4 ms·

> what founders risk in terms of opportunity costs and lower wages is usually only slightly more than very early stage employees Maybe this is different for ot

> what founders risk in terms of opportunity costs and lower wages is usually only slightly more than very early stage employees Maybe this is different for others, but my co-founder and I spent 2 years bootstrapping before we got our first customer. We gave up 2 years of wages and consumed our savings to do this with no assurance of success, and even after that first customer it was another full year before we had any sense of stability. Years of time and money. I consider that quite a bit more risk than our first employees who got stable income, healthcare, 401k's, etc. on day one.

Eridrus 5y ago
Stable doesn't really describe early stage startups at all. Just because there is a paycheck doesn't mean there will be one when a big account falls through. But anyway, I would urge founders to think more about the logarithmic utility of money and whether it makes sense to take 30x+ the gains of early employees. In particular, think of the number that make it all worthwhile and ask if you need to capture all the gains above that, or whether you could be more generous if you hit it out of the park, and if there is a way to write that into your contracts.
- achillesheels 5y ago
  Why should leaders and team builders be more “equitable” than what is transactionally afforded by their diligent appreciation of their assets? How is the utility of money not best suited for those who created something from nothing versus those who entered into the tent after it was pitched? Aren’t there gradients of personal ambition being demonstrated between the two parties? If so, wouldn’t society be abler if the leaders were able to do more after having created the opportunity in the first place? The generosity emerges out of the availability for lending the capital to strangers in society thanks to the successful investment realization.
  - Eridrus 5y ago
    We're in a thread talking about how equity compensation at startups is generally not sufficient to overcome the pay cut that folks would take from working at a top tier tech company, so even if you come at this from a purely transactional perspective, you may want to be less stingy with equity. You can do whatever you want of course, but I think people should ask themselves if trying to hold onto all the returns is helping them achieve what they actually want.
    - x0x0 5y ago
      > equity compensation at startups is generally not sufficient to overcome the pay cut ... so don't take the job. Everything will naturally sort itself out -- a startup will increase their grants, hire different people, or not hire and fail. :shrug: This thread sure looks like it's full of people who can't get that well paid job at google, are taking jobs at less demanding employers out of necessity, and are mad about it. Otherwise, we're living through one of the absolutely hottest markets for engineering talent we've ever seen, so getting a new job is always an option if you're worth the money. As for founder vs employee risk... certainly at my company, every employee except for the founders walked into a six figure cash comp, fully paid health insurance, and a runway that's never fallen below 12 months.
      - achillesheels 5y ago
        I have to say, I am in agreement. We are not talking about computer illiterates here who cannot find work if their life dependent upon it.
    - achillesheels 5y ago
      You are the one bringing up the utility of money.
jt2190 5y ago
> Years of time and money. Exactly. Additionally, any of that money that you could have saved during those first two years would have had more time (obviously) for interest to compound than any savings you make today [1], so that "lost interest" needs to be factored into the equation as well. [1] https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp
- JoeAltmaier 5y ago
  Everybody involved is taking some fraction of that risk. "No raises until we're profitable", "Here's stock to make up for the lower pay", "Lets cut benefits again to increase our runway" are all tall tales that essentially squeeze cash out of employees with empty promises. When there's no way it will every even make up for the sacrifices of the employees, all those demands are empty noises. Just a way to fool folks in to making the founder rich. And nobody else.
  - jt2190 5y ago
    > Everybody involved is taking some fraction of that risk. I think that by "that risk" you're talking about "the overall increased risk of investing in a new company". I deliberately use the word investing because that's how employees should think about their participation in a startup: They're usually giving up something now... salary, extra work hours... in exchange for some possible upside in the future, often in the form of stock options. To state what you're saying another way: A lot of employees do not correctly assess the risks of the investment they're getting into, for example, of not having direct control over the date when a salary increase will occur, or whether that salary would be in the form or cash or shares. In short, employees often invest themselves into investments (i.e. startups) that bring far more risk than they can personally tolerate. Avoiding startups completely is one solution. Another is to really start thinking like an investor: Personally, I like to consider whether I would be a passive investor in the company (i.e. just write a check)... If not, it's a sign that perhaps the company is not a good addition to my portfolio overall, and I'd be better off taking the cash from another employer and investing in something I do believe in. (Aside: I've seen some pretty good "rent or buy your home" calculators out there, but never a good "work for a startup or an established company" calculator. If anyone can recommend one please reply.) Edit: https://triplebyte.com/startup-equity-value-calculator https://triplebyte.com/startup-equity-value-calculator
deleted 5y ago
[deleted]
hn_throwaway_99 5y ago
I think most unicorns actually have a different experience, though, in that the founders often worked on their own for less than 6 months/a year before they got some funding. I don't have data on this but I would bet a very long lead time before getting funded is actually correlated with a worse likely outcome.
grogenaut 5y ago
It definitely is more risk. However when I evaluate startups I'm comparing them against other jobs. Stable income it may be but the runway is short, and depending on the founders it may or not be well communicated. So it is much less stable than a job in a big company. So to me I want a good multiplier. Many of the payoffs I've seen for startups that did well for early employees put earnings on par with what I've done at a large company without the startup risk. And that's for the ones that do very well which is a low chance. So in the end I personally would get a lot more stress and a lot less income to usually being equal in a great case. So generally it doesn't seem that worth the risk, low control, and probably low payoff. I'd actually be more likely to join a startup in some years when I'm financially at a retirement or FIRE point. But then it's like, working for a founder on their idea, and maybe the pressure to hold out for 5-10 years there for the actual payout. Just my mental space around it.
- fastball 5y ago
  Really depends on the job market though. If the startup goes belly up but you were making good money in the interim and you can quickly find a new job, it's not much risk. A founder who eats in to savings and goes unpaid for two years is on an entirely different level of risk profile. But yes, if your primary concern is job security, in general you should not be working for a startup, regardless of how many points you get.
  - grogenaut 5y ago
    I'm not arguing that it isn't more risky for the founder. I'm saying that the payoff potential that remains esp when you look at the pool of startups, is almost never worth it compared to a job at a bigco, even at the top end. Eg this is me explaining why I wouldn't work at a startup as I shoulder more risk and very very low chance at a payoff better than I could get at a bigco, and worse case you spend 5 more years at the big co and you can be getting into founder level payoffs. At that point why even take a risk if there isn't a reward if you are a strong engineer. The only thing that makes sense to me is to be a founder, or go work a stable high paying job if you're able to. This pay structure greatly limits access to very experienced employees for a startup.
JoeAltmaier 5y ago
Wealthy folks that can afford to start a company for little/no pay are always imagining some kind of moral superiority. I told a startup boss who tried that out on me e.g. "I'm risking my house too!". I said "you mean your 2nd house. I'm risking my first house. And my family's stability." He had nothing to respond to that.
- mattgreenrocks 5y ago
  This is one of the chief reasons why startups have problems finding senior engineers. The risk calculus is simply too different versus a younger person.
deleted 5y ago
[deleted]
hmmokidk 5y ago
It’s a risk you were capable of taking. People without family they can depend on cannot take these risks. If some of us fall we fall into homelessness, for others their parents just bail them out. The people that risk homelessness do not start startups.
khazhoux 5y ago
Let me guess, you're not a Silicon Valley tech company? In S.V., it usually goes like this: * A couple of people have an idea, and quit their job (or didn't have a job), build a quick prototype, pitch it. Maybe they spend a couple of months at a startup summer camp like YCombinator * They raise seed funding or a small first round * ...and then immediately hire Employee #1 at 1% equity, and it's their job to build the first "real" usable version of the product. Employee #2 follows shortly at <1%. The risky investment put in by founders often amounts to: "We had to spend a few months grabbing coffee with potential investors"

Eridrus 5y ago

Stable doesn't really describe early stage startups at all. Just because there is a paycheck doesn't mean there will be one when a big account falls through. But anyway, I would urge founders to think more about the logarithmic utility of money and whether it makes sense to take 30x+ the gains of early employees. In particular, think of the number that make it all worthwhile and ask if you need to capture all the gains above that, or whether you could be more generous if you hit it out of the park, and if there is a way to write that into your contracts.

achillesheels 5y ago
Why should leaders and team builders be more “equitable” than what is transactionally afforded by their diligent appreciation of their assets? How is the utility of money not best suited for those who created something from nothing versus those who entered into the tent after it was pitched? Aren’t there gradients of personal ambition being demonstrated between the two parties? If so, wouldn’t society be abler if the leaders were able to do more after having created the opportunity in the first place? The generosity emerges out of the availability for lending the capital to strangers in society thanks to the successful investment realization.
- Eridrus 5y ago
  We're in a thread talking about how equity compensation at startups is generally not sufficient to overcome the pay cut that folks would take from working at a top tier tech company, so even if you come at this from a purely transactional perspective, you may want to be less stingy with equity. You can do whatever you want of course, but I think people should ask themselves if trying to hold onto all the returns is helping them achieve what they actually want.
  - x0x0 5y ago
    > equity compensation at startups is generally not sufficient to overcome the pay cut ... so don't take the job. Everything will naturally sort itself out -- a startup will increase their grants, hire different people, or not hire and fail. :shrug: This thread sure looks like it's full of people who can't get that well paid job at google, are taking jobs at less demanding employers out of necessity, and are mad about it. Otherwise, we're living through one of the absolutely hottest markets for engineering talent we've ever seen, so getting a new job is always an option if you're worth the money. As for founder vs employee risk... certainly at my company, every employee except for the founders walked into a six figure cash comp, fully paid health insurance, and a runway that's never fallen below 12 months.
    - achillesheels 5y ago
      I have to say, I am in agreement. We are not talking about computer illiterates here who cannot find work if their life dependent upon it.
  - achillesheels 5y ago
    You are the one bringing up the utility of money.

jt2190 5y ago

> Years of time and money. Exactly. Additionally, any of that money that you could have saved during those first two years would have had more time (obviously) for interest to compound than any savings you make today [1], so that "lost interest" needs to be factored into the equation as well. [1] https://www.investopedia.com/terms/t/timevalueofmoney.asp https://www.investopedia.com/terms/t/timevalueofmoney.asp

JoeAltmaier 5y ago
Everybody involved is taking some fraction of that risk. "No raises until we're profitable", "Here's stock to make up for the lower pay", "Lets cut benefits again to increase our runway" are all tall tales that essentially squeeze cash out of employees with empty promises. When there's no way it will every even make up for the sacrifices of the employees, all those demands are empty noises. Just a way to fool folks in to making the founder rich. And nobody else.
- jt2190 5y ago
  > Everybody involved is taking some fraction of that risk. I think that by "that risk" you're talking about "the overall increased risk of investing in a new company". I deliberately use the word investing because that's how employees should think about their participation in a startup: They're usually giving up something now... salary, extra work hours... in exchange for some possible upside in the future, often in the form of stock options. To state what you're saying another way: A lot of employees do not correctly assess the risks of the investment they're getting into, for example, of not having direct control over the date when a salary increase will occur, or whether that salary would be in the form or cash or shares. In short, employees often invest themselves into investments (i.e. startups) that bring far more risk than they can personally tolerate. Avoiding startups completely is one solution. Another is to really start thinking like an investor: Personally, I like to consider whether I would be a passive investor in the company (i.e. just write a check)... If not, it's a sign that perhaps the company is not a good addition to my portfolio overall, and I'd be better off taking the cash from another employer and investing in something I do believe in. (Aside: I've seen some pretty good "rent or buy your home" calculators out there, but never a good "work for a startup or an established company" calculator. If anyone can recommend one please reply.) Edit: https://triplebyte.com/startup-equity-value-calculator https://triplebyte.com/startup-equity-value-calculator

deleted 5y ago

[deleted]

hn_throwaway_99 5y ago

I think most unicorns actually have a different experience, though, in that the founders often worked on their own for less than 6 months/a year before they got some funding. I don't have data on this but I would bet a very long lead time before getting funded is actually correlated with a worse likely outcome.

grogenaut 5y ago

It definitely is more risk. However when I evaluate startups I'm comparing them against other jobs. Stable income it may be but the runway is short, and depending on the founders it may or not be well communicated. So it is much less stable than a job in a big company. So to me I want a good multiplier. Many of the payoffs I've seen for startups that did well for early employees put earnings on par with what I've done at a large company without the startup risk. And that's for the ones that do very well which is a low chance. So in the end I personally would get a lot more stress and a lot less income to usually being equal in a great case. So generally it doesn't seem that worth the risk, low control, and probably low payoff. I'd actually be more likely to join a startup in some years when I'm financially at a retirement or FIRE point. But then it's like, working for a founder on their idea, and maybe the pressure to hold out for 5-10 years there for the actual payout. Just my mental space around it.

fastball 5y ago
Really depends on the job market though. If the startup goes belly up but you were making good money in the interim and you can quickly find a new job, it's not much risk. A founder who eats in to savings and goes unpaid for two years is on an entirely different level of risk profile. But yes, if your primary concern is job security, in general you should not be working for a startup, regardless of how many points you get.
- grogenaut 5y ago
  I'm not arguing that it isn't more risky for the founder. I'm saying that the payoff potential that remains esp when you look at the pool of startups, is almost never worth it compared to a job at a bigco, even at the top end. Eg this is me explaining why I wouldn't work at a startup as I shoulder more risk and very very low chance at a payoff better than I could get at a bigco, and worse case you spend 5 more years at the big co and you can be getting into founder level payoffs. At that point why even take a risk if there isn't a reward if you are a strong engineer. The only thing that makes sense to me is to be a founder, or go work a stable high paying job if you're able to. This pay structure greatly limits access to very experienced employees for a startup.

JoeAltmaier 5y ago

Wealthy folks that can afford to start a company for little/no pay are always imagining some kind of moral superiority. I told a startup boss who tried that out on me e.g. "I'm risking my house too!". I said "you mean your 2nd house. I'm risking my first house. And my family's stability." He had nothing to respond to that.

mattgreenrocks 5y ago
This is one of the chief reasons why startups have problems finding senior engineers. The risk calculus is simply too different versus a younger person.

deleted 5y ago

[deleted]

hmmokidk 5y ago

It’s a risk you were capable of taking. People without family they can depend on cannot take these risks. If some of us fall we fall into homelessness, for others their parents just bail them out. The people that risk homelessness do not start startups.

khazhoux 5y ago

Let me guess, you're not a Silicon Valley tech company? In S.V., it usually goes like this: * A couple of people have an idea, and quit their job (or didn't have a job), build a quick prototype, pitch it. Maybe they spend a couple of months at a startup summer camp like YCombinator * They raise seed funding or a small first round * ...and then immediately hire Employee #1 at 1% equity, and it's their job to build the first "real" usable version of the product. Employee #2 follows shortly at <1%. The risky investment put in by founders often amounts to: "We had to spend a few months grabbing coffee with potential investors"