of a large company. There is more than pay influencing decisions. I like the nimble "family" atmosphere of a startup and the ability to make an impact. That sometimes propels people to greatness. I had zero credentials and was hired as app support to free up developer time at a startup. My freedom to impact the business infused me with passion and I ended up being a key person in the operations of the company and a major influencer of the technical direction. My salary went through the roof. Hire people who haven't been burnt down by big company culture and turn them loose. You can create top-notch people on the fly. The people they hired along side me who had credentials and tons of Corp experience were left standing.
paulcole 6y ago
Do you really need top notch people? Or do you just want them? Start lowering your expectations.
- bdcravens 6y ago
  High performers are high earners, so their mobility is limited relative to a 99% developer. Easier to control.
  - paulcole 6y ago
    Huh? What does this have to do with the question I asked? If this person is having a hard time attracting top notch people, maybe it's time to find out whether they even need top notch people.
pc86 6y ago
There are automated threads on or about the 1st of each month for folks looking for work. Lots of people looking for neat projects and that startup experience. My contact info is in my profile as well, I might be interested!
bdcravens 6y ago
> Go work for FAANG, startups are worthless Those aren't the only 2 options in our industry. There's tons of companies who are profitable from day 1 (they sell a product or service) and who pay developers market rate or better.
maherbeg 6y ago
A few things would help * Options should not have a 3 month expiration after a person leaves the company. Anything vested should be exercisable 10 years after they were granted no matter what. * Give people a starting bonus for early exercise * Allow sales of exercised shares on secondary markets, or guarantee in writing X shares will be purchasable by your investor pool so some of the equity could be gained While your story might be great and fair, there are far too many stories of useless stock options in the world for many people to take a huge risk like this. Between that and the average age of companies going public trending up, it feels like a bad trade off. Stock Options don't pay mortgages.
- trytozoom 6y ago
  I've actually talked to our lawyers and investors about some of these. 1.) More than 3 months expiration gets tricky legally and I'm not sure it's actually fair. At that point I'm told we can't grant them as ISOs, they have to be NSOs or RSUs which could have poor tax profiles. Investors are also not keen, because you're basically giving free optionality that pretty much nobody else has. Essentially a 10 year exercise window means you get to just wait and see and only put in money when it's a sure thing. You don't even need to put in time if the option is vested. This while others who come later likely can't benefit from the same treatment (because the awards will be taxable as NSOs, and at that point more than trivial in paper value), and while investors and founders have put in cash to purchase the shares. 2.) Early exercise we have offered and will continue to offer. It's tricky because those have to be NSOs as well, but it's totally something we do. We have given signing bonuses (I hate doing this as a general rule, but it's what we have to do to get the talent), could look at making that more tied to the early exercise in some way. Again I'm not sure how the tax side plays out for the employee though. Generally this is something I support, glad to see it'd be helpful. 3.) I'm not sure what restrictions we have but I think we do restrict secondaries. For very early stage companies it's hard to write these promises of future purchases down, there's too much uncertainty on how they plays out over the long term. It can spook investors to have non-standard clauses like this, and the lawyers get very upset which means they charge us more money. That said, it's worth thinking about how to accomplish the same outcome. Keep in mind we are paying a decent base salary. It's actually strange to me how the compensation market in the bay area essentially discounts base pay because FAANG have had insane stock trajectories. When we recruit in other markets base pay is the main negotiating point, not equity. Thanks for the feedback, this is helpful!

Hydraulix989 6y ago

In the Zoox case, the founders allegedly subverted the rightful 1Ms payout of the early employees. You sound like a trusthworthy person, but there are so many other cases of this happening besides Zoox, and it's very difficult to predict peoples' moral reactions to life-changing amounts of money ahead-of-time. At the end of the day, it's up to the CEO to make sure everyone gets treated fairly.

trytozoom 6y ago
Good point. I hope I get the opportunity to test this hypothesis, but right now I can't imagine that mattering to me. I've made decisions recently where my thought process literally was, "Ok so if we win big, I'll have a slightly smaller yacht." It's not that hard to treat your people well. I fully recognize it's easy to say now, and I hope I stick to it when given the chance. More interesting than currently easy promises is: how do you interview the founders to maximize the chance that they're not greedy assholes?
- deleted 6y ago
  [deleted]

tome 6y ago

> 1.) I have 15% of the company in my option pool, so no I can't do that unless I effectively want to give nothing to everyone after that person. Just out of interest, why couldn't you increase the size of the options pool?

trytozoom 6y ago
Answered elsewhere but 1.) unsure about implications on corporate governance at this stage of the company. 2.) I didn't think very much about this initially and thought 15% would be fine, now it would take a fair amount of legal wrangling to get right 3.) honestly part of the reason I worry about double digit grants when people are earning near market base salary is that I don't feel they're committed in proportion to the equity that's vesting. Maybe could be solved with long vesting schedules.

fredophile 6y ago

You may need to hire people with less experience but the potential to grow into the role. I'd say the biggest advantage to working at a startup is the ability to advance up the career ladder faster than you can at a traditional company.

kabouseng 6y ago

Don't compete on salary / money alone. Make the company attractive by providing other advantages, such as an interesting problem to work on, interesting technology, being part of a great team, the excellent experience the engineer will receive (not just closing bug tickets), a closable door office for each engineer etc. If you are going to compete on salary / options alone, you are also going to get candidates for whom that is also the only criteria evaluating a job.

tinco 6y ago

> and that someday stock worth 10s or 100s of K will be worth 100s or 1Ms This sounds a bit dodgy. I don't endorse paying someone with less than 5 years 250k/year but if you're looking at someone then the amount of options you give them should be worth at least the salary cut over the vesting period. So say you're looking at some VP potential that could get 400k per year working at Netflix or something and you're going to pay them $150k. Then you should offer them (imo) $750k in options vesting over 3 years. That's in now money, as in that should be whatever the investors in your last round paid for that same stock. Not an exact art of course but if you do it that way, and you explain your logic in the offer, and they still don't agree, then they just don't want to work for you. If this calculation comes out to something that's untenable for you, then you're looking at too expensive engineers and imo you should move your company out of the valley.

0xfaded 6y ago
Unless that employee would like to pay taxes on an illiquid, fungible asset, then you actually want the value of those options to be zero at the time of grant/employment. In my experience, employees place much more emphasis on salary than options during negotiation. And that is find, it is the CEO's job to sell the vision of the business and acquire the resources necessary to execute. Just don't be disappointed if that means the company raises additional investment to pay your salary instead of granting more options.
- tinco 6y ago
  Yeah of course the options should be set at 0 value, but they should represent the same future potential. I agree that if you can't entice on options then you should raise for salary, whatever makes the most sense. From my personal experience, if the startup feels very promising to me I'll lean more towards options, and if it feels more risky I'll lean towards salary.
mrep 6y ago
> Then you should offer them (imo) $750k in options vesting over 3 years. That's in now money, as in that should be whatever the investors in your last round paid for that same stock. Except those investors got preferred stock whereas you are getting common stock which has less value. Thus, they are offering you the option to pay 750k for stock that is actually worth more like 600k losing you money. Now those options do have some value because of the expiration time and the fact that the price can rise but option pricing is complicated. I highly recommend everyone considering startups to read up on the options greeks and go look at prices for deep out of the money (OTM) calls on public companies because that is effectively what startups are offering you and you can see what the public markets value options like that as.

thrwn_frthr_awy 6y ago

As a FAANG engineer that used to work for start ups I’ll give my honest feedback on why I don’t consider working for a start up anymore. A 15% options pool is insulting as you’ve decided to split off 85% for yourself and non-employees while leaving a measly 15% for the people who will actually build the company. 2% is just way to low to be of interest to me. And the sad part is, that is much higher that most offers. I have no idea what that two percent will be after being diluted x number of times, so the one thing that is supposed to incentivize me is just a black box with a theoretical ceiling of 2% and a very real possibility of 0 or close to it. Other things I would like to see: actual vacation time (not unlimited vacation) and accounting/books shared with employees (these are not PowerPoints).

trytozoom 6y ago
I appreciate the feedback, it's useful to hear this. I'd be willing to boost the options pool, but I'm not sure I'd be willing to do so right now for a few reasons. 1.) I don't trust that someone isn't going to come in, get offered a large chunk of equity (lets say it's 10%), and leave after 2 years with 5% of the company. In many ways that would be unfair to a future employee who works with us for a longer period of time and gets dramatically less equity. This could be solved with highly backloaded option grants (I've been thinking about doing this), but I suspect you wouldn't be interested if 8 of the 10% vests over years 5 and 6 or years 5-8 either. 2.) At previous startups I've worked, there are often follow-on grants that mitigate dilution for employees upon fundraising events. As a founder, I definitely won't get such a grant until I'm close to fully vesting. If we take some of the sting out of dilution, then that effectively is growing the option pool over time. 3.) I currently have 50.1% of the company. Had I cofounders, we would together own 50.1% of the company. This is helpful because it allows me to make some decisions without relying on our investor (who's been lovely so far, but still). Later, that will change, but at that point we'll have more infrastructure. On accounting/books, I don't know if I can do that. I've never seen it done across the org, though I'm happy to show senior management rough projections and our current burn. Unlimited vacation is an accounting construct. The pain of having to deal with accrued days vacation is not worth the hassle for a small company. When we have better financial infrastructure, maybe we'll revisit. A lot of this sounds like I need to foster some trust in my potential hires that I'm going to take care of them more than anything else. Regarding the equity, how would a long or highly backloaded vesting schedule work for people in your shoes?

tfehring 6y ago

Do you and/or your investors have preferred stock/liquidation preferences? If so, that dramatically reduces the value of employees' stock and creates a misalignment of incentives, and my impression is that that misalignment has been the biggest source of horror stories of employees getting screwed. If a $250M exit will make you rich, your investors happy, and your employees nothing, and you and your investors are the ones who get to decide whether to take that exit, your employees are right to value their equity grants at approximately $0. (That's not a knock on you specifically, of course - it's a claim about the importance of incentives.) Or maybe less than $0 - if you work at an established company with all cash comp you don't have to deal with watching your boss become a multimillionaire based on your hard work.

trytozoom 6y ago
I do not, the investors do. I sit in the same shoes as the employees and intend to keep it that way. It's entirely possible for our investors to recover their money, and for me and the employees to make $0. However it's not possible for me to make something and the employees to make $0. One small wrinkle is that my strike price was microscopic because of when the company was incorporated, whereas the strike price for an employee is merely very low, so there could be some outcome differences there.

WJW 6y ago

To rephrase the dilemma you pose: "FAANG has more money than my startup and the employees I want are mainly motivated by money". There is probably not much you can do to beat FAANG on the money front. Some options include: - Go for less top-notch people. Do you really need the very best or have you just convinced yourself that you do? How do you even measure quality? I've seen ex-FAANG people bomb more than once at a younger company because they couldn't handle the lack of structure and immediately went about imposing Google-scale solutions and processes for a 10-person company. - Seek out people motivated by something else than money (ie autonomy, purpose, mastery, community) and offer them opportunities to chase those things. - Finally, your post is very focused on YOUR perspective as entrepreneur. Things like "there will be no options left in the pool for other people" and "then companies like mine and many others will die" are not problems for the prospective employee. They are under no obligation to join your company just because you really want them to.

datavirtue 6y ago
I can't handle the structure of a large company. There is more than pay influencing decisions. I like the nimble "family" atmosphere of a startup and the ability to make an impact. That sometimes propels people to greatness. I had zero credentials and was hired as app support to free up developer time at a startup. My freedom to impact the business infused me with passion and I ended up being a key person in the operations of the company and a major influencer of the technical direction. My salary went through the roof. Hire people who haven't been burnt down by big company culture and turn them loose. You can create top-notch people on the fly. The people they hired along side me who had credentials and tons of Corp experience were left standing.

paulcole 6y ago

Do you really need top notch people? Or do you just want them? Start lowering your expectations.

bdcravens 6y ago
High performers are high earners, so their mobility is limited relative to a 99% developer. Easier to control.
- paulcole 6y ago
  Huh? What does this have to do with the question I asked? If this person is having a hard time attracting top notch people, maybe it's time to find out whether they even need top notch people.

pc86 6y ago

There are automated threads on or about the 1st of each month for folks looking for work. Lots of people looking for neat projects and that startup experience. My contact info is in my profile as well, I might be interested!

bdcravens 6y ago

> Go work for FAANG, startups are worthless Those aren't the only 2 options in our industry. There's tons of companies who are profitable from day 1 (they sell a product or service) and who pay developers market rate or better.

maherbeg 6y ago

A few things would help * Options should not have a 3 month expiration after a person leaves the company. Anything vested should be exercisable 10 years after they were granted no matter what. * Give people a starting bonus for early exercise * Allow sales of exercised shares on secondary markets, or guarantee in writing X shares will be purchasable by your investor pool so some of the equity could be gained While your story might be great and fair, there are far too many stories of useless stock options in the world for many people to take a huge risk like this. Between that and the average age of companies going public trending up, it feels like a bad trade off. Stock Options don't pay mortgages.

trytozoom 6y ago
I've actually talked to our lawyers and investors about some of these. 1.) More than 3 months expiration gets tricky legally and I'm not sure it's actually fair. At that point I'm told we can't grant them as ISOs, they have to be NSOs or RSUs which could have poor tax profiles. Investors are also not keen, because you're basically giving free optionality that pretty much nobody else has. Essentially a 10 year exercise window means you get to just wait and see and only put in money when it's a sure thing. You don't even need to put in time if the option is vested. This while others who come later likely can't benefit from the same treatment (because the awards will be taxable as NSOs, and at that point more than trivial in paper value), and while investors and founders have put in cash to purchase the shares. 2.) Early exercise we have offered and will continue to offer. It's tricky because those have to be NSOs as well, but it's totally something we do. We have given signing bonuses (I hate doing this as a general rule, but it's what we have to do to get the talent), could look at making that more tied to the early exercise in some way. Again I'm not sure how the tax side plays out for the employee though. Generally this is something I support, glad to see it'd be helpful. 3.) I'm not sure what restrictions we have but I think we do restrict secondaries. For very early stage companies it's hard to write these promises of future purchases down, there's too much uncertainty on how they plays out over the long term. It can spook investors to have non-standard clauses like this, and the lawyers get very upset which means they charge us more money. That said, it's worth thinking about how to accomplish the same outcome. Keep in mind we are paying a decent base salary. It's actually strange to me how the compensation market in the bay area essentially discounts base pay because FAANG have had insane stock trajectories. When we recruit in other markets base pay is the main negotiating point, not equity. Thanks for the feedback, this is helpful!