5 ms·

> The engineers building the future deserve a fair equity share in the value they create; today they don't get one. I understand that this is from 2001, but oh

by mbesto 5y ago

> The engineers building the future deserve a fair equity share in the value they create; today they don't get one. I understand that this is from 2001, but oh boy has this changed drastically. For arguably the first time in history founders of businesses operate controlling interest of their stock on the public market. More billionaires have been minted from tech companies in the last 15 years. Not only have engineers gotten their fair share, their power is now being questioned (see Musk, Zuck, etc.).

loldk 5y ago
What can we do to make sure you don't stop being correct?
JohnJamesRambo 5y ago
It was too low in 2001 and has now swung too far the other way. https://en.wikipedia.org/wiki/Mean_reversion_(finance) https://en.wikipedia.org/wiki/Mean_reversion_(finance) Like most things, the gray area in the middle with checks and balances is probably best.
akshayshah 5y ago
You're right: funding is extremely founder-friendly right now. From my perspective, though, the original article is talking about everyday engineers (the "technical team"). If you're an early, senior engineer at a startup, you might be offered 1% of the company. Over the early years of the company, you're often critical to the success and velocity of product development - usually just as critical as the technical cofounder. After four years, your company is acquired for $1B! Your 1% has been diluted to 0.75%, so you walk away with $7.5M. After long-term capital gains, you pocket a bit more than $6M. Objectively, you're now very wealthy - if you're still relatively young, this is enough money to buy a nice house, fund your retirement, and do some angel investing, even in the most expensive cities in the US. Meanwhile, the technical cofounder walks away from the same story with $200M tax-free. That's dynastic wealth. Does the founder's additional year of work justify this difference? What about the partner from your primary VC, who's likely to personally take home tens of millions despite doing nothing more than investing other people's money and sitting in the occasional meeting? This is the rosiest scenario - the engineer, founder, and VC all earn life-altering amounts of money. Things get much worse if you're a less senior engineer, you're hired after the first large round of funding, or (especially) the company's exit isn't as good. In all those situations, the founder and VC still get a life-altering windfall, while the senior engineer might barely get enough to retroactively bring their salary up to market rate.
- yibg 5y ago
  How would the cofounder's share be tax free?
  - nzmsv 5y ago
    QSBS
    - yibg 5y ago
      Oh I see. Up to 10 million though right?
  - akshayshah 5y ago
    Virtually all founders use an 83b election to pre-pay taxes when the stock is nearly worthless.
- fraserharris 5y ago
  More likely you got options, and they are taxed as income at a liquidity event (acquisition, IPO)... unless you were confident enough in the startup to execute those options & immediately pay the resulting taxes out of pocket. And you have to have that confidence before the valuation is too high & the taxes are unaffordable to absorb.
  - akshayshah 5y ago
    For sure! I tried to paint the rosiest possible scenario for the early engineer.
- robocat 5y ago
  > If you're an early, senior engineer at a startup, you might be offered 1% of the company. The alternative for the senior engineer is to start a clone competitor with 25% ownership. The reason an engineer accepts 1% is because: 1. they would be starting their horse after the race has started, 2. they don’t have the skills to be a CTO or found a team, 3. they don’t want to take the risk. Those 3 things are worth the real money, not just being an engineer. If an engineer wants to own 25% at founding, they need to become a founder rather than bitch about the reality that your employer will pay you as little as possible to acheive what they want. Oh, and mathematically a founder clearly can’t give 25% to more than 4 senior engineers that join subsequently ,and why should they?

by mbesto 5y ago

loldk 5y ago

What can we do to make sure you don't stop being correct?

JohnJamesRambo 5y ago

It was too low in 2001 and has now swung too far the other way. https://en.wikipedia.org/wiki/Mean_reversion_(finance) https://en.wikipedia.org/wiki/Mean_reversion_(finance) Like most things, the gray area in the middle with checks and balances is probably best.

akshayshah 5y ago

You're right: funding is extremely founder-friendly right now. From my perspective, though, the original article is talking about everyday engineers (the "technical team"). If you're an early, senior engineer at a startup, you might be offered 1% of the company. Over the early years of the company, you're often critical to the success and velocity of product development - usually just as critical as the technical cofounder. After four years, your company is acquired for $1B! Your 1% has been diluted to 0.75%, so you walk away with $7.5M. After long-term capital gains, you pocket a bit more than $6M. Objectively, you're now very wealthy - if you're still relatively young, this is enough money to buy a nice house, fund your retirement, and do some angel investing, even in the most expensive cities in the US. Meanwhile, the technical cofounder walks away from the same story with $200M tax-free. That's dynastic wealth. Does the founder's additional year of work justify this difference? What about the partner from your primary VC, who's likely to personally take home tens of millions despite doing nothing more than investing other people's money and sitting in the occasional meeting? This is the rosiest scenario - the engineer, founder, and VC all earn life-altering amounts of money. Things get much worse if you're a less senior engineer, you're hired after the first large round of funding, or (especially) the company's exit isn't as good. In all those situations, the founder and VC still get a life-altering windfall, while the senior engineer might barely get enough to retroactively bring their salary up to market rate.

yibg 5y ago
How would the cofounder's share be tax free?
- nzmsv 5y ago
  QSBS
  - yibg 5y ago
    Oh I see. Up to 10 million though right?
- akshayshah 5y ago
  Virtually all founders use an 83b election to pre-pay taxes when the stock is nearly worthless.
fraserharris 5y ago
More likely you got options, and they are taxed as income at a liquidity event (acquisition, IPO)... unless you were confident enough in the startup to execute those options & immediately pay the resulting taxes out of pocket. And you have to have that confidence before the valuation is too high & the taxes are unaffordable to absorb.
- akshayshah 5y ago
  For sure! I tried to paint the rosiest possible scenario for the early engineer.
robocat 5y ago
> If you're an early, senior engineer at a startup, you might be offered 1% of the company. The alternative for the senior engineer is to start a clone competitor with 25% ownership. The reason an engineer accepts 1% is because: 1. they would be starting their horse after the race has started, 2. they don’t have the skills to be a CTO or found a team, 3. they don’t want to take the risk. Those 3 things are worth the real money, not just being an engineer. If an engineer wants to own 25% at founding, they need to become a founder rather than bitch about the reality that your employer will pay you as little as possible to acheive what they want. Oh, and mathematically a founder clearly can’t give 25% to more than 4 senior engineers that join subsequently ,and why should they?