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You're right: funding is extremely founder-friendly right now. From my perspective, though, the original article is talking about everyday engineers (the "tech

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?
- epicureanideal 5y ago
  > The reason an engineer accepts 1% is because ... In the case of most people I've spoken to, the reason they don't start companies is they don't have the savings to work on it for 6-12 months, and gamble on getting accepted into YC or another angel/accelerator. They don't have a safety net to fall back on if that fails. > they don’t want to take the risk As many many articles have discussed, this is more about having personal financial security than any difference in personality or character.
  - robocat 5y ago
    > they don't have the savings to work on it for 6-12 months A founder* is a hacker that never uses excuses. Virtually any single person in the US can find a way to work for a year with low expenses, if they accept compromises. Appropriately enough for this thread, perhaps even by offering a very small percentage of equity to a friend to board. Edit: How many founders have divorces, neglected children and ignored parents? How many founders avoid a relationship? Not a requirement to neglect family, since a successful founder is likely to be skilled at finding good compromises in business, and likely to use the same skill making reasonable compromises with their family life. * think foresight combined with bricolage, jugaad, engineering compromise, ‘rubber band, bailing wire and bubblegum’ solutions. https://news.ycombinator.com/item?id=29164495 https://news.ycombinator.com/item?id=29164495
e1g 5y ago
You can continue that line of reasoning: there is surely an equally competent and hard working engineer in some large company, or Europe, that for the same 4 years got $0 extra on top of inflationary increases. You got $6M - how much should you redistribute among those competent developers to make it fair? Maybe you took some risks, maybe you didn’t. Maybe the founders took more, maybe they didn’t. But at some level, if neither engineer showed up for work, the world would be largely the same. If the founders didn’t act as prime movers at a critical inflection point, there would’ve been one fewer IPO and a lot less value creation for everyone to try to split up.
m_ke 5y ago
It's worse than that, the VC gets millions in management fees and a 20-30% carry on a diversified portfolio so they take on no risk. There's literally no downside for them and they push companies to take on a ton of risk because they're looking for 1% of their investments to return the whole fund, which makes no sense for an employee who only has a tiny fraction of shares in one of the companies.
laurent92 5y ago
You forgot that the engineer got paid from day 0, plus 1% equity. While the cofounder got the idea, filtered it among all bad ideas, pitched and mounted it, and was on 100% risk. I have the same discussion with my employees, they want 100k$ per year from day one with guarantees of permanent employment, then they want equity.

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?

epicureanideal 5y ago
> The reason an engineer accepts 1% is because ... In the case of most people I've spoken to, the reason they don't start companies is they don't have the savings to work on it for 6-12 months, and gamble on getting accepted into YC or another angel/accelerator. They don't have a safety net to fall back on if that fails. > they don’t want to take the risk As many many articles have discussed, this is more about having personal financial security than any difference in personality or character.
- robocat 5y ago
  > they don't have the savings to work on it for 6-12 months A founder* is a hacker that never uses excuses. Virtually any single person in the US can find a way to work for a year with low expenses, if they accept compromises. Appropriately enough for this thread, perhaps even by offering a very small percentage of equity to a friend to board. Edit: How many founders have divorces, neglected children and ignored parents? How many founders avoid a relationship? Not a requirement to neglect family, since a successful founder is likely to be skilled at finding good compromises in business, and likely to use the same skill making reasonable compromises with their family life. * think foresight combined with bricolage, jugaad, engineering compromise, ‘rubber band, bailing wire and bubblegum’ solutions. https://news.ycombinator.com/item?id=29164495 https://news.ycombinator.com/item?id=29164495

e1g 5y ago

You can continue that line of reasoning: there is surely an equally competent and hard working engineer in some large company, or Europe, that for the same 4 years got $0 extra on top of inflationary increases. You got $6M - how much should you redistribute among those competent developers to make it fair? Maybe you took some risks, maybe you didn’t. Maybe the founders took more, maybe they didn’t. But at some level, if neither engineer showed up for work, the world would be largely the same. If the founders didn’t act as prime movers at a critical inflection point, there would’ve been one fewer IPO and a lot less value creation for everyone to try to split up.

m_ke 5y ago

It's worse than that, the VC gets millions in management fees and a 20-30% carry on a diversified portfolio so they take on no risk. There's literally no downside for them and they push companies to take on a ton of risk because they're looking for 1% of their investments to return the whole fund, which makes no sense for an employee who only has a tiny fraction of shares in one of the companies.

laurent92 5y ago

You forgot that the engineer got paid from day 0, plus 1% equity. While the cofounder got the idea, filtered it among all bad ideas, pitched and mounted it, and was on 100% risk. I have the same discussion with my employees, they want 100k$ per year from day one with guarantees of permanent employment, then they want equity.