3 ms·

I would like to offer an extended view from the wealth accumulation angle. True, equity builds wealth, but in a startup, since there is no floor protection, wh

I would like to offer an extended view from the wealth accumulation angle. True, equity builds wealth, but in a startup, since there is no floor protection, when the startup becomes worthless (can happen for any number of reasons, and often do), then one wishes one had taken a salary (and reinvested in stocks or as seed investment - ways to gain equity exposure). One could argue that PowerBI, in this example, gained any traction at all because it benefited from the large customer base and marketing muscle of Microsoft. To extend further on the point Nojvek makes about how PowerBI moved very little of the topline revenues of the company; this also means that the bonus accrued to the author was because _some other team moved the needle_. This grouping of risk for a mean payoff, could be a desirable outcome as well, if one has better avenues to invest the capital. It all comes down to how one views risk, its mitigation, and wealth accumulation horizon.

munificent 6y ago
> when the startup becomes worthless (can happen for any number of reasons, and often do), then one wishes one had taken a salary (and reinvested in stocks or as seed investment - ways to gain equity exposure). Well, sure. And when the startup becomes worth billions, one wishes they had taken the options instead of a higher salary. This is just an observation that having information lets you make better decisions. Unfortunately, most of the best information lives at a point in the future after we must make the decision.
- thegginthesky 6y ago
  The point is that the odds of any startup to be worth billions, or for an employee stock option be worth a lot more than accumulated high base salary, is very very low. So if one optimizes by using the expected value over time the conclusion is that high base salary tends to trump employee equity. One can make this sort of inference at any point in time, without hindsight at all.
  - enra 6y ago
    Joining a startup is not some game roulette where you gave zero information about potential outcomes and just choose randomly one number. You as an employee have a lot of agency to find the startup to join that you think has potential. If the startups or founders are unwilling to share their thinking then it’s probably a bad sign. Think about Stripe when they started. The whole story was that most tech and other companies need payments but it’s a hard problem and back in the day we had do merchant accounts. Makes sense, and there is a clear business and maybe as you talk to the team, you are impressed. They raised from Sequoia and other too VCS. Great, sounds like good company. Obviously there are risks. What if they get shutdown? what if PayPal/visa/Google builds this? Maybe the product will suck? Compare Stripe to something like pet walking startup Wag which also has raised tons of money. Do you think it’s easier to make money by charging % on business revenue or charging % people walking other peoples pets? There are always risks and unknowns but it’s not a random throw dice which company you join. Probably there has never been a time it would have seemed a terrible idea to join Stripe, at most it would have seemed uncertain and risky. They could have failed too but now they are a $100B+ company, and your employee equity would be worth $1M-100M depending when you joined. If you join a random startup, you take a random chance. If you do your research and thinking you can increase your odds like you can increase your odds on the public markets. You can also optimize for the team or domain you want to work in, and even if the startup fails, you might have learned something.
  - tjs8rj 6y ago
    The expected value is a fine way of looking at it. There’s other ways that favor the startup though. Working at SV startups your whole working life will still probably result in retiring very comfortably, with some fraction of the money your friend who worked at established companies their whole life. At the midrange of the preference curve that’s a problem, but you’re still likely in the same order of magnitude of wealth. The difference is if you have a strong desire to have an order of magnitude more wealth, you often can’t do that in established companies only. At the least you can bounce into startups for the executive and leadership experience then bounce back to established companies at a managerial role, but by then you probably have the experience and connections to make a startup with its huge potential payoffs more likely. If retirement comfort is what you seek, you will likely get reach that at startups too, but you will likely only see those massive payoffs with startups.

munificent 6y ago

> when the startup becomes worthless (can happen for any number of reasons, and often do), then one wishes one had taken a salary (and reinvested in stocks or as seed investment - ways to gain equity exposure). Well, sure. And when the startup becomes worth billions, one wishes they had taken the options instead of a higher salary. This is just an observation that having information lets you make better decisions. Unfortunately, most of the best information lives at a point in the future after we must make the decision.

thegginthesky 6y ago
The point is that the odds of any startup to be worth billions, or for an employee stock option be worth a lot more than accumulated high base salary, is very very low. So if one optimizes by using the expected value over time the conclusion is that high base salary tends to trump employee equity. One can make this sort of inference at any point in time, without hindsight at all.
- enra 6y ago
  Joining a startup is not some game roulette where you gave zero information about potential outcomes and just choose randomly one number. You as an employee have a lot of agency to find the startup to join that you think has potential. If the startups or founders are unwilling to share their thinking then it’s probably a bad sign. Think about Stripe when they started. The whole story was that most tech and other companies need payments but it’s a hard problem and back in the day we had do merchant accounts. Makes sense, and there is a clear business and maybe as you talk to the team, you are impressed. They raised from Sequoia and other too VCS. Great, sounds like good company. Obviously there are risks. What if they get shutdown? what if PayPal/visa/Google builds this? Maybe the product will suck? Compare Stripe to something like pet walking startup Wag which also has raised tons of money. Do you think it’s easier to make money by charging % on business revenue or charging % people walking other peoples pets? There are always risks and unknowns but it’s not a random throw dice which company you join. Probably there has never been a time it would have seemed a terrible idea to join Stripe, at most it would have seemed uncertain and risky. They could have failed too but now they are a $100B+ company, and your employee equity would be worth $1M-100M depending when you joined. If you join a random startup, you take a random chance. If you do your research and thinking you can increase your odds like you can increase your odds on the public markets. You can also optimize for the team or domain you want to work in, and even if the startup fails, you might have learned something.
- tjs8rj 6y ago
  The expected value is a fine way of looking at it. There’s other ways that favor the startup though. Working at SV startups your whole working life will still probably result in retiring very comfortably, with some fraction of the money your friend who worked at established companies their whole life. At the midrange of the preference curve that’s a problem, but you’re still likely in the same order of magnitude of wealth. The difference is if you have a strong desire to have an order of magnitude more wealth, you often can’t do that in established companies only. At the least you can bounce into startups for the executive and leadership experience then bounce back to established companies at a managerial role, but by then you probably have the experience and connections to make a startup with its huge potential payoffs more likely. If retirement comfort is what you seek, you will likely get reach that at startups too, but you will likely only see those massive payoffs with startups.