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No offense, but this is horseshit and the math is embarrassing. The number of people ready to invest $500k, for whom this is "a small part of his capital," is

No offense, but this is horseshit and the math is embarrassing. The number of people ready to invest $500k, for whom this is "a small part of his capital," is about 1/1000th of the number of people who will enjoy working and learning in a small, exciting company, and having more input into the product, regardless of total potential for financial gain. So, the value of $500k in cash from an accredited investor is already worth more than the time investment of the average employee, for whom there are replacements lining up. [Edit] This is to say nothing of the additional value that an investor adds. Even if that were not the case, and this were strictly a math exercise, the investor is putting in $500k NOW. You're putting in $50k spread out over the next 365 days, during which a solid company's valuation may go up by ten fold. Right now, your $50k is worth 1% of the company. But you're not putting in $50k NOW. You're putting in $0 NOW. You're putting in $136 tomorrow, and $136 the next day. Good luck making an early stage investment in an exciting startup for $136. I have never seen early stage stock available on lay away. Ask the secretaries at Microsoft or Google if they got ripped off. This is a joke.

amirmc 15y ago
> "... the average employee, for whom there are replacements lining up" The article is talking about the first employee. If a tech startup is happy to accept 'average' employees at that stage it's probably doing it wrong. Also, if there are really that many people lining up, then why offer equity at all?
- earbitscom 15y ago
  $100k is not the salary of a super star team member. Based on that salary, I assume this person is a solid B+ team member.
  - darklajid 15y ago
    Unqualified like this your statement is wrong. Please, for the sake of the global nature of the internet, state something like "based on the assumption that we're talking about this specific country/region and based on my experience with..." $100.000 seems to be the current salary of the friend in question for that blog post. If you don't know where he's based and what his costs and standard of living are, how can you judge the person as being 'B' level? Also - what the hell is a 'super star team member'? Edit: Just for fun I put the author's name into Google. According to LinkedIn/Twitter he's from Israel. If we assume that the startup was local as well (why not? And why should it be in the most expensive areas of the States?) $100.000 is really good salary. High tech (i.e. programmers) employees are already overpayed here compared to the everyone else and 100.000 USD / 30.000 NIS per month is a good salary even in that field.
    - earbitscom 15y ago
      Sorry, I did jump to conclusions. What I saw was this: Someone who usually makes $100k is being offered $50k and 1% of the company. They were excited. If you're in Kenya and $50k implies you're a C-level executive, then you're not excited and boasting to your friends about 1%. The two figures combined, plus the excitement, implies that the person is being compensated at half a reasonable rate, and being offered a stock % on par with a less than VP (and maybe even Director) role. If it's not, then they're excited about an noncompetitive pay package and the article should have mentioned that as well.
      - darklajid 15y ago
        I read it as - the guy was excited about the company/the job opportunity. This is, at least in my world, first and foremost not connected to the money to be made. 'Yay, I could join a cool startup' - the guy got a safe/decent job (based on the assumption that he's in IL and his salary is _good_) and probably never had any experience with the math behind funding rounds. You are, according to your profile, a startup founder. Therefor I assume - you did the math at least once (maybe before for other startups, how can I tell..) and it's obvious. Now. - you still base your assumptions on experiences that you cannot expect to be given - (tongue in cheek, not completely serious) you might be the guy on the other side of the table (founder), asking for talent to accept a similar/related offer I for one liked the article. My startup experience is rather limited, but I did join as a first employee once, with a big paycut and it didn't work out for me. I think it makes sense to at least remind people that startups are a risk not only for the founders.
        earbitscom 15y ago
        Yes, to be clear, I'm a founder. All of my team whose salaries are in that range have better stock arrangements. I didn't think the point of the argument was whether the comp package was competitive. It was about comparing salary investment to an investor's investment. I just think the argument is flawed. Really, the driving point is that an investor puts in all money up front at the immediate valuation. An employee puts minimal money in daily with the option to leave anytime, while they have day to day knowledge (hopefully) of the health of the company. The author seemed to be arguing that the investment of salary wasn't being valued at what an investor receives. But they ignored all kinds of factors, such as the time over which the salary is "invested", and the fact that the investor may invest time and other resources, while the employee is likely to invest only time. Just having certain investors gets you other investors, gets you press, gets you all kinds of things. Very few employees get you the same things. They get you hard work. It's valuable. But the salary forfeited is just one very small component. Trying to convince employees that they should think of their $50k as the same as a $50k angel investment is leading them astray. [Edit] All of this being said, yes, everyone who takes stock in lieu of pay takes risks. Employees should almost certainly treat options as icing on the cake, and expect nothing from them. Then, be pleasantly surprised if they get a return.
wisty 15y ago
Ask Marla Wood, the "administrative assistant and bookkeeper" of Microsoft, who reputably got screamed at by Bill Gates when she had the gall to file an overtime pay dispute. I don't think she had any options.
- earbitscom 15y ago
  We're comparing the value of an early employee to that of an investor. The article does it by comparing investment dollars and salaries. I tried to keep it in that framework. But since you brought it up, do you know what my investors do when I call them after hours with an emergency? They get to work, tirelessly. They don't file pay disputes. I'm not arguing against employee rights. I'm letting you point out the difference between an early employee who complains about overtime and a good investor. It's about more than money.
danmaz74 15y ago
How many startups end up being the next Microsoft or Google? With this kind of reasoning, buying lottery tickets would be a sound investment: Look at those guys who won 100 millions!
- earbitscom 15y ago
  With the reasoning in the article, "you're probably getting screwed." I guess we both took it to extremes. Either way, the math in this article is pointless. The value of an employee and an investor's contribution should almost always be more than the sum of their financial contributions. In fact, in many cases, those should be the least important. That's all.

amirmc 15y ago

> "... the average employee, for whom there are replacements lining up" The article is talking about the first employee. If a tech startup is happy to accept 'average' employees at that stage it's probably doing it wrong. Also, if there are really that many people lining up, then why offer equity at all?

earbitscom 15y ago
$100k is not the salary of a super star team member. Based on that salary, I assume this person is a solid B+ team member.
- darklajid 15y ago
  Unqualified like this your statement is wrong. Please, for the sake of the global nature of the internet, state something like "based on the assumption that we're talking about this specific country/region and based on my experience with..." $100.000 seems to be the current salary of the friend in question for that blog post. If you don't know where he's based and what his costs and standard of living are, how can you judge the person as being 'B' level? Also - what the hell is a 'super star team member'? Edit: Just for fun I put the author's name into Google. According to LinkedIn/Twitter he's from Israel. If we assume that the startup was local as well (why not? And why should it be in the most expensive areas of the States?) $100.000 is really good salary. High tech (i.e. programmers) employees are already overpayed here compared to the everyone else and 100.000 USD / 30.000 NIS per month is a good salary even in that field.
  - earbitscom 15y ago
    Sorry, I did jump to conclusions. What I saw was this: Someone who usually makes $100k is being offered $50k and 1% of the company. They were excited. If you're in Kenya and $50k implies you're a C-level executive, then you're not excited and boasting to your friends about 1%. The two figures combined, plus the excitement, implies that the person is being compensated at half a reasonable rate, and being offered a stock % on par with a less than VP (and maybe even Director) role. If it's not, then they're excited about an noncompetitive pay package and the article should have mentioned that as well.
    - darklajid 15y ago
      I read it as - the guy was excited about the company/the job opportunity. This is, at least in my world, first and foremost not connected to the money to be made. 'Yay, I could join a cool startup' - the guy got a safe/decent job (based on the assumption that he's in IL and his salary is _good_) and probably never had any experience with the math behind funding rounds. You are, according to your profile, a startup founder. Therefor I assume - you did the math at least once (maybe before for other startups, how can I tell..) and it's obvious. Now. - you still base your assumptions on experiences that you cannot expect to be given - (tongue in cheek, not completely serious) you might be the guy on the other side of the table (founder), asking for talent to accept a similar/related offer I for one liked the article. My startup experience is rather limited, but I did join as a first employee once, with a big paycut and it didn't work out for me. I think it makes sense to at least remind people that startups are a risk not only for the founders.
      - earbitscom 15y ago
        Yes, to be clear, I'm a founder. All of my team whose salaries are in that range have better stock arrangements. I didn't think the point of the argument was whether the comp package was competitive. It was about comparing salary investment to an investor's investment. I just think the argument is flawed. Really, the driving point is that an investor puts in all money up front at the immediate valuation. An employee puts minimal money in daily with the option to leave anytime, while they have day to day knowledge (hopefully) of the health of the company. The author seemed to be arguing that the investment of salary wasn't being valued at what an investor receives. But they ignored all kinds of factors, such as the time over which the salary is "invested", and the fact that the investor may invest time and other resources, while the employee is likely to invest only time. Just having certain investors gets you other investors, gets you press, gets you all kinds of things. Very few employees get you the same things. They get you hard work. It's valuable. But the salary forfeited is just one very small component. Trying to convince employees that they should think of their $50k as the same as a $50k angel investment is leading them astray. [Edit] All of this being said, yes, everyone who takes stock in lieu of pay takes risks. Employees should almost certainly treat options as icing on the cake, and expect nothing from them. Then, be pleasantly surprised if they get a return.

wisty 15y ago

Ask Marla Wood, the "administrative assistant and bookkeeper" of Microsoft, who reputably got screamed at by Bill Gates when she had the gall to file an overtime pay dispute. I don't think she had any options.

earbitscom 15y ago
We're comparing the value of an early employee to that of an investor. The article does it by comparing investment dollars and salaries. I tried to keep it in that framework. But since you brought it up, do you know what my investors do when I call them after hours with an emergency? They get to work, tirelessly. They don't file pay disputes. I'm not arguing against employee rights. I'm letting you point out the difference between an early employee who complains about overtime and a good investor. It's about more than money.

danmaz74 15y ago

How many startups end up being the next Microsoft or Google? With this kind of reasoning, buying lottery tickets would be a sound investment: Look at those guys who won 100 millions!

earbitscom 15y ago
With the reasoning in the article, "you're probably getting screwed." I guess we both took it to extremes. Either way, the math in this article is pointless. The value of an employee and an investor's contribution should almost always be more than the sum of their financial contributions. In fact, in many cases, those should be the least important. That's all.