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Also it's impossible for me to tell whether my below market base salary startup offer from a seed/series A startup is at market or not. Especially the equity bi

Also it's impossible for me to tell whether my below market base salary startup offer from a seed/series A startup is at market or not. Especially the equity bit, is 1% equity enough for the second employee(and engineer)? Especially when I am taking a 50% cut on base salary in addition to losing some very real liquid stocks.

vinay_ys 5y ago
If you are the second employee (first engineer) at a tech startup with a solo founder company, most likely you can get more than this. Nobody will give you more than what they have to unless you educate yourself and negotiate on your own behalf. You are taking the same risks as the founder and you being there is directly helping the founder raise funds and hire other engineers. Don't under-value yourself. Your previous total comp was base + public/liquid stocks. You should compute the growth in valuation of those liquid stocks (if it was similar to FAANG stocks, its growth would have been 50%+) plus the return on investment of your savings. Add that to your total comp. For your startup comp to beat this total comp, given your 1% stocks, compute backwards the valuation your startup has to achieve. Does it look feasible or too crazy? How long will it take? Do market research to understand how much revenue and profits a public company in similar sector does to achieve that valuation and how much capital investment and tech innovation is needed to get to that. Ask questions to your founder boss, meet their investors to understand their thinking. Very important to consider what happens if you quit before it got there. If you have to pay to exercise options, or your options get bought back by the founder at a discounted valuation etc. (some startups have started doing "stock appreciation rights" which are somewhat unfair) understand those for what they really are and factor that into your calculation. Understand how cap tables, dilutions, liquidation etc works and factor the risks into your calculation. Finally, remember that founders get fired/replaced; your direct boss is going to be someone else very shortly (especially if the company grows fast) etc. so don't go by verbal promises. If you are looking to make millions, invest time and energy to understand and negotiate your employment contracts properly.
- break_the_bank 5y ago
  In this particular scenario I'd be the second employee, not counting the two founders as employees. I did similar math as you said and I didn't find the numbers fair. I figured how much would I be losing per year at the current valuation and my pay cut seemed more than what the investors got for the last round. I wish there was more public information about startup salaries at various stages of employment, while the company is still a tiny company. Finding information about FANG salaries is so easy but startup salaries is tough.
  - qqqwerty 5y ago
    Yeah, something to consider is that FAANG salaries are an outlier. There is a bimodal distribution in tech salaries. Outside of tier 1 unicorns, no one comes close to FAANG salary. So when evaluating your options, using FAANG salaries as a comparison might not be the most fair benchmark. For example if you work in biotech, even as a programmer, you are probably looking at a salary about half of what a FAANG will pay. This holds true for a lot of other industries. In general, I agree though. Early employees should either be compensated better or given more equity. In many cases, they have a more direct influence on the product than the founders, because the founders are focused on fundraising, sales, and hiring. And they also can have an outsized impact on company culture. If it was up to me, the first few hires would be getting 2-5% depending on experience, and I would even consider giving them a title of co-founder.
    - novok 5y ago
      But negotiations are based on BATNA, and most of the better engineers you actually want to hire can also get hired at FANG. So even if 'FANG is an outlier', it doesn't matter because they set the standard. You have to be willing to do things that FANG is not, like real remote, employees that cannot immigrate (ex: no degree in developing nation) or no leet coding.
- robomartin 5y ago
  > You are taking the same risks as the founder Not even close. You can quit and go get another job any second of any day with zero consequences. You have zero financial responsibility or obligations to the investors. You have zero responsibilities and obligations to clients/customers. You have zero obligations to financial institutions (banks, loans). You have zero or little reputation on the line in the industry being addressed. In fact, in most cases competitors will gladly hire you because you have valuable industry-specific experience and training. I could go on. I see a bunch of comments on this thread painting founders as greedy bastards. All I can say is: I hope you can one day wear those shoes and actually understand reality. That said, yes, there’s a startup culture that works people to death and often offers dubious outcomes. I really don’t like that at all. In technology some things are very hard. If you don’t work hard it is often impossible to achieve anything of note. I don’t have a problem with that. I am no stranger to 18 hour days, 7 days a week. I get it. A company can’t operate like that forever. If it does, there’s something wrong with it. As a founder my standard mode of operation is simple: If I am awake, I am working. There’s no way I will demand or request such a thing from anyone else. I am the one whose all-in, not those who work for me. NOTE: Don’t work for less than you are worth. Option are neat, they could be worth zero or a few million. More often than not they are worth zero. Get fair pay for your work. Assume options are worthless.
mcguire 5y ago
Back of the envelope: IIRC, the article indicates that there is a 1% chance of $1B. 1% chance of 1% of $1B is worth $100,000; if $100K is greater than what you're giving up then it is worth it. Two confounding factors: time and partial payouts. What if it takes 20 years to pay out? How does the range of possible payouts and probabilities change the valuation? That's where you establish your margin of safety and start making conservative assumptions.
- break_the_bank 5y ago
  Also that 1% would keep on diluting before the money would actually become liquid. I figured that the 1% would be 0.35% if the company had IPO'd in say 8 years. At a 1B valuation, I'd net 3Million before taxes, while the company would have gone from 6M to $1B in valuation. This didn't seem fair and I said no to this offer. I'd have no financial regrets at the $1B valuation, but I'd if they make it to $10B/$100B.
jiveturkey 5y ago
that’s up to you to decide isn’t it? what i mean is, there’s no correct answer. 1% is a baseline (minimum) offer. many think it’s fair. at this early stage there is high variance. i think 3-5% is fair. this early you are an absolutely critical hire. I personally don’t want to work for a founder that’s stingy and going for bare minimum. otoh first second third employee jobs don’t come along every day. turn in down and you may never see an offer this early, ever again.

vinay_ys 5y ago

If you are the second employee (first engineer) at a tech startup with a solo founder company, most likely you can get more than this. Nobody will give you more than what they have to unless you educate yourself and negotiate on your own behalf. You are taking the same risks as the founder and you being there is directly helping the founder raise funds and hire other engineers. Don't under-value yourself. Your previous total comp was base + public/liquid stocks. You should compute the growth in valuation of those liquid stocks (if it was similar to FAANG stocks, its growth would have been 50%+) plus the return on investment of your savings. Add that to your total comp. For your startup comp to beat this total comp, given your 1% stocks, compute backwards the valuation your startup has to achieve. Does it look feasible or too crazy? How long will it take? Do market research to understand how much revenue and profits a public company in similar sector does to achieve that valuation and how much capital investment and tech innovation is needed to get to that. Ask questions to your founder boss, meet their investors to understand their thinking. Very important to consider what happens if you quit before it got there. If you have to pay to exercise options, or your options get bought back by the founder at a discounted valuation etc. (some startups have started doing "stock appreciation rights" which are somewhat unfair) understand those for what they really are and factor that into your calculation. Understand how cap tables, dilutions, liquidation etc works and factor the risks into your calculation. Finally, remember that founders get fired/replaced; your direct boss is going to be someone else very shortly (especially if the company grows fast) etc. so don't go by verbal promises. If you are looking to make millions, invest time and energy to understand and negotiate your employment contracts properly.

break_the_bank 5y ago
In this particular scenario I'd be the second employee, not counting the two founders as employees. I did similar math as you said and I didn't find the numbers fair. I figured how much would I be losing per year at the current valuation and my pay cut seemed more than what the investors got for the last round. I wish there was more public information about startup salaries at various stages of employment, while the company is still a tiny company. Finding information about FANG salaries is so easy but startup salaries is tough.
- qqqwerty 5y ago
  Yeah, something to consider is that FAANG salaries are an outlier. There is a bimodal distribution in tech salaries. Outside of tier 1 unicorns, no one comes close to FAANG salary. So when evaluating your options, using FAANG salaries as a comparison might not be the most fair benchmark. For example if you work in biotech, even as a programmer, you are probably looking at a salary about half of what a FAANG will pay. This holds true for a lot of other industries. In general, I agree though. Early employees should either be compensated better or given more equity. In many cases, they have a more direct influence on the product than the founders, because the founders are focused on fundraising, sales, and hiring. And they also can have an outsized impact on company culture. If it was up to me, the first few hires would be getting 2-5% depending on experience, and I would even consider giving them a title of co-founder.
  - novok 5y ago
    But negotiations are based on BATNA, and most of the better engineers you actually want to hire can also get hired at FANG. So even if 'FANG is an outlier', it doesn't matter because they set the standard. You have to be willing to do things that FANG is not, like real remote, employees that cannot immigrate (ex: no degree in developing nation) or no leet coding.
robomartin 5y ago
> You are taking the same risks as the founder Not even close. You can quit and go get another job any second of any day with zero consequences. You have zero financial responsibility or obligations to the investors. You have zero responsibilities and obligations to clients/customers. You have zero obligations to financial institutions (banks, loans). You have zero or little reputation on the line in the industry being addressed. In fact, in most cases competitors will gladly hire you because you have valuable industry-specific experience and training. I could go on. I see a bunch of comments on this thread painting founders as greedy bastards. All I can say is: I hope you can one day wear those shoes and actually understand reality. That said, yes, there’s a startup culture that works people to death and often offers dubious outcomes. I really don’t like that at all. In technology some things are very hard. If you don’t work hard it is often impossible to achieve anything of note. I don’t have a problem with that. I am no stranger to 18 hour days, 7 days a week. I get it. A company can’t operate like that forever. If it does, there’s something wrong with it. As a founder my standard mode of operation is simple: If I am awake, I am working. There’s no way I will demand or request such a thing from anyone else. I am the one whose all-in, not those who work for me. NOTE: Don’t work for less than you are worth. Option are neat, they could be worth zero or a few million. More often than not they are worth zero. Get fair pay for your work. Assume options are worthless.

mcguire 5y ago

Back of the envelope: IIRC, the article indicates that there is a 1% chance of $1B. 1% chance of 1% of $1B is worth $100,000; if $100K is greater than what you're giving up then it is worth it. Two confounding factors: time and partial payouts. What if it takes 20 years to pay out? How does the range of possible payouts and probabilities change the valuation? That's where you establish your margin of safety and start making conservative assumptions.

break_the_bank 5y ago
Also that 1% would keep on diluting before the money would actually become liquid. I figured that the 1% would be 0.35% if the company had IPO'd in say 8 years. At a 1B valuation, I'd net 3Million before taxes, while the company would have gone from 6M to $1B in valuation. This didn't seem fair and I said no to this offer. I'd have no financial regrets at the $1B valuation, but I'd if they make it to $10B/$100B.

jiveturkey 5y ago

that’s up to you to decide isn’t it? what i mean is, there’s no correct answer. 1% is a baseline (minimum) offer. many think it’s fair. at this early stage there is high variance. i think 3-5% is fair. this early you are an absolutely critical hire. I personally don’t want to work for a founder that’s stingy and going for bare minimum. otoh first second third employee jobs don’t come along every day. turn in down and you may never see an offer this early, ever again.