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Apparently Shel didn't negotiate "founder's stock." This excerpt is from [1]: So, you are kind of the forgotten founder? Most people think of Jeff Bezos as the

Apparently Shel didn't negotiate "founder's stock." This excerpt is from [1]: So, you are kind of the forgotten founder? Most people think of Jeff Bezos as the creator of the company. “In fact, to be completely technically true about it, he is the founder. But I was talking to him about joining him on the venture before the company was incorporated. He basically was just arriving from the East Coast and setting up his house when I moved up from California. All that existed of Amazon was on paper at that point. Jeff was working on it full-time already, and his wife, Mackenzie, was writing checks every once in a while. But that was it. I didn’t get founder’s stock. It didn’t seem worth the argument at the time, although I kind of felt like, well, you know, I mean I was there at the beginning. And it was all going to work out the same way, one way or the other, regardless of the technicalities. And it just didn’t seem like something that I wanted to make a big deal about at the time.” [1] https://www.geekwire.com/2011/meet-shel-kaphan-amazoncom-employee-1/ https://www.geekwire.com/2011/meet-shel-kaphan-amazoncom-emp...

RcouF1uZ4gsC 6y ago
It seems that being employee #1 is a sucker of a deal with a lot of the same downsides as being a founder without the huge upside of being a founder.
- juskrey 6y ago
  Employee does not take any risk. He says in the interview he was working with number of failing startups before. They failed, but they've paid his fixed project or hourly salary nevertheless. Moreover, many of those people are willing to hire someone good who is available for temporary jobs, and hence paying very competitive rates, at the same time surviving on canned tuna themselves. I've been #1 techie in many failed protects. Not depending how you think about that business ideas and personalities behind them, all those people should be highly respected for putting their neck on the line.
  - deanCommie 6y ago
    That's a very absolutist view of risk. A founder may only be investing an amount in the venture that does not affect their own quality of life. They could have other wealth or means, and losing the entire investment would not be catastrophic. They might have a personal runway of several years before they have to give up and get a day job. Meanwhile, the early employee at a startup is far from without risk themselves. They are almost certainly not well paid (until the last decade of multi-Billion-dollar Unicorns, startups were NEVER known to pay well). They are also likely not making meaningful savings or even eating into them in the hope of hitting it big. They are almost certainly sacrificing a substantial part of their personal life just as the founder is, risking personal relationships and health.
    - jlokier 6y ago
      > or even eating into them I can confirm :/ Worked at a startup as an employee, made a significant financial loss, living on savings and eventually credit, because cost of living was higher than income. Eventually had to stop. This happened gradually as I just couldn't keep up the work. Employer was annoyed with me for not doing more work. I kept telling them I had to do other work because their pay didn't cover my essential bills. They kept telling me if only I would finish X, Y and Z we'd have more money coming in. I took a risky bet and lost - as an employee. I don't resent it, they really couldn't pay more. But it was definitely a gamble. That financial cost still has lingering effects years later. Don't assume employee #1 or #2 is not taking on a risk. I'd still like to work at a startup! But I'll automatically turn down offers with low pay now, as well as offers of "no pay at the moment until we get investment" which I had some of this summer.
      - juskrey 6y ago
        You think those people would have honored you if things have gone much better? I doubt. Typical toxic client. Nothing to do with business risk
        jlokier 6y ago
        I've had toxic clients. This was not a toxic client. I knew exactly how much was in the business bank account. There were no secrets about the state of the business. I knew how it had arrived at the state it did as well, and its development and investment history. The developer I was replacing had just died, before the product was ready. He was a good friend. I could either take it on and try to make it work or not. They weren't underpaying due to failure to value me. They were underpaying because we mutually agreed the project was worth it, and there was the pot of money that there was. So I took on that risk on full knowledge as (replacement) employee #1. Yes, that's a business risk.
  - hobofan 6y ago
    Founders often also take on relatively little risk (or all the same risk of an early employee). The amount of money they put at stake can be very little, either living off Ramen which is cheap, or coming from a previous venture, then it's negligible. You should generally follow the same principle as investing in stocks: "Never invest money that you can't afford to lose." A lot of people also see a risk to reputation due to failed startups, but for the first 1-2 it doesn't really matter, and as long as you raise _some_ early round and have good explanations/takaways for why it failed, and you didn't pull anything shady, it will only increase your reputation.
    - juskrey 6y ago
      This is none of the employee's business to assess founder's risk exposure, he/she does not not lend money to them, but takes away from instead. By taking an employee founder is effectively paying monthly, mind that, very expensive, insurance which provides free hands at any moment when needed. Employee's benefit is immediate, unconditional and guaranteed. The opposite of being an owner of business.
      - hobofan 6y ago
        > he/she does not not lend money to them, but takes away from instead The employee takes money from the company, not the founder. Those two are only the same for the pre-seed phase of a startup. It's also unlikely that any people are employed before some investment round has been raised. Once some investment is raised, the money comes predominantly from the investors and not from the founder. At that point the risk for the founder is mostly gone. I'm not saying that there is no risk at all for the founders, just that it's concentrated in the pre-seed phase of a startup. > This is none of the employee's business to assess founder's risk exposure If you are asking me to join your very-early-stage startup, you can bet your ass that I'm going to probe you on your risk exposure.
        denisastoyanov 6y ago
        Why do you automatically assume that every single company have investors?
  - throwaway2245 6y ago
    It's doubtful to me that a founder leaves a failed project in a worse position than the first employee. What risk exactly are we talking about and who has suffered it? (I'm assuming your suggestion of 'neck' is hyperbole)
  - rsynnott 6y ago
    Generally, a startup first employee is selling the company their labour at a _substantial_ discount; that is, the employee is giving the company something, not the other way round. This is usually compensated with stock, which is currently worthless but may not be in future. In effect, the employee is giving the company a high interest loan with a high risk of default.
- deepGem 6y ago
  Even to this day, employee no 1 will be offered stocks in the range of 0.5 - 1%. Calling BS on this has not yielded any great results. If not anything, there should be some clause that benefits the first 2 or 3 employees with an outsized monetary outcome, if the company becomes immensely successful. The above equity numbers probably make sense if founders have worked on the idea for a while, built some reasonable MVPs, done market validation, have found reasonable PMF and all that. Bottom line, it's not worth being the first engineer purely from a monetary standpoint.
dang 6y ago
Discussed in 2011 here: https://news.ycombinator.com/item?id=2975122 https://news.ycombinator.com/item?id=2975122 Edit: ah yes, and https://news.ycombinator.com/item?id=12437322 https://news.ycombinator.com/item?id=12437322 from 2016.
- iflp 6y ago
  And for those who didn't follow the link, Shel actually clarified on this there: https://news.ycombinator.com/item?id=2977247 https://news.ycombinator.com/item?id=2977247

RcouF1uZ4gsC 6y ago

It seems that being employee #1 is a sucker of a deal with a lot of the same downsides as being a founder without the huge upside of being a founder.

juskrey 6y ago
Employee does not take any risk. He says in the interview he was working with number of failing startups before. They failed, but they've paid his fixed project or hourly salary nevertheless. Moreover, many of those people are willing to hire someone good who is available for temporary jobs, and hence paying very competitive rates, at the same time surviving on canned tuna themselves. I've been #1 techie in many failed protects. Not depending how you think about that business ideas and personalities behind them, all those people should be highly respected for putting their neck on the line.
- deanCommie 6y ago
  That's a very absolutist view of risk. A founder may only be investing an amount in the venture that does not affect their own quality of life. They could have other wealth or means, and losing the entire investment would not be catastrophic. They might have a personal runway of several years before they have to give up and get a day job. Meanwhile, the early employee at a startup is far from without risk themselves. They are almost certainly not well paid (until the last decade of multi-Billion-dollar Unicorns, startups were NEVER known to pay well). They are also likely not making meaningful savings or even eating into them in the hope of hitting it big. They are almost certainly sacrificing a substantial part of their personal life just as the founder is, risking personal relationships and health.
  - jlokier 6y ago
    > or even eating into them I can confirm :/ Worked at a startup as an employee, made a significant financial loss, living on savings and eventually credit, because cost of living was higher than income. Eventually had to stop. This happened gradually as I just couldn't keep up the work. Employer was annoyed with me for not doing more work. I kept telling them I had to do other work because their pay didn't cover my essential bills. They kept telling me if only I would finish X, Y and Z we'd have more money coming in. I took a risky bet and lost - as an employee. I don't resent it, they really couldn't pay more. But it was definitely a gamble. That financial cost still has lingering effects years later. Don't assume employee #1 or #2 is not taking on a risk. I'd still like to work at a startup! But I'll automatically turn down offers with low pay now, as well as offers of "no pay at the moment until we get investment" which I had some of this summer.
    - juskrey 6y ago
      You think those people would have honored you if things have gone much better? I doubt. Typical toxic client. Nothing to do with business risk
      - jlokier 6y ago
        I've had toxic clients. This was not a toxic client. I knew exactly how much was in the business bank account. There were no secrets about the state of the business. I knew how it had arrived at the state it did as well, and its development and investment history. The developer I was replacing had just died, before the product was ready. He was a good friend. I could either take it on and try to make it work or not. They weren't underpaying due to failure to value me. They were underpaying because we mutually agreed the project was worth it, and there was the pot of money that there was. So I took on that risk on full knowledge as (replacement) employee #1. Yes, that's a business risk.
- hobofan 6y ago
  Founders often also take on relatively little risk (or all the same risk of an early employee). The amount of money they put at stake can be very little, either living off Ramen which is cheap, or coming from a previous venture, then it's negligible. You should generally follow the same principle as investing in stocks: "Never invest money that you can't afford to lose." A lot of people also see a risk to reputation due to failed startups, but for the first 1-2 it doesn't really matter, and as long as you raise _some_ early round and have good explanations/takaways for why it failed, and you didn't pull anything shady, it will only increase your reputation.
  - juskrey 6y ago
    This is none of the employee's business to assess founder's risk exposure, he/she does not not lend money to them, but takes away from instead. By taking an employee founder is effectively paying monthly, mind that, very expensive, insurance which provides free hands at any moment when needed. Employee's benefit is immediate, unconditional and guaranteed. The opposite of being an owner of business.
    - hobofan 6y ago
      > he/she does not not lend money to them, but takes away from instead The employee takes money from the company, not the founder. Those two are only the same for the pre-seed phase of a startup. It's also unlikely that any people are employed before some investment round has been raised. Once some investment is raised, the money comes predominantly from the investors and not from the founder. At that point the risk for the founder is mostly gone. I'm not saying that there is no risk at all for the founders, just that it's concentrated in the pre-seed phase of a startup. > This is none of the employee's business to assess founder's risk exposure If you are asking me to join your very-early-stage startup, you can bet your ass that I'm going to probe you on your risk exposure.
      - denisastoyanov 6y ago
        Why do you automatically assume that every single company have investors?
- throwaway2245 6y ago
  It's doubtful to me that a founder leaves a failed project in a worse position than the first employee. What risk exactly are we talking about and who has suffered it? (I'm assuming your suggestion of 'neck' is hyperbole)
- rsynnott 6y ago
  Generally, a startup first employee is selling the company their labour at a _substantial_ discount; that is, the employee is giving the company something, not the other way round. This is usually compensated with stock, which is currently worthless but may not be in future. In effect, the employee is giving the company a high interest loan with a high risk of default.
deepGem 6y ago
Even to this day, employee no 1 will be offered stocks in the range of 0.5 - 1%. Calling BS on this has not yielded any great results. If not anything, there should be some clause that benefits the first 2 or 3 employees with an outsized monetary outcome, if the company becomes immensely successful. The above equity numbers probably make sense if founders have worked on the idea for a while, built some reasonable MVPs, done market validation, have found reasonable PMF and all that. Bottom line, it's not worth being the first engineer purely from a monetary standpoint.

dang 6y ago

Discussed in 2011 here: https://news.ycombinator.com/item?id=2975122 https://news.ycombinator.com/item?id=2975122 Edit: ah yes, and https://news.ycombinator.com/item?id=12437322 https://news.ycombinator.com/item?id=12437322 from 2016.

iflp 6y ago
And for those who didn't follow the link, Shel actually clarified on this there: https://news.ycombinator.com/item?id=2977247 https://news.ycombinator.com/item?id=2977247